Global Payroll Challenges: Why Payroll is Inherently Local

The phrase "Think Global, Act Local" is something of a cliche these days, but it conveys an important truth. The world has become so interconnected that events happening on a global scale increasingly affect local states of affairs. At the same time, the compound effects of decisions made at the local level give rise to the modern world as we know it.

This fact is especially true when it comes to payroll. Businesses operating in many countries around the world find that global payroll is inextricably linked with local payroll.

There are many reasons for this. At a base level, employees expect to be paid in a local currency. They also operate within the cultural norms of their country, which include factors like attitudes towards time and bureaucracy.

This means that the challenges of handling global payroll are compounded by the challenges of handling payroll at a local level. As companies expand into more and more territories, they have to handle more and more local realities and, as such, the complexity of doing business will expand.

In many cases, companies find that they have specific, local payroll teams and processes that they want to keep. Their operations are already well fitted to manage payroll calculations in certain regions where payroll changes frequently. Fortunately, it is possible to keep local payroll intact while bridging the gap with a payroll provider that can combine disparate providers into a unified global view.

Local Regulations and Compliance

Global organizations are required to maintain compliance with local labor and tax laws in every country they operate, or else they may face steep fines. 

These laws are some of the most important and varied local distinctions that need to be kept in mind. Even neighboring countries can have significantly different regulations.

The most relevant regulations include:

• Tax and withholding laws, which govern how taxes should be deducted from an employee's pay. In many cases, this depends on the tax residency status of the employee, which can be complicated by factors like remote work.
• Labor laws and employment standards, which govern hiring, firing and wages. In some countries, it is relatively easy to fire an employee, for example. In other places, firing requires lengthy bureaucratic procedures.
• Reporting requirements, which cover official reports on everything from tax withholding to wages to diversity efforts. Countries vary widely in the type, amount and frequency of required reporting.

Many companies have payroll systems that are already well established and fitted to their local contexts. While these companies may want to create a more unified global payroll system, they also want to keep what they have that works at a local level. Fortunately, it is possible to have both, by utilizing a payroll provider that can work with disparate local payroll systems to achieve a unified view of all payroll information.

Cultural and Regional Norms

It's no secret that human behavior varies widely across the globe and different attitudes, habits, beliefs and preferences can affect the way work and business are done. 

Compare the precise and disciplined attitude towards time in Austria with the more laid back culture of time in Latin America. Neither is intrinsically better than the other, but each requires a different approach to working.

When it comes to global payroll, the relationships that employees have with the following factors are most salient:

• Time
• Bureaucracy
• Equality

All employees want to be paid on time, and should be expected to report hours on time. Exactly how precise the notion of "on time" is varies from place to place.

Some countries have more extensive bureaucratic systems than others. Employees accustomed to working within these highly structured environments will likely find it easier to interact with payroll and related departments.

Attitudes to equity and equality vary widely, both in absolute terms and within specific categories such as gender or ethnicity. Some cultures prioritize creating equitable outcomes over providing equal opportunities, and vice-versa.

Challenges of Managing Global Payroll Locally

Besides legal and cultural challenges, there are also several logistical challenges with carrying out payroll across diverse locales.

Technology integrations can be a hurdle to overcome if a company uses different tools in different countries. Ideally, payroll information should be integrated into the company's broader operations, such as finance, human resources and workforce management.

Communication barriers are common across countries. They may stem from language or dialect differences, differences in communication norms, time zone differences or even the speed or availability of the internet.

Currency transfers can be costly and complicated if not done right. It will often be necessary to transfer money to and from individual countries.

Ultimately, carrying out payroll involves moving lots of money and information around in precise and organized ways. Disruption in one part of the operation can lead to bottlenecks elsewhere.

Best Practices for Handling the Local Aspects of Payroll

Every company's global footprint is unique. Managing payroll across multiple countries will always require an approach that is specific to the situation at hand. The most important needs can be split into formal and informal requirements.

Formal requirements of operating locally include anything that is clearly established, written down and predictable. This especially includes formal laws and regulations, as well as predictable challenges relating to currencies and technology.

Informal requirements of operating locally include anything that is not clearly documented, but is still necessary to follow and observe. These requirements include behavioral and cultural norms, as well as the general manner in which formal requirements are imposed and enforced.

Company policies might have to be adjusted to fit local cultural norms. Decision makers will always have to strike a balance between global demands and local customs.

UKG One View Lets You Do Global Payroll at a Local Level

Because of the idiosyncrasies of each country of operation, many businesses have multiple separate payroll systems scattered across the globe. This can create obstacles to collecting and understanding payroll information. Yet many businesses with this problem are reluctant to switch to a single global payroll provider for handling all of their payroll.

Fortunately, multinational organizations can have the best of both worlds by following a separate approach: keeping existing payroll systems intact, while hiring a payroll provider to connect and integrate all of them into a single source of truth. This is the approach that UKG One View takes, and it is often the best option for many global businesses.

By keeping your existing local providers, you can keep what already works. They will be able to continue to solve their formal and informal challenges as before, while making it easier for payroll to function as a whole.

Want to learn more? Contact us.