Even large and established businesses can find global payroll a challenge. Here’s how to avoid four common problem areas…
Modern technology can provide data visibility across businesses, which helps make processes more efficient. Payroll departments, in particular, can benefit from centralising their processes. But technology alone cannot revolutionise the way a company’s payroll works – it needs to be coupled with reliable human expertise.
The challenges faced by payroll managers
Greater access and visibility can help payroll managers achieve a higher number of timely employee payments. Yet, payroll managers still face a number of challenges when organising global payroll.
Some of the factors to consider when organising international payroll:
differing tax regulations
coordinating with Finance for funding
any language barriers, cultural nuances or legal issues surrounding employment in foreign countries
Let’s take a look at four common risks when it comes to payroll processing cross-border payments:
Risk 1: Lack of transparency across countries
Every country has its own unique payment rules and requirements down to the specific supporting documentation you need to include. In many cases, omitting even one item can mean an incomplete payment, which may result in delays and investigations. The consequences of just one error can mean an employee does not receive their wages. And for your company, it can mean additional overheads and wasted staff time.
Because of these complex and non-transparent differences between countries, many companies decided to decentralise operations and work with separate in-country providers instead. But this route is not without its issues.
How to manage this risk
Moving back to a centralised outsourced payroll model can give your business timely and effective payroll for every payment cycle.
The advantages may include:
better visibility of payment requirements and any regulations you need to be aware of, such as needing a local bank account
real-time country bank validation tools to help you navigate each country’s rules
ability to work out whether a cross-border payment is possible to the country requested –
and the supporting data needed
in-built prompts to payroll managers to get everything ready and correct before they send the payment
better visibility into payroll transactions
In fact, Deloitte’s Payroll Operations Survey 2014 found that 56% of North American companies use a centralised outsourced payroll system (1).
Risk 2: The foreign exchange market
Any global organisation will be aware that the foreign exchange (FX) market can be volatile. With each currency affected by monetary, economic and socio-political issues, frequent market fluctuations are expected. Your Payroll and Finance departments should work together to navigate your company through these fluctuations and make sure appropriate measures are taken when/if there is a decline in their currency. To effectively mitigate risks before each payroll cycle, they should understand the exposure in local currency well in advance of making an international payment.
How to manage this risk
With the right technology, your teams can work together on the known exposures and suggest a suitable combination of solutions. For example, you may choose a natural hedge of receivables and payables; purchasing portion at spot (the FX rate on the day); and/or using forward contracts. Ideally, you need visibility of forecast exposure, while also building and mitigating FX risk using a combination of spot and forward contracts.
Risk 3: Human error
If your company manages its domestic payroll in-house, as 70% of North American companies are thought to do (1), it is possible for your employees to make errors when they carry out tasks such as:
manually entering employee information
setting up payroll templates
personally executing each individual payment
The risks increase when organising international payroll, as communicating with numerous international banks and navigating complicated validation procedures requires even more manual entry.
How to manage this risk
Integration may be the answer to solving this expensive issue. Look for a payment technology or payroll solution that integrates directly with your existing Enterprise Resource Planning (ERP) system or HR platform. This should reduce the number of errors and the amount of time spent manually dealing with payment investigations or correcting employee information.
A flexible solution should include tools that allow you to:
validate through an employee-facing gateway or single file integration to the platform
validate multiple currencies
manage international payroll through different bank accounts
Risk 4: Hidden costs of international payroll
When branching out into new regions, payroll populations tend to be smaller and you may be tempted to set up in-country banking rather than use a centralised model.
However, there can be drawbacks to this approach, such as:
Opening, maintaining and reconciling an in-country account can be time-consuming, especially in markets such as Latin America and Africa.
The fees can be expensive and there are often pricing mark-ups on FX transfers.
Exact costs are not always outlined from the start, for example the bank may use an intermediary to process payments and pass these costs on to you.
How to manage this risk
A reliable global payment solution provider can help you avoid the additional costs and resource involved with in-country banking.
They should have a strong network of international banking relationships and be experienced at providing transparency in pricing. They should also be able to deliver payroll through a number of channels including SWIFT, Low-Value delivery (ACH, SEPA, Faster Pay etc.) and other in-country channels.
Look for a flexible and scalable solution
Your business can run efficient global payroll with the help of the right technology, the right tools and a culture of learning and evolving. However, when it comes to making cross-border payments there is no one-size-fits-all solution because every organisation’s needs are unique.
Your goal is to find a flexible, scalable international payroll solution that can be tailored to your organisation’s current and future needs.
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