Running payroll in Asia-Pacific (APAC)

In the last few years, the Asia-Pacific region has turned into a popular destination for international business expansion. The reasons for APAC’s growing popularity among global businesses are numerous: Economic growth rates across the region continue on a high level, the local business environment is very dynamic and Asia is home to some of the world’s prime business and tech hubs. 

Unfortunately, expanding your business in this high-growth region also comes with a unique set of challenges and complexities, one of them being the region’s diversity. As a direct consequence of the area’s vast dimensions, business leaders and decision-makers from the US and Europe will find themselves facing a multitude of different systems, rules and regulations, especially when it comes to payroll. Combined with cultural differences, the variety of payroll requirements in the region is one of the main factors why APAC is considered to be more challenging for payroll than other regions of the world. 

But as always, awareness is the first step towards finding a workable solution. Therefore, we have compiled a detailed overview about what to expect when setting up payroll in Asia and the Pacific. After providing some general insights into what makes payroll processing in APAC so challenging for international organizations and what payroll trends can be observed in the region, we will highlight some unique payroll requirements for some of the region’s top business destinations. 

Just a little note on terminology before we dive right into payroll in APAC: Depending on the source, you will come across different geographic definitions of the APAC region. For the purpose of this article, we will also consider Australia and New Zealand to provide information coverage on Oceania, East Asia, South Asia, and Southeast Asia.

Yes, APAC is a diverse region but setting up payroll in new markets is always a challenge - given that every country has its own payroll regulations companies need to comply with in order to avoid fines. So let’s look at some of the features that make payroll processing in the Asia-Pacific region especially difficult for global HR and payroll teams.

Multiple time zones

The first challenge global businesses need to consider when setting up payroll in APAC is the region’s size and geographic location which has a massive impact on communication and collaboration processes. The reason for this is simple: Spanning over two different continents, the Asia-Pacific region covers a total of 11 time zones. 

Not only does this have severe implications for consolidating payroll processes for several APAC countries, but it also makes communication difficult for international organizations with headquarters in North America or Europe who are looking to expand to Asia and the Pacific. Imagine your global payroll manager is based in New York and needs to speak to your local payroll provider in Tokyo. With a 13-hour time difference, scheduling a meeting is tricky.

Regional disparities within countries

A quick glance at a map of the APAC countries shows that most of them cover vast areas - at least compared to Europe. While their mere size may not have a direct impact on payroll processing, the way these country-giants are organized does. One payroll-related difficulty found in many countries in the Asia-Pacific region is their complex legislative landscape which results from the fact that they are subdivided into many different regions and provinces. Complying with payroll regulations in a different country is already challenging enough without having to think about regional variations. 

For example, multinational organizations wishing to hire employees in India will find themselves confronted with varying rules and regulations from no less than 29 states. In such a complex legislative environment, the different cultural festivities and public holidays in each region are definitely the least of your problems. Another good example of how regional disparities can make payroll processing in APAC more complicated is China where social security contributions for both employers and employees are location-dependent.

Multitude of languages, religions and cultures

Given the large number of countries covered by the extensions of the Asia-Pacific region, it’s not hard to imagine that the region is home to a variety of languages, cultures and religions. There are 14 (major) languages and although English is an official language in several countries such as Australia, India, Hong Kong and Singapore, global businesses cannot necessarily expect high English-proficiency levels in other parts of the region - which may have severe repercussions on payroll-related communication. Another factor which shouldn’t be neglected are the cultural expectations and implications on payroll.

Rapidly changing business environment and frequent changes in legislation

While the fast growth which is attributed to emerging economies and the dynamics of the business environment in APAC are two of the main points of attraction for international organizations, they can also have a negative impact with regard to payroll. Ensuring payroll compliance is always challenging, but even more so when rules and regulations seem to be changing constantly. Keeping track of regulatory changes is an additional burden on payroll teams operating in the Asia-Pacific region, especially as non-compliance fines can be quite hefty.

Currencies and payments

Getting remote employees in foreign countries paid requires more time, thought and effort than issuing payments to your domestic workforce. One of the reasons for this is that the APAC-based members of your global team have to be paid in their local currency. This means managing exchange rates, dealing with high commission fees, getting salary conversion right and allowing additional time for payments to go through. Restrictions on foreign currencies add additional hurdles to the process.

Companies using Lano to manage and pay their globally distributed teams have access to the Lano Wallet, a digital wallet which allows you to issue free local payments in over 50 currencies to freelancers and employees all over the world.

Different standards in technological advancement

At first sight, diversity might seem like a good thing, but with regard to technology, different standards can quickly turn into a real problem. Especially when it comes to global payroll. Payroll consolidation in APAC continues to be a challenge for businesses with payroll operations in multiple countries. Apart from country-specific rules and regulations, the main reason for this is that payroll professionals struggle to roll out one single technological solution across different geographies. While some areas in APAC are well-connected, technology is still unreliable in some of Asia’s emerging economies.

Payroll complexity in Asia-Pacific

Despite there being numerous different payroll systems to handle - on country-level as well as on the regional level - the overall payroll complexity in APAC is lower than in other regions such as Europe or North America. According to the 2021 Global Payroll Complexity Index, the complexity of payroll regulations decreased in almost all APAC states during the last two years - except for Australia and Thailand - and only three of the world’s 15 most complex countries to run payroll are located in Asia and the Pacific - compared to eight in Europe.

The 2020 Deloitte Global Payroll Benchmarking Survey revealed some major trends and differences among the different regions of the world, including APAC, North America and EMEA. Here are some of the key findings for Asia-Pacific:

• The payroll cost per employee when using managed services in APAC is USD 146 compared to USD 483 in EMEA.

• 82% of respondents said that they were running payroll in APAC on a monthly basis.

• 92% of employees receive online payslips.

• Other payroll-related employee self-service functions offered in the Asia-Pacific region include updating personal data (82%), entering working hours (76%), requesting time off (76%), modifying bank details (68%) and viewing annual tax documents (65%).

• When asked in which geographies they outsourced payroll processing, 78% of respondents indicated the use of external payroll services in the APAC region.

The Global Payroll Complexity Index also classified Asia and the Pacific as a region prone for payroll outsourcing, partly due to sensitive cultural aspects and complex security regulations. Another payroll-related trend observed in the APAC region is the growing importance of digital currencies. Experts further predict a significant growth in the use of alternative payment methods in years to come.

After this general overview of payroll requirements and trends which are unique to the APAC region, we will now look at some of the region’s top countries for international expansion. In addition to Singapore, India, China and Australia, we will also highlight some distinct payroll features for New Zealand, the Philippines, Japan and Malaysia.

Australia

• Employees need to be paid either once or twice per month

• Employer’s share of social security contributions is around 15.85%, including payroll tax - rates for the latter vary between regions

• Progressive income tax rates from 0% to 45%

• Several registrations are required when setting up payroll in Australia, including registration for payroll tax, PAYG (Pay As You Go) and workers compensation insurance

• Payslips need to be issued no later than on the day following payday - either in electronic form or as hard copy

• Tax year is different from calendar year and runs from July 1 to June 3

China

• Regional (and municipal) variation with regard to social security rates, filing deadlines and regulations regarding the payroll process which means that payroll might have to be processed separately in each region

• Income tax needs to be withheld from employee salary and reported once a month

• Registration required with both state and local tax authorities

• Employer contribution to the national housing fund in addition to social security

• Progressive income tax rates from 3% to 45%

• Employee payment is possible in various ways: cash, cheque, money order or electronic funds transfer

• Employees need to be paid at least once per month

• Employer’s share of social security contributions is around 40% - different rates apply across the different province

India

• Regional variation with regard to filing deadlines, payroll regulations and leave requirements

• Tax year is different from calendar year and runs from April 1 to March 31

• Tax and social security payments must be made via a local bank account

• Progressive income tax rates from 0% to 30%

• Employer’s share of social security contributions is 16.75%

• Employees need to be paid at least once per month

• Income tax needs to be reported on a quarterly basis

Japan

• Income tax needs to be withheld and reported once a month (usually by the 10th of the month following the payment)

• Progressive income tax rates from 5% to 45% - plus 2.1% surtax

• Several registrations are required when hiring a new employee, including with the Labor Standards Inspection Office, Public Employment Security Office, Pension office and Japan Health Insurance Association

• Employees need to be paid at least once per month

• Certificate of annual income and withholding taxes must be filed until January 31

• Tax and social security payments must be made via a local bank account

• Employer’s share of social security contributions ranges from 14.935% to 23.485%

Malaysia

• Several registrations are required when setting up payroll in Malaysia, including with the Employees Provident Fund (EPF), the Social Security Organisation (SOCSO) and the Malaysian Inland Revenue Board (MIRB)

• Income tax needs to be withheld and reported once a month (usually by the 15th of the month following the payment)

• Progressive income tax rates from 1% to 30%

• Employer’s share of social security contributions range from 6.25% to 15.95%, depending on employee age

• Employees need to be paid at least once per month - no later than 7 days after the month has ended

• Employee payment is possible in various ways: cash, cheque, money order or electronic funds transfer

New Zealand

• Progressive income tax rates from 10.5% to 39%

• Employer’s share of social security contributions is 3% to 4%

• Tax year is different from calendar year and runs from April 1 to March 31

• Employees need to be paid either once or twice per month

• Several registrations are required when setting up payroll in New Zealand, including registration for PAYE (Pay As You Earn) with the Inland Revenue Department (IRD) and ACC levies (workers compensation insurance)

• Income tax needs to be withheld and reported once a month (usually by the 20th of the month following the payment)

• Employee payment is possible in various ways: cash, cheque, money order or electronic funds transfer

Philippines

• Employees need to be paid every two weeks or bimonthly - in no case should there be more 16 days between two following payments

• Progressive income tax rates from 0% to 35%

• Employer’s share of social security contributions is around 12%

• Several registrations are required when setting up payroll in the Philippines, including registration with the Bureau of Internal Revenue (BIR) and other government agencies

• Income tax needs to be withheld and reported once a month

• Tax and social security payments as well as payments to employees must be made via a local bank account

Singapore

• Employees need to be paid at least once per month - no later than the 7th day following the end of the pay period

• Progressive income tax rates from 0% to 22%

• Employer’s share of social security contributions is 7.5% to 17%, depending on employee age

• Several registrations are required when setting up payroll in Singapore, including registration of e-Services Authorization System (EASY), Auto Inclusion Scheme (AIS) for employment income and Central Provident Fund (CPF)

• Employee’s immigration status directly impacts payroll processing

• Payslips need to be issued no later than 3 days after payments to employees are issued - either in electronic form or as hard copy

• Employee payment is possible in various ways: cash, cheque, money order or electronic funds transfer

As we have seen in the first part of this blog post, running payroll in APAC can be pretty complex and challenging. Therefore, it’s little surprising that many multinational organizations decide to outsource payroll to local payroll experts in this highly diverse region. 

Not sure where and how to find the right payroll provider for your APAC venture? With Lano, you get access to a network of top tier local payroll partners in over 130 countries, including in many of the top locations in the Asia-Pacific region. Trust the local experts to speedily set up and compliantly process your payroll in each new market.

What’s more, you can easily consolidate payroll for your entire global team by integrating all your new and existing providers with the Lano platform. That’s payroll data for the whole team on one single screen. Get in touch with us today to find out more about how Lano can help you simplify your global payroll.