What are the main global payroll challenges?

Global payroll is challenging. There’s no other way of putting it. Compliance, standardization, automation, reporting… The challenges of running a multi-country payroll are numerous. So numerous and versatile that even experienced HR and payroll teams struggle when it comes to managing international payroll operations. 

But what are the different global payroll challenges businesses face when operating in multiple geographies? And more importantly: How can they be overcome? 

According to the Global Payroll Management Institute (GPMI), the number one global payroll challenge faced by companies is global payroll compliance. Every country has its own deadlines for filing reports and paying taxes, which makes it hard to ensure everything is submitted on time.

Plus, payroll taxes and their respective rates vary between jurisdictions, and so do the rules for tax deductions and benefits administration. Another important compliance aspect to consider is employee misclassification.

Payroll compliance is always a challenging task for organizations, but with a global payroll, the complexity level rises with each additional geography. Businesses can minimize compliance risks by getting advice from local experts or by outsourcing payroll completely to an external service provider.

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Choosing the right payroll service provider can in itself be a global payroll challenge. There are loads and loads of payroll professionals out there that offer their services in one or even several countries. Comparing their service features and pricing to make sure they meet all the necessary requirements is a very time-consuming and daunting task.

To avoid wasting time comparing numerous providers, organizations can look into global payroll solutions that work with a network of pre-vetted payroll partners. 

In the 2021 “Getting the world paid” survey, the GPMI found that 43 percent of companies with global operations work with between two and five payroll partners. Another 19 percent even have to manage between six and ten providers. Working with multiple payroll vendors means having to deal with various different processes and systems, which is complicated and inefficient.

That’s why payroll integration is an important aspect when choosing a global payroll solution. Global payroll platforms allow for integration with the payroll systems used by the different providers so that businesses can have access to payroll data and insights from multiple systems through one centralized platform.

Data coming from different payroll vendors isn’t standardized, which makes it hard to track global payroll costs and compare different geographies. Yet data transparency and detailed insights into global workforce costs are crucial for strategic decision-making. 

To solve this global payroll challenge, businesses should invest in a payroll solution that standardizes and consolidates all their global payroll data into a centralized system. Additional global payroll reporting capabilities offer even more insights into data.

The 2020 Deloitte Global Payroll Benchmarking Survey showed that 30 percent of organizations identified manual data entrance as the most time-consuming aspect of payroll processing. The problem increases as soon as data from different payroll providers needs to be entered manually into the central HCM and accounting systems. 

Not only does this mean wasting valuable time on dull administrative tasks, but it also creates more room for errors. This global payroll challenge can also be solved through payroll consolidation via a centralized platform.

Employee payroll data is very sensitive, hence the need for strong data protection. Running a global payroll means having to comply with different data security laws. What’s more, the various different data streams to and from the business’s central system can quickly become a real security risk if not managed properly. 

A good payroll service provider will offer high data protection standards with regard to their internal systems and guarantee compliance with major data protection regulations like GDPR. Data security during transfers between systems can meanwhile be ensured through the use of a global payroll platform that integrates with the different vendor systems and uses encrypted data transfers.

Another global payroll challenge identified by the GPMI survey is paying employees in different currencies. Businesses have to make sure that the right amount of money is available in foreign currency to pay their global team and allow for additional time for the payments to go through. Plus, transaction and conversion fees can be high.

In many cases, businesses can solve this issue by having their local payroll partner manage employee payments. In some countries, however, there’s a legal requirement for salary payments to be made by the employer through a local bank account. 

In such cases, organizations can hire their local staff through an Employer of Record (EOR). As the employee’s legal employer, the EOR will take over all HR responsibilities, including handling payroll and paying the employee’s salary.

Going global always comes with cultural differences, language struggles and time zone issues, and global payroll is no exception to that. Reporting and tax filing needs to be done in the local language, and organizations must understand local cultural practices linked to employee benefits. Payroll-related communication is also more complicated and slower across different time zones.

Working closely with in-country payroll partners reduces the risk of not complying with local payroll practices, since they can offer advice on cultural differences and common practices with regard to payroll and compensation. Having an in-country payroll partner also is a big advantage with regard to communicating with local authorities. Time zone issues can be solved through asynchronous communication.

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Measuring global payroll performance is a challenge of its own. The usual payroll KPIs (accuracy, timeliness, and payroll cost) still apply, but there is an ongoing discussion about whether global payroll performance should rather be measured by other factors such as employee experience or the level of payroll automation and integration. 

A good payroll provider should ensure that payroll KPIs such as accuracy and timeliness are met on an ongoing basis. By combining in-country payroll partners with a global payroll platform, businesses can meet additional requirements that are specific to global payroll, such as a high level of integration and easy access for employees to their personal payroll data.

Many companies first work with local freelancers or contractors before they fully commit to a new market and hire full-time employees. This means that they don’t just have full-time staff around the globe, but there also is a team of international freelancers that needs to get paid for their services. 

Depending on the number of freelancers and contractors and the amount of work they do, the expenses can quickly add up. Businesses therefore not only need to track their direct payroll costs, but also keep an eye on what they pay their external workers. 

For organizations that work with a large number of independent contractors around the globe, investing in a global payroll solution that consolidates and visualizes payroll data for the entire global team, including international freelancers and contractors, might be a good option. 

Implementing a global payroll is a very slow and difficult process. Deciding which global payroll model to choose can already take several weeks (or even months), and the actual implementation process usually takes far longer than that. Especially for businesses that are in the middle of global expansion, this can become a real problem.

A global payroll provider or platform can speed up the process. Since they already have the necessary structures in place and dispose of the necessary knowledge and experience, they can implement a global payroll infrastructure much faster than the organization itself.

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