Following dozens of different laws and regulations regarding taxation and employment is complicated, and mistakes can be costly. Yet that is exactly the challenge faced by multinational businesses.
It is also difficult to ensure equal and fair pay when employees are paid in different currencies and live in countries with different costs of living. Without accurate and real-time insights about payment patterns, companies are often unaware of unfair treatment that is hurting employee sentiment.
Fortunately, modern payroll systems make employee payment much easier. By relying on a sophisticated third-party payroll provider, businesses can cut the risk of regulatory errors and unequal pay, while focusing their efforts on their core business goals.
Challenges with Paying Employees Abroad
Every country sets its own standards with regard to taxes, employment, data privacy, currency exchanges and other factors involved with paying employees. Although many countries share similar regulatory requirements, it is necessary to consider each country on its own for adhering to local regulations. The global regulatory landscape is really a patchwork collection of different requirements.
Tax laws are an important consideration and they vary widely. Countries differ by who they consider to be tax residents. For those who are considered tax residents, countries differ by what constitutes taxable income and how withholding should work.
Employment regulations are another important factor, affecting who can be hired and how they can be let go. Some countries have strict regulations that make it difficult to fire an employee. Firms operating in such locales need to be extra careful when hiring.
Data privacy is a third and increasingly important set of regulatory factors. Some countries have little by way of data privacy laws, while whole regions like the EU have comprehensive rules in place. The United States has a collection of different regulations that vary at the state level. At a minimum, most international businesses follow the General Data Protection Regulation (GDPR).
Failure to comply with regulations can result in major expenses. The average GDPR related fine, in 2023, was 4.4 million euros.
From a logistical standpoint, paying employees abroad involves currency exchanges and foreign bank accounts. It can be quite a tricky balancing act to move funds where needed, across national boundaries. When currencies need to be changed, there is usually a cost involved as well some countries have restrictions in paying from a foreign bank account.
Ensuring Pay Equity, Fairness and Benefits
Maintaining an equitable pay structure is challenging under any circumstance, but is especially complicated by the idiosyncrasies of doing business in multiple countries.
One problem has to do with what constitutes equitable compensation in the first place. In one country, health benefits might be twice as expensive as they are in another country. Is it fair to provide half as much coverage in the more expensive country? Or is it fair to provide equal coverage to everybody, regardless of cost?
The problem has been exacerbated by the rise of remote work. Previously, team members in one country would work in the same physical space and therefore be limited to living in nearby cities. But because of remote work, many employees choose to perform the same work as before, but in cheaper locations. Many of those who continue to work in the physical location view this as unfair and believe that remote work should be compensated less for that reason.
Since there are no universally agreed upon solutions to these problems, the best course of action is often to listen to your employees about what they believe. Conduct meetings and take surveys to get their opinion. And then take action based on their input, while communicating your reasons.
The main reason to pursue this approach is to keep workers engaged by making sure that they feel heard. Many of the issues described above are as much about respect as they are about compensation.
Tips for Paying Employees Across Multiple Jurisdictions
Keeping on top of the shifting global regulatory landscape is a full-time job. Some large corporations may have the resources to handle it internally, but most multicountry businesses are better off relying on third-party support.
Start thinking about regulatory requirements before expanding to another country. The costs involved should be taken seriously as part of the overall plan for expansion.
One common problem is managing information across countries. Companies should strive to operate with a single source of truth for as much of their employee-related information as possible.
To make the most out of your data, adopt a modern payroll solution, like UKG One View. A good provider will constantly update its system based on regulatory changes and provide real-time insights about payroll across different countries.
Leveraging Technology for Efficiency
It would be very difficult to run an international business using 20th-century technology. Modern payroll systems are crucial for ensuring streamlined and accurate payroll processing on an international scale.
Yet many companies do rely on outdated technology. They often have a patchwork collection of different protocols for every country and a different spreadsheet for each. This is not only slow and inefficient but also dangerous, as such manual accounting is far more prone to error.
There is often a lack of visibility for the management of global companies. It can be very difficult to see accurately what is going on across an entire company when relying on an outdated payroll system. This makes it difficult to make good decisions and long term plans.
An integrated system like UKG One View solves these problems by unifying all relevant employee data into a single source of truth. This provides real-time insights about payment trends across all locales, so that payroll managers can have an accurate sense of how their operations are working.
One View also ensures that the challenges of regulatory compliance are always met, by constantly updating its software based on input from our team of experts. This removes the need for in-house expertise for each country of operation. Our Perpetual Validation capability identifies errors ahead of the payroll run by checking employee data as it is entered.
Do you need a better payroll solution for your global business? Contact us today.