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There’s a big squeeze going on for employees around the world right now. The headlines are full of mass layoffs in the jobs market and cost of living concerns in the general economy.
For payroll and HR professionals, it’s a tough time too. Many won’t have experienced the recession of 2008, and while this one feels very different, it will force the same type of tough decisions their peers made 15 years ago.
There are ways to make the results of those tough decisions less likely to be layoffs, and that is by knowing your toolkit of options and deploying them effectively within your organisation. Today, we’ll look at:
There is a menu of items for any organization to choose from to make their payroll process more tax-efficient and budget-conscious while still rewarding employees appropriately.
While options can differ substantially depending on the country payroll is delivered, many countries will have the same general themes for you to investigate. We can further break down these benefits into ones that are cost-neutral to the business, and those with cost implications.
1. Deferred compensation options
Deferred compensation doesn’t necessarily mean ‘we promise to pay you later.’ Instead, it can mean that you defer compensation into a pension pot, for example, or stock options that can be claimed later. This can allow employees to tighten their belts now in return for a greater pension return in the future, although typically, this option is used for high-salaried employees.
With deferred compensation options, there is always the existential threat for the employee that the business will go bankrupt, and they lose all their money.
2. Tax credits and incentives
Utilising tax credits and incentives on the business side is highly dependent on your local jurisdiction and, simply put, requires a good deal of knowledge of the tax code. However, if you can get a handle on them, tax credits can be a valuable tool for reducing payroll costs.
In the US, for example, the Work Opportunity Tax Credit (WOTC) is a federal tax credit that reduces the amount of taxes an employer owes for hiring certain target groups, such as veterans, people with disabilities, and people receiving public assistance.
3. Condensed working week and flexible working arrangements
The work-life balance can be more important to some people than wages, so offering fewer working days for less pay as a potential option for employees can reduce your payroll burden significantly.
Of course, in this instance, there is a productivity trade-off, even when considering positive reports about productivity levels after reducing the work week (and note, most of those reports are based on keeping salary at the same level). If it’s implemented for some employees and not others, there is also the potential for workload being piled onto those left behind.
4. Additional holidays
Adjacent to flexible or reduced working hours are additional holidays. This may work particularly well in a business with regular peaks and troughs in activity. The way you pay your workers (either a reduced monthly salary throughout the year or simply gaps in salary if extended leave is granted) will be determined by cash flow requirements and the employees’ needs.
5. Extra social activities
While ‘work social activities’ aren’t usually at the top of an employee’s compensation want-list, providing extra staff nights out and social activities in lieu of higher compensation can work in some industries, particularly for those with a labour force comprising of young people.
Staff entertainment can also be tax deductible in certain circumstances.
6. Vouchers / Food Stamps
Vouchers, such as those used in multiple high-street stores and supermarkets, or food vouchers, can be another way to compensate employees tax-efficiently.
While they generally can’t be used multiple times within a defined time period, employment laws will often allow for one-off gifts and bonuses (or up to a certain limit) to be given in the form of vouchers that can be tax efficient to the business.
While compensation tactics like the following won’t necessarily save money off the business’s bottom line, they can provide invaluable support for employees during tough times.
In some circumstances, there is the potential to utilize economies of scale. By buying the benefit in bulk, the employer can help the employee at a lower cost than the employee could themselves. The trade-off in the employee’s mind is then seen as advantageous when considering an overall compensation package.
1. Providing childcare
Childcare is always a significant cost burden for employees. In general, there are no tax benefits or expense write-offs for businesses paying for childcare, so it’s a straight swap for salary in terms of bottom-line costs.
However, beyond the money spent on childcare, there is plenty of evidence to show that a lack of childcare can result in difficulties attracting and retaining employees, lost days in productivity, and even lead to a lack of diversity in the workforce, so providing childcare can result in fewer costs for the business down the road – even if those costs are hard to put an exact number on.
2. Medical and dental benefits
Providing medical coverage and/or insurance, as well as benefits such as dental care, can give employees real peace of mind and help improve productivity and retention.
There are also innovative ways for employers to provide these benefits while also reducing payroll taxes. As always, this entirely depends on local laws.
In the US, for example, Flexible spending accounts (FSAs) on the employer side and Health savings accounts (HSAs) on the employee side are worth looking into. In essence, they allow money to be put into accounts without paying tax first, and then used for eligible medical and dependent care expenses, such as doctor’s appointments, prescription drugs, and childcare costs.
3. Favorable loans
In some sectors and jurisdictions, it is permissible to give favorable loan terms to employees, allowing them to benefit from a lower interest rate or without a need to put up collateral. These can be given to help an employee during a medical emergency, housing issues, or simply to retain that employee for the long-term.
The reason for the loan is not important, but the structure of that loan and how you report it to the tax authorities are. This whole area can be fraught with complications but, when done correctly, can help employees going through hard times.
4. Pension Contributions
While pension contributions have a cost to the business, they provide an excellent way for employees to get favorable tax terms in the long run. Generally, taxes on pensions are much lower than on wages.
Upping the percentage your business contributes to an employee’s pension pot can make real differences in attracting and retaining employees while giving them long-term financial security.
5. Employee Training
Although a cost to the business, training is a great way to provide benefits for employees. What’s more, training will often benefit the business too in terms of improved employee productivity, innovation, and morale.
Training can also sometimes be used to reduce the tax burden of a business as well.
In the EU, training costs are typically treated as operational costs (and therefore can be used to reduce taxes on profits), so offering additional training to employees instead of wages can reduce the overall tax burden on the business.
6. Relocation assistance
In some cities, rental costs can run to 50% of an employee’s salary or more. In other cities, that can be significantly lower.
As an example, many young people will want to save for their first home but be unable to because of high rental costs. Allowing them to move to another destination to take advantage of better cost-of-living expenses can help them achieve that goal.
Giving workers the chance to relocate to another country can be both a cost and a cost saving to the business, depending on how the deal is structured i.e. salary could be reduced, but their take-home pay is effectively larger due to having less expenses.
7. Free meals and accommodation
Every compensation you give an employee will be judged, tax-wise, by its ‘fair market value’. There are some exceptions to this, such as free meals that are distributed on the business premises.
When it comes to accommodation, and again this is all subject to the jurisdiction, there is the ability to get tax benefits from paying for an employee’s accommodation.
It should be said, though, these are rare and usually depend on if an employee can only perform the job if staying on your property. This leads to examples like nurses, prison guards, etc., which does not apply to most businesses.
8. Travel benefits
The English language is full of words never used, and ‘dromomania’ or ‘the love of travel’, is one you’d rarely hear in normal conversation. The impulse, however, is common throughout the world.
Offering people the chance to travel as part of their job can be seen as a huge benefit and a key reason to stay in a role. While some of us prefer our own beds over a hotel room, traveling can be a key part of the compensation toolkit.
When looking for efficiencies in delivering payroll, how you pay is a crucial aspect to consider, and one often overlooked. The benefits can be significant if you can save even 1 or 2% of your payroll costs and reduce the amount of administration time for processing payroll.
1. Reduce FX costs and bank fees
Many payroll partners, such as TransferMate, use their own global payments infrastructure and technology to allow their clients to make payments around the world more cost-effectively than traditional banking networks.
Simply put, with fewer third parties handling your payroll, the less banking and FX fees you have to pay.
2. Reduced errors and manual work
The technology backing this payments infrastructure also means payroll payments are faster, are less prone to error, and have less need for manual processing.
As you are not using the traditional correspondent banking system, which is a complex web, payments move faster through the network. You also don’t have to upload different files to different systems and manually match the payments, resulting in less error and administration work.
3. Reduce processing time for each payroll instance
Other technologies can also help reduce the time it takes to process payroll each month. For example, Global Accounts by TransferMate allows users to pre-fund payroll in a network of local accounts, meaning the funds arrive quickly in employee bank accounts.
This can save 2-3 days each month in the payroll timeline.
There are many options for payroll and HR professionals and their leadership teams to consider when trying to reduce their payroll burden during tough economic periods. This doesn’t make deciding which to deploy, and then actually making them a reality, any easier.
The human factor should always be put first in any of these decisions. Look after your employees, and they will look after you.
We’re all being squeezed from several directions right now, but we shouldn’t forget there are ways to relieve some of the pressure.
To make your payroll process more efficient, saving you time and money, contact the TransferMate payroll team now.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
One of the great moments in a growing business is taking on the first outside employee. It’s an exciting, nerve-wracking step that gives the founders of the business a real sense of progress. The payroll process for this first employee is relatively straightforward and is often just another task the founder must take on themselves.
As the business grows even further, however, payroll becomes its own beast, fraught with challenges, risks, and potential hidden costs. From a source of excitement, payroll soon becomes a source of risk.
The total costs of payroll to a business typically lies somewhere between the 15-30% of gross revenue range, with labor-intensives businesses reaching up to 50% in some cases, so getting a controlled, efficient payroll process is one of the most fundamental tasks of any management team.
‘Payroll leakage’ is one of those catch-all terms that encompasses all those things that can go wrong in the payroll process and cause additional administrative burden or cost to the business. With payroll being such a high percentage of gross revenue, these errors can be extremely costly, and even devastating for a growing business.
Types of payroll leakage range from errors in basic data collection and entry, the processes followed, and technology used. Some are common across all businesses, while others really only come into play when an organization reaches a certain scale.
The first type of payroll leakage through bad data is a classic – wrong data entry on timesheets and expense reports. Whether deliberate or not, employees entering wrong hours or expenses will cost your business; not just in additional payroll, but also in terms of being able to accurately estimate future costs and time spent on similar projects.
Every timesheet system is open to this type of fraud, but there are basic actions you can take to prevent it, or at least limit it.
Informing your employees about timesheet policies and penalties is your first step, while having managers regularly check timesheets is a good way of catching problems early. And you should tackle these problems as early as possible – big frauds start with small steps. You can also use automated timesheet software which will prevent retroactive editing of timesheets and provide other security measures.
In reality though, accurate timesheet entry is all about the culture in your business. Micromanaging timesheets or overtly ‘Big Brother’ policies will probably do more damage than good. By acting sensibly, treating your employees like adults, and having regular spot-checks, this type of payroll leakage will never get out of hand.
Studies show an error rate of between 1-8% of total payroll in companies that use traditional timecards.
The American Payroll Association
If you’re managing your payroll on an Excel sheet, it’s probably best to walk away from your computer and think carefully before you add another column. There are two fundamental problems with using Excel for payroll – human error in data entry (both in numbers inputted and formulas used) and inability to accurately check back on errors.
Of course, the size of the risk directly correlates with the size of your business. If you have a couple of people on the payroll, Excel might be perfectly capable of fulfilling your needs – it’s when you grow beyond a certain headcount that any errors can compound themselves and turn into a real mess.
Using automated software or partnering with global payroll providers will eliminate these risks and allow your payroll to scale with your business.
Just two payroll errors can cause 49% of employees to start job hunting
The Workforce Institute at Kronos
Just as taxes are a certainty in life, so are changes in tax law. Often, this is essentially a non-problem as the changes in tax law will be updated automatically and reflected in an employee paycheck.
However, in the modern era of hybrid working when employees may move jurisdictions, it’s becoming more of an issue for employers themselves. Keeping track of where your employees are based, especially in a large enterprise, and ensuring their payroll details are up to date, will become a more regular job for payroll departments.
This is in addition to activities payroll need to keep on top of anyway. For example, in the US, payroll departments need to consider the Federal Insurance Contributions Act (FICA) which requires US businesses to withhold three separate tax from their employees’ wages – social security, Medicare, and the Medicare surtax. Most countries will have similar types of law.
Beyond taxes, local regulations must also be adhered to. This can be fundamental laws such as a minimum wage, paid sick leave rules, and pay equity legislation, and will also include nuances such as part-time employee vs full-time employee legislation.
There are two basic solutions here; 1) Keep track of everything yourself or 2) Outsource your payroll to an external vendor who will keep track of things for you.
A significant challenge for those businesses with international payroll is leakage through FX (foreign exchange). When paying in one currency into another, businesses will be hit through commissions, currency fluctuations and additional administration work when FX issues cause payment errors.
In practical terms, using traditional banking payment rails means that a payroll payment sent through the chain may not end up being the payment received by the employee. Depending on who handled the money (and you may not always have visibility on this before sending) the FX commission taken and the currency fluctuations that happened during the process, may result in having to send additional payments to make up the shortfall.
These are costs businesses have been swallowing for years, but now there is an alternative.
Modern payment rails, combined with platforms built by fintech’s, mean that businesses can significantly reduce both FX costs, and exposure to its risks. They allow payments to go through less handlers, lock-in FX rates at the time of payment and give full visibility to the user as the money flows through the chain.
Saving a couple of percentage points on each payment, adding cumulatively over time, can result in genuinely significant bottom-line savings.
It’s estimated that around one-third of employers make a payroll mistake in any given year.
INTERNAL REVENUE SERVICE (IRS)
The exciting days in business involve chasing those shiny new objects – a big client, a new product launch, a new revenue source – but the most productive days can often be based on fixing fundamentals.
With payroll being such a regular, big expense, getting your payroll processes and systems right will result in unlocking capital that can be used elsewhere in the business. It’s an archetypal ‘look after the cents, and the dollars will look after themselves’ issue. In most cases, payroll leakage will have a multiplier effect, compounding itself each pay day and leaving little room for recourse once an error is spotted.
By finding these mistakes early, or preventing them entirely, hiring your thousandth employee will be just as exciting and easy to manage as your first.
To learn how TransferMate can reduce payroll leakage in your organization and provide significant bottom-line savings, click here.
An evidence-based look at the ‘Great Resignation’ and ‘Great Migration’ theories and how they may impact Employers of Record and businesses with International Payroll
The first job any of us ever experience is usually something in the local area. A shop, a restaurant, a bar – we choose them because we can walk, cycle or get public transport there. All the wages are the same, the benefits are the same, and one job rarely advance our future careers more than another.
In other words, proximity is the key.
As we grow older, these priorities shift. They shift enough that Hollywood script writers can use the ‘move to a new city for a different job’ as a character’s motivation and it be relatable to enough to hit home to a wide audience. But we rarely do it ourselves.
In fact, proximity remains a key factor in choosing a job. The question on every international payroll provider and Employer of Records lips right now is whether that’s still the case in the post-Covid landscape and what long-term impacts, if any, it will have on their business. With attention grabbing stories about ‘The Great Resignation’ and even the ‘Great Migration’ now widespread, we thought we’d look at the statistics behind the headlines.
A lot has been written about the ‘The Great Resignation’, with some commentators picking up on statistical trends and extrapolating them out into seismic shifts in society. Is it true, though? Are people leaving their jobs in record numbers?
The quick answer is that we don’t really know, but probably not.
We have seen a few record-breaking months in terms of the number of resignations, but there are dozens of plausible theories to why these spikes are occurring. Some say it’s due to pent-up resignations from before the pandemic, others highlight the fact that quit rates generally rise as an economy recovers and people look for better options, while others point to the fact that a bigger percentage of the resignations than normal are from senior people (understandably) leaving the workforce a little earlier than expected.
When we zoom out, we actually see that the record number of resignations in the US, recorded in August 2021, is very similar to the rate we saw in August 2019 – months before the pandemic. As we can see in this chart, Labor Department statistic show that resignations are not that much higher than two years ago, pre-pandemic.
(Source: Research & Insights Group, Visier, 2021)
But what if people are about to quit their jobs? Maybe the great resignation is just around the corner?
Well, a PWC survey showed the 65% of people were thinking about leaving their jobs in August 2021. This sounds scary until you read similar surveys in 2019 that generate the same answer; for example, Forbes citing a major study that put the figure at 64% that year.
This is not to say something is happening in the workforce that will lead to lasting change, it’s just that it’s not as dramatic as headline writers have made it out to be. So, for now, we can probably assign the ‘Great Resignation’ to the myth end of the spectrum rather than a prevailing reality.
Let’s now look at the theory that people are going to leave their home and move to an area with a lower cost of living – also known as ‘the Great Migration’ – now that remote working is possible. It makes perfect sense, and many of us have had the same thought in the last two years, but do the statistics bear it out?
An analysis done on U-Haul truck rental prices in the US gives an interesting insight into what’s going on. U-Haul implements dynamic pricing based on demand, so when prices go up, it means more people are using the service (for example, moving home).
By comparing prices of renting a truck leaving a city, versus renting a truck into the city, it was found that while there did seem to be a trend of people leaving the city, it was a continuation of one that was happening before the pandemic. Indeed, the rate had gone down compared to 2018; not surprising when we consider the uncertainty people are living under.
What’s more, the cities where it was happening most were places where the cost of living has become famously high, such as San Francisco.
It’s been said countless times and in relation to many areas of life and work, but the pandemic didn’t create trends, it accelerated them. This trend of leaving cities was already happening and is probably more likely to be caused by the high cost of living forcing people away rather than due to people realizing they can work remotely.
However, these trends, small as they are in percentage terms, can act like compound interest over time, causing genuine societal shifts as they accumulate – and major shifts in how we deliver international payroll. For one thing, people follow people, so if those early adventurers report back to their city dwelling chums that all is rosy in their country garden, we may see the trend grow.
For now, though, we can also assign the ‘Great Migration’ into the myth rather than reality bucket.
There does seem to be one truly revolutionary thing happening in the job market, however, and it’s not coming from the general workforce; it’s coming from the employers.
The rate of people being hired remotely, and with remote work embedded in their contracts (which will go beyond the pandemic) has risen significantly, particularly when it comes to white-collar workers.
Statistics gathered from Indeed and ZipRecruiter (published in March 2021 – one year after remote working became the norm) contain some interesting nuggets:
In the UK, you find similar trends. Reed Recruitment published figures that showed that, prior to the pandemic, only 1% of job vacancies advertised remote working, and this has risen to 5% in 2021. They also found that people are twice as likely to apply for a job if it’s advertised as remote.
When we look at an economy like Ireland, which is tech and service heavy, research has shown that the top three industries offering remote working opportunities are Software & IT Services (21%), Corporate Services (19%), and Financial Services (10%). Overall, the number of remote jobs being advertised in the 3rd quarter of 2021 rose to 15% compared to 5% in the same period last year.
It’s reasonably safe to assume, taking these figures into account, that after the pandemic there will be a lot more remote workers than before requiring international payroll services, and companies will be more willing to hire from outside their local jurisdiction.
Habits are a hard thing to break.
What will these new remote working habits mean for businesses with International Payroll and Employers or Record? After all, paying a person working from home is the same as if they commuted to the office every day, as long as they stay in the same tax jurisdiction.
It only really becomes a new paradigm if 1) employers begin looking further abroad when hiring people and 2) their current employees begin to see moving to a different jurisdiction as a real choice that will improve their lives.
If these two trends come to pass, then employers – and, by extension, employers of record – will need to expand their global footprint to new territories and currencies to keep up with the demand.
If an employer contacts an Employer of Record and asks if they can onboard someone in Portugal, then it’s important for that Employer of Record to already be set-up in Portugal. Otherwise, the hire may be lost due to the time it takes to set-up in that territory, or the client could be lost to another EOR who does have a footprint there.
Is there evidence that this is happening yet? One study of HR managers found that 73% of them saw a surge in the availability of international talent due to the pandemic, so the first steps are being taken – they’re now looking further abroad.
It will be interesting to see over the next few years what the response from employees are. Survey after survey says employees want more flexible working practices, and the anecdotal evidence suggests that Employers of Record need to be ready for the change.
Will people start turning off ‘location’ as a parameter when searching a jobs site? Will young people begin renting in foreign countries while they save for a permanent home?
If this all does come to pass, it might even be time for those Hollywood scriptwriters to start working on some new ideas.
Go here to download our on-demand webinar, ‘Deliver International Payroll for more on the future of international payroll. For more on how TransferMate can help you deliver international payroll efficiently, accurately, and on-time, click here or contact us directly.
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