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Growth. It’s been the business buzzword of the 21st century. It may have been briefly knocked off the top spot by ‘sustainability’ and others a few times, but ‘growth’ has been the c-suites’ watchword to use at board meetings, investor calls and media briefings for two decades now.

Like all buzzwords though, growth might be losing its buzz, at least temporarily. With inflation skyrocketing around the world, and currencies (even major ones) fluctuating wildly, we may have watchwords like ‘stability’ and ‘certainty’ climbing to the top of the ladder. 

These words have already been taken to heart in certain areas of the business, with payroll being a prime example. With employees scattered around the world, even in medium-sized companies, international payroll is particularly susceptible to these global economic pressures.

The risk comes from all sides

Currency fluctuations can hit a business from both sides of the spectrum – the weakening or strengthening of a particular currency can have a positive or negative effect on payroll expenditure; all depending on where you are paying from, and territory you’re paying into.

If a currency devalues, your employees being paid in that currency generally loses spending power (due to increased prices from more expensive imports). If a currency of a foreign employee strengthens, it means you will have to pay more in real terms.

With payroll generally being the largest expense for most businesses, it means these economic fluctuations can have an outsized impact on your business’ financial health.  

5 ways businesses can protect their international payroll process against currency fluctuations

Calculating risk, and mitigating against it, is vital in an international payroll process

It’s important then for businesses to have strategies in place to mitigate against these forces and use the latest technology to both reduce risks and potentially turn FX management into a place where margins can be clawed back.

1. Store value in local currency

One of the best ways to protect against currency fluctuations is to store value in the different currencies you use. This simply means buying the currency in advance at a price that works, and then storing that money locally.

You may not always get the best price at the time of buying, but you will get certainty.

Global Accounts from TransferMate is the perfect way to execute this type of strategy. Global Accounts allows your business to open up local bank accounts around the world in minutes in up to 31 currencies. This allows for both efficient storing of currencies, but also the efficient exchanging of currencies in the right moments and at low FX commission costs.  

2. Establish a guaranteed exchange rate

Establishing a guaranteed exchange rate is an important part of any attempt to manage the risk around currency fluctuations. Really the only question to ask is for how long you want to guarantee the exchange rate for.

With international payments, it’s often the case that you’ll ‘book in’ a spot FX rate a day or two in advance, and therefor when you put the payment through your system there’ll be no changes due to currency market movements. This change, even if it’s small, can lead to annoying reconciliation down the road, or even sending follow-up payments to make up the difference.

In general, businesses have three options when it comes to locking in exchange rates over a longer time period: Currency Forward contracts, Currency Futures and Currency Options. When considering which route to take, it essentially comes down to what risk you are prepared to take on board, and how much you are happy to pay to reduce that risk.

3. FX Hedging

FX hedging is a more proactive (and risky) way of managing currency fluctuations than simply buying currency in advance at a set price. With hedging, your treasury and finance team will be dynamically monitoring currency markets daily, buying and selling to your advantage.

The risk comes with sudden market movements, such as the aftermath of the mini-budget launched in the UK in September that caused volatility in the sterling. This can leave your business holding currency that is no longer as valuable as it was before, but still needing to meet demands (such as payroll).

FX hedging comes down to risk appetite, the internal ability to do it, and the cost-benefit analysis of trying to ‘play’ the markets rather than lock-in certainty through approaches like storing value.

4. Work with an EOR

Employers of Record (EOR) live and breathe this type of dynamic challenge. Working with an Employer of Record to administer your payroll process is the easiest way of removing this burden from internal management and getting the risk managed elsewhere.

Employers of Record will also do all the other activities involved in payroll management, such as adhering to local laws and legislation, making partnering with them a way to leverage the economies of scale they’ve built up in the payroll space.

5. Replace salary with benefits

A key part of any remuneration package is the benefits that are part of it.

If salary becomes more unpredictable, or your business gets caught in a situation where employees are being paid less in real-terms, then supplementing those packages with bonuses (which can be made when currency fluctuations are more in your favor) and non-cash benefits payments (such as stock options) can ensure the employee still feels they are being compensated fairly.

Benefits, such as healthcare insurance, are an excellent way to provide employees ‘guaranteed’ value in their own country.

A new landscape of risk

Currency fluctuations are always going to occur - it's how you manage the risk that matters.
Currency fluctuations are always going to occur – it’s how you manage the risk that matters.

It’s been a full decade since we’ve been able to look at the 2008 financial crash in the rear-view mirror, and the global economy has had a remarkable run when it comes to steady inflation rates, but we’re now seeing clear data points that this run is coming to an end.  

The days of growth being the (almost singular) focus of business leaders is probably coming to an end, and old-fashioned policies around efficiencies, cost-reductions and searching for additional revenue streams will come into play more than they have for years. With payroll often the biggest expenditure in a company, this economic volatility could a major risk factor unless that risk is properly managed.

When it comes to international payroll and currency fluctuations if the risk isn’t managed than trying to ‘grow’ may be the least of your business’ problems.


If you want to find out how TransferMate can help you deliver payroll at an international scale while reducing your costs and risks, contact the team today.

Payroll is one of those parts of the business that you don’t really want to hear about. It should just happen. Payroll experts, though, know that making it ‘just happen’ takes a lot of work.

From initial set-up to ongoing monitoring, payroll is a such a fundamental part of the smooth running of any organization that assessing where the risks lie is the first step in preventing a breakdown. This is particularly true as our workforce gets more mobile – and global – making the payroll process more complex to manage efficiently. The first step in getting control over this complexity is to know the elements you need to monitor.

Assessing risk in your payroll strategy – a checklist

While every employer is different, risk in their payroll strategy can be collated into several buckets. Future trends, shifting legislation, people, processes, and systems are the big-ticket items you need to address.

One third of organizations do not have a formalized payroll strategy

EY Global Payroll Survey, 2021

Globally mobile workforce – the payroll tax implications

While not the riskiest part of the payroll process per se, the new norm of a globally mobile workforce has the potential to impact on all other areas. With people more likely to work in different jurisdictions throughout the year, it’s incumbent on the organization they work for to keep track of this movement and pay accordingly.

With the pandemic making work from home so accessible for people, a whole new world of opportunities have opened up. Immigrants may choose to go home for several months and see their families and friends, young people saving for a property may move to a place with cheaper rental prices, while high-earners may choose to swap one area for another throughout the year as a lifestyle choice.

Once they reach a threshold of time spent in the foreign country, all those elements that you need to consider for fully foreign-based employees come into play, including:

Also added into the mix is the problem of overpaying tax authorities and either being unable to recover it or spend significant administration time doing so.

With this newly mobile workforce, tracking their movements becomes a compliance issue. Firstly, you need to set-up a system to identify and track internationally mobile employees. While self-reporting is a must, the organization itself must make this self-reporting accessible and known. This means set-up of forms, communicating its existence, and then getting people to comply regularly, which all sounds easier than it is in practice.

Once you’ve collected the data, what do you do with it? What’s the difference between an employee usually based in the UK spending six months in the U.S., Portugal or the Seychelles?

It’s down to the employers to get those initial payroll payments, and their tax implications, correct. If they don’t, they can be liable for governmental fines or committing the cardinal sin in payroll – not paying employees accurately and on-time.

Top solutions: Outsource payroll to a third-party to keep track of your mobile workforce and relevant legislation or track employee movements and hire-in expertise, or train internal staff.

Data protection, security, and accuracy

With more tracking comes more data, with more data comes more risk. Data laws differ (sometimes wildly) in different jurisdictions, so employers will need to manage these differences.

To take the U.S. versus the EU, the U.S. has generally weighted protection of data as a commercial asset, while the EU has put individual rights first through its GDPR legislation. While the two regions have similar requirements in lots of respects, in some cases what is normal in the U.S. will get you into hot waters in the EU.

When devising your payroll strategy, how you collect, store, and use data is a crucial element to consider and plan for.

Top solutions: Contract a payroll solution provider with the highest data security standards, including ISO27001, GDPR, and multilevel user access for transfers and approvals.

Currency fluctuations and FX fees

Payroll is particularly risky when it comes to FX rates because payroll payments have to be made. You can’t simply wait until the currency rate becomes more favorable or change to a different source, like you might be able to do with purchases of foreign goods and services.

Small fluctuations in the currency (on either end) can mean a higher cost to you in terms of meeting payroll obligations, or the employee having less spending power.

This is also not considering the FX rates you pay as the payroll payment crosses borders. With payroll generally being the biggest single cost for most businesses, small percentage cuts over time can add up to big costs.

Top Solutions: Lock-in/guarantee exchange rates, monitor exchange rates as a matter of the payroll process, use low-cost FX payment providers.

Payroll Fraud

A statistic that may surprise, and alarm, business leaders is that payroll fraud happens in 27% of all businesses. More than 11% of those frauds involve payroll loss of $48,000 on average, and on average the schemes went undetected for 36 months.

Payroll fraud happens in 27% of all businesses

Association of Certified Fraud Examiners

Overall, a study by the Association of Certified Fraud found payroll fraud cost an average of 5% of a company’s revenue.

One of the reasons payroll fraud goes undetected for so long is that it’s seen as a stable entity i.e. people do today what was done yesterday and don’t analyze what’s actually going on within the system. As such, even though it’s not a pleasant thing to acknowledge, payroll fraud is a genuine risk to every company and needs to be continually monitored.

Top solutions: Regular audits by management, leverage payment systems that flag unusual behavior, create a culture of anti-fraudulent behavior.

Inefficiency in the payroll process and systems

A risk to the bottom-line of the business, as well as reputational risk with employees, is inefficient payroll payment systems. Beyond usual Excel sheets, unnecessary manual processes, and just plain human error, inefficiency can come in the form of additional costs because of the payment rails being used for payroll.

The IRS estimates that 40% of small to medium-size businesses end up paying a payroll penalty each year.

If you are using an expensive provider or the traditional correspondent banking system, you may well be subject to high bank charges and FX rates compared to modern payment solutions. With payroll such a large percentage of the business, these unnecessary surplus payments are hard cash going out the door each and every month – for years.

These processes can also lead to shortfalls in payments, or delays in receiving payments, leading to unnecessary follow-up from your finance department. By leveraging the global payments infrastructure built by FinTech’s over the last decade and more, either through API integrations or white-label solutions, you’ll be able to pay in more currencies, for less, and in a fully regulated and secure environment.

Top solutions: Partner with a third-party payroll specialist using modern payment rails.

Prevention is better than cure when it comes to payroll risk

The biggest crisis generally come when the thing you think is working perfectly suddenly breaks down. In a business setting, payroll is one of those big risk elements.

Devising a coherent strategy in terms of regular audits on the current system, and looking for improvements, will make a real difference to a business – both in preventing damaging events, but also increasing revenue through the cutting of costs.

Knowing where to look for risk is the first step in devising that payroll strategy. After that, how to ‘make payroll happen’ will become much clearer.

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