Global Payroll: Best Practices for Running Payroll Abroad

Expanding into a new market allows you to hire from a larger talent pool and access a wider customer base. The process can be daunting, as you’ll need to understand compliance, benefits, how to issue payments, and what taxes need to be deducted.

What is global payroll? 

Global payroll is the process of managing compensation, benefits, complying with local employment laws, deducting social security, and creating severance and termination packages across international borders. 

As the employer, you want to make sure each individual employee experience is optimized while also having the most cost effective system.

Usually, when you’re deciding how to manage global payroll, you’ll have two models: 

• In-house payroll where your entire process is managed internally

Or

• Aggregated payroll where you find a third-party service provider like a global payroll service, PEO, or an EOR service provider

If you’re planning to hire employees abroad, you’ll need to execute a global payroll strategy where you can easily protect your business and ensure compliance  with local laws. 

Global payroll challenges 

Challenges during the global payroll process are likely to come up. You’ll have to understand local tax and labor laws, as well as navigate different time zones, currency fluctuations, and a wide range of other complications.

Common global payroll challenges: 

1. Complexity: Each country has its own unique payroll regulations, taxes, and reporting requirements. These requirements can be complex and can change frequently, creating a challenge to keep up with and ensure compliance with local laws.

2. Cultural differences: There may be cultural differences in the way employees expect to be paid, including payment frequency, payment methods, and deductions. These cultural differences can create havoc when designing a global payroll system that meets everyone's needs.

3. Language barriers: Payroll information must be accurately translated into local languages, which can be time-consuming and costly. Miscommunication or misunderstanding of payroll information can result in errors or misunderstandings that can impact employee morale and productivity.

4. Data management: Data security should be a top priority when running international payroll. Managing employee data across multiple countries and complying with different data privacy laws can be a significant hurdle. Employers must ensure that payroll data is accurate, secure, and protected, which can require significant resources.

5. Currency fluctuations: Before you begin hiring employees in another country, you’ll need to calculate the exchange rate. Fluctuations in currency can significantly impact your payroll budget if you’re not properly monitoring the exchange rate. 

8 best practices for global payroll 

Figuring out how to manage your global payroll can be overwhelming at first. However, with an accurate payroll plan and proper HR management, you’ll be able to craft a payroll strategy that works best for your international business needs. 

Here are 8 of the best practices for managing global payroll. 

1. Understand centralized payroll processing

If you have teams in multiple countries, consider centralizing payroll processing to ensure consistency and accuracy across all locations.

Centralized payroll is a one-stop shop for employees and HR managers to view all of their relevant documents and information, ensuring that no one is missing out on their payroll information. 

2. Staying current with local regulations

Each country has its own payroll regulations, tax laws, and reporting requirements. Make sure you stay up-to-date on these changes to ensure compliance.

Train your HR department on regular changes to relevant employment laws. You’ll avoid compliance problems if you stay on top of them. 

3. Automate payroll processing

Automating payroll processing can save time and reduce errors. When making international payments, you should always make them in the local currency for each employee. 

Employees want to be paid on time, so don’t use an international system that is known to glitch out. 

Consider using payroll software or outsourcing to a third-party payroll provider. Justworks offers EOR and can help you navigate the complexities of local laws, including the requirements for running payroll in another country. 

4. Maintain accurate employee data

Accurate employee data is essential for payroll processing. At a global level, it’s crucial to have  a privacy policy that prioritizes accurate employee data and helps eliminate discrepancies in cases of regulation or governmental changes. 

You should regularly ensure that you’re keeping up-to-date on employees marital status, salaries, benefits and pay, or updates to their home address. 

5. Ensure data privacy and security

Payroll data is sensitive information, and it's essential to ensure data protection and security. 

If you live anywhere in the EU, especially in Germany, you’ll need to comply with the GDPR law that requires certain added protections on employees personal data. 

Consider using a single secure service that keeps all sensitive information in one location with only certain administrative employees allowed access. 

6. Communicate with employees

Always make sure that you’re keeping employees informed on payroll processes and distributing accurate payslips. 

Research cultural practices surrounding pay and how employees are usually paid in the country you’re running payroll in. Clear communication can help avoid misunderstandings or eliminate disgruntled employees. 

7. Conduct regular audits

Regular audits make it easier to identify errors and ensure compliance with new regulations.

Audits are especially important if you’re using a third-party service provider to manage payroll out of country. Audits keep you informed on your payroll strategy and avoid discrepancies from growing in size and becoming a larger problem.

8. Keep records

Maintain records of payroll transactions, including tax filings and payments, to ensure compliance with regulatory requirements. You should keep both contractors’ and employees’ records for at least the minimum required amount of time in that country. 

In Spain, payroll records are required to be kept for four years, while the UK only requires payroll records to be stored for three years. 

Always being as thorough and detailed as possible when running global payroll will protect both your company as well as your employees. 

Options for global payroll 

Now that you’ve considered what payroll practices are best for your business, you’ll need to decide how you want to run international payroll.  

There are several options for global payroll processing, including:

1. In-house processing: Some businesses choose to manage payroll in-house. However, managing payroll in-house can be time-consuming and requires expertise in local payroll regulations.

2. Outsourcing: Outsourcing payroll processing to a third-party provider can be a cost-effective option for businesses with operations in multiple countries. A global payroll management provider or PEO service can manage payroll processing, compliance, and reporting across multiple countries for international workers, allowing employers to focus on their core business activities.

3. Employer-of-record (EOR) services: An EOR service can act as a legal employer for a company's international employees, handling payroll processing, compliance, and reporting on behalf of the company. EORs like Justworks already have established entities in another country, so you don’t have to worry about setting up a subsidiary or branch office. 

Ultimately, the best option for global payroll processing depends on a businesses specific needs, resources, and capabilities.

Justworks Can Help Manage International Hiring

Choosing the right EOR to help you expand your business internationally can be a game changer. Justworks’ global EOR services enables small businesses to hire international employees quickly, pay them in the local currency, and provide local benefits. It’s hard to know where to start and what to put in place abroad to protect business and your employees. At Justworks, we have in-country legal teams and entities set up to ensure that your payroll is protected and that you’re remaining compliant abroad. 

From access to top talent pools around the world to streamlined international hiring processes, the advantages of working with an EOR (and using Justworks) are undeniable.