Strategies for dealing with international payments using centralised payroll…
Moving to a centralised global payroll environment is a big step for any business, and there are many considerations – not least the volatility of the foreign exchange market. But it can solve many of the issues that come up when dealing with multiple processes managing domestic and cross-border payrolls. Here are five things to consider before you move to a centralised payroll.
Before you decide how best to centralize your payroll, consider your current key issues. For example exchange rates, language barriers, differing tax regulations or coordinating with finance for funding, all of these factors can affect your preferred processes. Once your core global payroll strategy is in place, you can adjust your process to meet each country’s requirements, where necessary.
Every country has its own rules and regulations around payment routing and a slight error or omission can mean a failed payment. However, when dealing with smaller populations, cross border payroll funding is more common. With minute differences between countries rules it is difficult to keep abreast of changes and requirements, many businesses will decide to work with in-country providers who are the experts in their territory. However this can be complicated and expensive to set up initially, particularly in emerging markets where there may be challenges such as unstable governments, poor banking infrastructure and opaque tax and social security regulations. Understanding the rules and regulations will help keep your centralized payroll in control and require less resources to continuous vendor due diligence on an in-country partner.
There is a lot involved when you manage your payroll in-house. With the recent advances in technology, most centralised payroll systems are able to comfortably handle the hosting, maintenance and support of large companies’ payment technology.
When it comes to risk, recent technology leaps mean payroll managers can use their global payroll system to better understand exposures for different employee jurisdictions and coordinate with finance to mitigate foreign currency volatility through hedging. Leveraging the consultation of a financial provider and the enhanced technology for real time data on known exposures, payroll managers can implement strategies to mitigate payroll’s exposure through strategies such as natural hedging or specific hedging instruments.
For more about hedging, see 5 questions to ask before you consider foreign exchange hedging.
Many businesses use financial providers to manage their international payments, however this can often mean additional and/or hidden costs. Negotiate with your provider to make sure their pricing is transparent.
It may be important for you to be able to deliver payroll through a number of different channels, for example SWIFT and/or low-value delivery like Faster Payments or SEPA. Working with an international payment provider also gives you the benefit of leveraging their aggregated banking/payment rail relationships, so you don’t have to work with multiple providers, likely incurring fees as well as operational inefficiencies. It is important to understand a potential provider’s payment network- how many banking relationships? How many of those are delivering through an in-country payment channel?
Deciding to integrate your global payroll
Manual processes inherently leave the door open for errors to occur. Integration may be a good solution to the issues covered in this piece to efficiently centralize and fulfill payroll. Look for a payroll work flow that integrates with your existing enterprise resource planning (ERP) system or human capital management platform. The end goal of engaging any financial provider for payroll should be efficiency and automation of processes, as well as delivery through as many in-country channels possible.
Another potential benefit of integration is employing a tool that validates payments, either through an interface with an employee-facing gateway or through a single-file integration to a financial provider’s platform. Your centralised payroll system should be able to validate multiple currencies and be flexible enough to manage international payroll through different bank accounts.
For more useful information, download our Complete Guide to International Payments
To talk to us about moving to a global payroll system, get in touch today.
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