Payroll is complex even when all your employees are based in a single location. Managing payroll becomes even more complicated when you have team members located across the globe. Here are the top challenges companies face when paying international employees:
If you have employees located in different countries, you need to stay up to date with tax regulations, labor laws, and data requirements in each jurisdiction you operate in to ensure compliance. These laws are complicated, prone to change, and vary from country to country. There are also cross-border regulations, notably around data privacy. For example, under Europe’s General Data Protection Regulation (GDPR), if your organization holds personal data for anyone living in Europe, GDPR will apply regardless of whether your company is in the EU. Any company that doesn’t adhere to GDPR could face heavy fines up to €20M or 4% annual turnover (whichever is higher).
2. Payment discrepancies
When paying international employees, payments can often fall short due to a lack of transparency around exchange rates and fees. Traditional global payroll payments involve sending money from your company’s bank account to staff accounts. Often, because not all banks have direct trading relationships, funds must travel through various corresponding banks before reaching the recipient’s country and bank account. During the payments journey, fees are charged by each of the banks the money travels through—resulting in payments falling short and dissatisfied employees.
3. Long processing times
When paying international employees, it’s crucial that they receive the correct pay — and on time. However, this process is not always straightforward. International payments are subject to more rigorous sanctions, anti-money laundering and fraud screenings. This causes the payments to take longer to process than domestic transfers. Global payroll payments that are made using traditional wire transfers need to go through compliance checks at each bank the funds travel through. These delays can be even longer in cases where the beneficiary’s name is similar to someone who is on a sanctions list.
If your company has employees on payroll who are in countries with exotic currencies, this can also be a factor contributing to longer processing times and delays. Many banks don’t have exotic currency capabilities at the ready—with some not conducting transfers of this type at all.
4. Substandard exchange rates
When you pay international employees through your bank, the exchange rate is set at the bank’s discretion. Usually, this is a marked-up exchange rate designed so the bank can profit from the transaction.
Aside from the markup banks apply to international payments, the unpredictable nature of currency exchange rates can be detrimental to the profitability of a business. If exchange rates are not properly managed or accurately forecast, it can be a major cause of payroll leakage. Payroll leakage is unexpected or unintended spending or lost revenue related to labor activity. According to a study by Deloitte, the cost of payroll leakage can be as high as 2.5% of total annual payroll. For businesses with less maturity in their HR technology and processes this would be significantly higher.
Overcoming global payroll challenges
Download Global Payroll: The Essential Guide to learn how to overcome the biggest challenges organizations face when paying international employees, how to choose the best global payroll model for your business and the benefits of implementing a global payroll solution.