Companies are expanding around the world at an unprecedented rate, and they are becoming more diverse as they do. This means new countries, currencies, languages, compliance regulations, and—to accommodate all these factors—new demands for technology advancements. In this landscape of growth, payroll—and the insights gleaned through payroll data—play a crucial role in creating the expansion strategy and deciding how best to operationalize in the new location.
Payroll is typically the highest cost impacting the operation of an organization, and the most significant variable you can manipulate when making operational decisions, be that resource allocation, evaluating efficiencies, or implementing technical solutions. So, payroll data is some of the most valuable data a company can have for making the smartest decisions as it expands into new jurisdictions.
Where employees live, what their pay and pay frequency is, standard withholdings, benefits, and taxes, as well as factors like child support and maternity leave deductions, vary widely based on location. This data can help a company better understand its total potential operational expenses when considering how and where to expand.
When evaluating moving into new international markets, companies need to account for the differences in operations from technology to human resources, as well as the intricacies of new laws and regulations. Key considerations are looked at below.
Understanding and Staying Compliant With Global, Local Regulations
One of the most important and challenging aspects of global expansion is ensuring compliance with new laws and regulations. Many different regulations commonly govern the employment relationship, including national legislation, local laws, industry policies, and labor agreements. Employees must receive all the rights they’re entitled to or the company risks incurring serious penalties. In some countries like India, there is a different "cost to company," where an employee’s living expenses are paid directly from the employer. This sometimes includes an employee’s cell phone, rent/mortgage payments, medical insurance, and more. In the United Kingdom, Her Majesty's Revenue and Customs (HMRC) is responsible for some state-required payments, and unlike the United States, there is no employment at will. In addition, the U.K.'s pension and student loan schemes are managed through payroll.
Depending on the location, payroll teams may be managing the following:
Employment regulations, including working hours and required rest breaks
Limits on compensation for overtime
Vacation and sick leave entitlement and pay
Holiday timing and compensation
Evaluating whether a worker is an independent contractor or an employee
Maternity and paternity leave
Data protection and data privacy is also a significant part of global payroll. Understanding and complying with data regulations, including data privacy laws that mandate how you handle employees’ personal banking information for direct deposit, can present a significant challenge for companies looking to protect international employees.
Using Flexible Technology That Can Be Adapted to Different Jurisdictions
Payroll technology has become more important than ever during the global pandemic, with self-service solutions becoming both more imperative and more common. But the most important requirement for any global payroll system is its adaptability to accommodate the various locations where payroll is being delivered. Is it compatible with local currencies? Is it compliant with the expectations of the jurisdictions?
Adaptive technology will also allow systems to integrate the new technological advancements that are happening at an astonishing rate and help ease the burden on payroll teams by creating better efficiency and accuracy. However, let’s not forget that as good as automation and machine learning may be, it is still important to partner with the local vendors to ensure authenticity and understanding of the local culture.
For this reason, often it’s not desirable or prudent to build new technology because there is a local partner that can provide the necessary services, which are integrated with core payroll systems. A local partner can ensure payroll is accurate and compliant with the laws of the jurisdiction, as well as manage data security and privacy in compliance with local regulations.
A local solution can also save money by eliminating the need to invest in new technology or hire additional staff. But it remains incumbent on the company to ensure it understands the local processes and the payroll rules within the country.
Ensuring Payroll Teams Understands Local Rules, Even When Systems Are Outsourced
Even when the payroll team has a strong partnership with the technology group in the organization or with the local partner that is being used, the payroll team must be fully knowledgeable about what the technology should do. The bottom line is that people deliver the process. A company may be using an ideal tool and, in the best circumstances, it can meet all the company’s needs, but circumstances are not always ideal, and the payroll team must have global payroll training, so they can understand what needs to happen in case of any unexpected failures. Companies cannot rely on believing "they know that, so we don't have to." It can be an enormous pitfall when a company goes to another country and has gaps in knowledge that prevents it from effectively handling issues.
I always recommend getting exposure to and partnering with organizations that understand the local regulations and way of life. For example, what are the languages, the culture, the holidays? How do people go about their day-to-day lives? Payroll is never just about dollars and cents; the human element will always be a crucial part of ensuring success, especially when building international relationships.
Payroll complexity is one of the biggest challenges a company faces when expanding into new locations. Payroll is not one-stop shopping. It is a combination of technology and people. Finding the right solutions for your organization requires careful consideration of the pieces that contribute to getting payroll done properly.
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Davida Lara, CPP, is Executive Vice President of Payroll Services at Entertainment Partners (EP). She is the 2021 Global Payroll Titan Award recipient.