Global payroll: Best Practices for Running Payroll Abroad

If you’re planning to hire across borders, you’ll need to have excellent global payroll practices in place. 

Expanding into a new market allows you to hire from a larger talent pool and access a wider customer base. However, the process can be daunting. Before you can onboard workers, you’ll need to understand compliance, benefits, how to issue payments, and what taxes need to be deducted. You'll either need to build your own HR/payroll function, or find a strategic partner like Via to manage payroll and HR for you.

Here we’ll share exactly what global payroll entails and some of the best practices for running payroll abroad. 

What is global payroll? 

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

Global payroll is really about helping humans meet their everyday needs and stay healthy. 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 come up with a global payroll strategy to 2) protect your business and 3) ensure you’re remaining compliant 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, making it challenging to keep up with and ensure compliance.

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 make it challenging to design 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 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 challenge. Employers must ensure that payroll data is accurate, secure, and protected, which requires 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 your payroll.

1. Understand centralize 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. Stay up-to-date on 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 to avoid any unexpected compliance challenges.

3. Automate payroll processing

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

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

4. Maintain accurate employee data

Accurate employee data is essential for payroll processing. 

At a global level, have a privacy policy that prioritizes accurate employee data reporting 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 & pay, and updates to their home address. 

5. Ensure data privacy and security

Payroll data is sensitive information.

If your employees live anywhere in the EU, especially in Germany, your business will 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 giving them accurate pay slips. 

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.

Performing audits abroad are especially if you’re using a third-party service provider to manage payroll. Audits keep you informed on your payroll strategy and avoid discrepancies from growing in size.

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 required amount of time in that country. 

In Spain, payroll records are required to be kept for 4 years, while the UK only requires payroll records to be stored for 3 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 companies choose to manage payroll in-house. This can be a cost-effective option for smaller companies with operations in only a few countries. 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 companies 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 companies 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 Via 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 company's specific needs, resources, and capabilities.

What is a PEO? 

PEOs act as a co-employer, you enter into an agreement with a PEO service provider to help you manage payroll, but PEO services do not take full responsibility for maintaining compliance with local laws. 

Employers enter into a co-employment relationship with the PEO, which comes with additional risks and liabilities.

To use a PEO service, companies still need to hire local labor experts, open an in-country bank account, and complete all of the necessary government forms. Businesses will need to pay all the mandatory fees as well.

PEOs act as a co-employment relationship which means: 

• Your hires are still your employees 

• You still need a legal entity in the country

• You still have legal responsibilities in case of compliance issues 

What is an EOR? 

An employer of record (EOR) allows companies without a local entity to hire full-time workers in minutes. An EOR acts as the legal employer on paper and helps businesses manage payroll, statutory benefits, employment contracts, taxes, and other HR processes.

EORs: 

• Manage payroll, employment contracts, and statutory benefits such as healthcare and pension plans

• Navigate payroll taxes and other HR processes

• Support full-time workers across the entire employee lifecycle, from onboarding to offboarding

• Sponsor work visas & permits

• Save thousands of dollars and countless hours of valuable time

Why companies partner with Via

Many companies want to expand to the global marketplace but do not have the in-depth knowledge of beginning the process compliantly or how to hire talent. Via makes hiring employees and building your global team seamless. Via helps you manage local HR processes for direct employment such as work visas & permits, benefits, payroll, background checks, and more. Our team of local labor lawyers and on-the-ground experts ensure that your company remains compliant while expanding abroad. As your global employer-or-record/entity, Via assumes full responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team. 

With Via’s transparent pricing, you can pay full-time employees or contractors with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.