Even in small companies, payroll is a complex and ever-evolving challenge. But for larger businesses operating across international borders, it’s one of the biggest tasks HR and finance professionals face. For companies based in the United States, the complexity only grows, with laws varying state by state.
Managing global payroll typically requires a multitude of systems, each designed to handle specific national and local laws and regulations. But this can make scaling difficult, create inefficiencies, and be incredibly time-consuming.
So, how do you build a system that can successfully support a global workforce? How can you choose the right strategy for your business? We’re going to explore what US-based companies should consider when constructing a payroll strategy for an international workforce.
What is a global payroll strategy?
A global payroll strategy is a plan for managing payroll for all of your people from one centralized system. It means bringing together otherwise fragmented payroll operations and gathering them under one umbrella.
There’s not much people care about more than being paid accurately and on time. Team members will quickly lose trust in your management when their compensation becomes unreliable.
Done right, a global strategy will ensure that everyone receives accurate wages on time, no matter where they’re based. To deliver such a strategy, you need precise records for each of your people. This will enable you to stay up to date with any changes which may impact someone’s salary and to be able to correctly calculate wages, no matter how complex that process may be.
And when working across different time zones, languages, currencies, and regulatory environments, it can become a highly complex process.
Why does a global payroll strategy matter?
There are several good reasons for having a solid global payroll strategy. Whether you have thousands of team members working overseas or just one, a clear strategy will help you:
- Remain compliant with local and national legislation, keeping you on the right side of payroll, banking, tax, and payment rules when working with salaried professionals, freelancers, or contractors. Many countries have different withholding mandates on benefits such as health care, so it’s important that you get these right for every country in which you operate.
- Increase the accuracy of your payroll calculations, keeping your people happy and reducing errors, especially when it comes to overtime, tax deductions, and benefits.
- Ensure that your currency calculations are correct, reducing waste and saving the business money in the long run.
- Reduce the chance of fraud across your payment networks or payroll systems by centralizing information and giving you a clear overview.
What are the components of an effective global payroll strategy?
There are several different ways of approaching payroll for a global workforce, but each strategy has the same familiar components. Keep these at the front of your mind when you’re shopping around for the right system to suit your business:
1. Automation tech
Payroll can be a highly time-consuming process for a global business. A system that uses technology to monitor and deliver your strategy can take care of the most repetitive tasks, saving time, increasing productivity, and reducing the chances of errors.
2. Precision and redundancy
Standardized reporting and consistent data are key to a successful payroll cycle. Technology can help by eliminating human error. Similarly, adding redundancy into your system via a cloud-based service reduces the chances of a total failure, protects your data, and makes sure your teams can access payroll remotely.
3. A unified, single-source-of-truth system for streamlined management
Bringing your global payroll under one roof makes it much easier to keep an eye on things. By eliminating the complexity of a dispersed payroll strategy, a centralized system ensures your teams can access what they need when they need it, and achieve easy clarity on who should be receiving what, when.
4. A focus on compliance
Staying compliant is crucial when working across multiple jurisdictions. By meeting your obligations you build trust with local regulators and protect yourself from reputational or financial damage. An effective global payroll system will help you to drive compliance wherever you do your business.
5. An emphasis on data security and privacy
It almost goes without saying that a successful payroll strategy would involve protecting the security and privacy of your people’s data. In any centralized system, you can’t afford not to take data protection seriously, for the sake of both your people and your corporate financial records.
6. The ability to scale with your business
As your organization grows and expands across the globe, things become more complex. A successful payroll system won’t stand in the way of your growth, instead cutting down on needless administration and scaling seamlessly as you do.
7. The ability to integrate with your tech stack, now and in the future
Taking your payroll global doesn’t necessarily mean replacing your existing tech stack. Take a careful look at the tools you use now—and are likely to use in the future—and make sure any potential system can integrate effectively. The more seamlessly your tools and HRIS can exchange data and information, the smoother your payroll process will be, and the less time your teams will need to spend on basic tasks.
8. Great user feedback
Finally, a successful strategy will be evidenced by your people. When international employees get paid correctly and on time, you’ll see a positive response reflected in your surveys and one-on-one feedback sessions.
What are the different types of global payroll strategies?
Depending on the specific needs of your business, it’s likely that you’ll consider a number of potential payroll strategies. Here are the four most popular:
1. Outsourcing your payroll with an Employer of Record in each location
Using a local Employer of Record is a great solution if you haven’t yet established a legal entity in a certain country. They will provide all the infrastructure needed such as banking, insurance, tax, HR, facilities, and contract requirements. It’s an ideal approach if you’re:
- Testing a new market and want to minimize your investment
- Wanting to hit the ground running while waiting for your own legal entity to be established
2. Standardizing your payroll with a global management provider
A centralized, global payroll operation brings everything together and gives your leadership access to real-time data. It can make it easier to make workforce management decisions, monitor KPIs, and identify fraud. By outsourcing the operation, you reduce the workload for your own teams, and ensure consistent and reliable delivery.
3. Contract local payroll administration in each site
If you have a fairly established presence in a particular location, contracting a local specialist can help you reduce errors, increase efficiency, and ensure compliance. It can be an especially good option if you:
- Work in a country with particularly complicated payroll laws
- Are concerned about data security in an overseas market
- Want to support a larger local workforce without having to invest in expensive infrastructure to manage things internationally
4. Hire an in-house payroll officer
If you have the internal resources, handling payroll in-house can be a great way of keeping everything under your control. However, because it requires expert knowledge of each jurisdiction in which you work and can be difficult to scale, it can be an inefficient way of dealing with small numbers of international employees dispersed across numerous countries.
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What are the different types of payroll systems?
Payroll systems fall into three main categories. To determine which is best for you, talk to colleagues across finance, payroll, and other departments, and consider which features and functionalities would best serve your needs. Think about whether the system can scale effectively, integrate with your tools, support compliance, and work with your budget.
While on-premise software is the traditional solution for big businesses, it requires significant initial investment and regular on-site maintenance, and can be hard to scale at speed. Hosted software is housed in a remote data center and operated by a third party, and can be slow to set up and update—not ideal if your business moves quickly. Finally, cloud-based software is highly versatile, and typically operates on a subscription basis. It scales almost instantly (you simply pay for what you use), is fast to implement, and is highly customizable.
Some of the top payroll systems in the US market today include ADP, Deel, CloudPay, Paylocity, Remote, TriNet, and Oyster.
A global payroll strategy: Key to your business success
As your business looks to expand beyond national borders, your payroll needs will inevitably become more complex. With more legislation to comply with, and currency changes to account for, making sure your people are paid accurately and on time becomes increasingly difficult.
By planning an effective global payroll strategy you can make sure your teams are prepared for the challenges to come, and put in place a system that seamlessly supports them. A centralized payroll hub within your HRIS that integrates with your chosen payroll system can be the key to a foolproof strategy that keeps your business running smoothly.