What is Global Payroll?
When we talk about global payroll, we mean running payroll, benefits, and tax compliance for employees in more than one country. These days, global payroll is almost inextricably tied to software.
Global payroll software tools like Deel, Remote, and PapayaGlobal have made international remuneration a manageable business function. These platforms offer various models, including global payroll through employer of record services (full-time and part-time), functionality as a professional employment organization, and the means to employ workers as international contractors or freelancers. In any of these cases, a global payroll tool allows your organization to manage payroll administration in multiple currencies.
The model best suited to your business depends on your global hiring needs and budget. Each team has unique challenges depending on the percentage of people abroad, the variety of countries they’ll deal with, and the percentage of remote work they’ll allow. In this article, we’ll explore how you can handle these challenges through global payroll processing and the main benefits of setting this up.
Types of Global Payroll
A company that wants to engage the services of an overseas person can utilize one of several available models.
Employer of Record (EOR)
An employer of record is a company with multiple legal entities in various countries that can act as the “official” legal employer of your foreign country team members.
As such, they would be legally responsible for all payroll processing, tax regulation adherence, benefits administration, and compliance with local employment laws and regulations. The client company— i.e., you— still controls the day-to-day tasks and the overall workforce management. The EOR company takes care of the legal and administrative aspects of employment.
This model works when you want to engage a global team of workers as full-time or part-time employees. It lets you offer all the benefits and legal protections you would if you had a legal entity in their country. As the client, all you need to do is pay their salary plus the fees required from the EOR company and the cost of using the platform.
Naturally, most EOR companies these days have a global payroll system that you can use to manage all this. For instance, the cost of hiring a full-time employee through Remote’s EOR offering starts at $599/month, plus $50/employee/month for using the platform.
Professional Employment Organization (PEO)
Several global payroll software vendors can also act as professional employment organizations. A PEO service provider allows businesses to outsource human resources functions like employee benefits management and payroll compliance. The main difference between an EOR and a PEO is that, under the latter, the client company enters a co-employment relationship with the PEO.
In other words, you’d still need a legal entity to employ people under a PEO in the foreign country they operate in. Therefore, unless you want to expand globally and open a legal branch in that country, a PEO only works at your local payroll level.
Contractors and Freelancers
If neither of the former routes works for you, there’s always the possibility of engaging the professional services of overseas individuals as independent contractors. Essentially, this means they must be set up to do business in their country of operation and handle their own taxes and benefits according to local regulations.
In this case, the global payroll tool would only be used to establish a contract, an hourly rate if applicable, and process invoicing and payments. This is a good route when the cost of the EOR or PEO models is too expensive.
To illustrate this, we can stick with the example we have above with Remote. This global payroll provider charges $29 per contractor per month to handle contracts, invoices, and multi-currency payments. A similar deal occurs with freelancers, who you can engage with through freelancer management software for a fraction of your payment to them, but that doesn’t correctly qualify as payroll.
Challenges Associated with International Payroll
Before global payroll was as familiar and well-developed as it is today, companies with employees in various countries would need to own an entity in each locale. Each entity would handle payroll, benefits, and local tax compliance issues for the team members in each locale. Alternatively, companies would employ people as contractors and use an international payment service. This process created its own problems with expensive transactions.
Managing a global payroll creates a headache even for large corporations with capital and intelligent professionals to put to the task. There’s difficulty with managing and centralizing the data, and having a tax-paying entity in each country is expensive. This is a significant reason for the development of the EOR industry.
While more cost-effective and less prone to risks of tax noncompliance, the EOR payroll outsourcing model may still prove too costly for small businesses. The less expensive option is employing an independent contractor.
While more straightforward, this model can get tricky quickly when you employ contractors in several countries and must manage international payments in multiple currencies. The same complexity applies even if you’re operating with a team of international freelancers.
Before access to purpose-built software, all these models meant that the client company had difficulty accessing, analyzing, and understanding all the data associated with those foreign employees' payroll, benefits, and taxes. But then, there was international payroll software.
Benefits of Using Global Payroll Services
The benefits of using global payroll services include simplifying compliance and risk management, cost savings, flexibility, enhanced data visibility and security, and improved employee experience.
Mix and Match Types of Global Payroll
Implementing a global payroll solution doesn’t necessarily mean that you have to settle for an EOR, PEO, or contractor model from the get-go. Some of the best companies in the multi-country payroll space offer the chance to start with a contractor model and then switch the same people to an EOR if need be, or vice-versa. Depending on their country, you can even have several collaborators on different plans.
Streamline Compliance and Risk Management
Global payroll service providers integrate compliance management tools, ensuring adherence to complex international employment laws and regulations.
Some tools can automate tax calculations, benefits administration, and other legal requirements. Most also source local expertise to ensure you’re complying with regional laws.
Save Money on Formalizing Your Payroll Strategy
We’ve established that implementing global payroll services can be a cost-effective alternative to establishing legal entities in multiple countries.
Even if you go the EOR or PEO route, which is more costly than paying workers on a contract basis, you’re still winning. Establishing various legal entities and handling the entire HR and tax compliance operation in-house is a significant outlay, especially in the initial phases of international expansion.
Enhance Data Visibility, Reporting, and Security
One significant advantage of global payroll software is its ability to centralize data. Businesses gain real-time visibility into payroll, benefits, and tax information across diverse regions. This centralized approach simplifies data analysis, enabling better strategic decision-making based on comprehensive insights.
Furthermore, outsourcing to a specialized company often means that there are guarantees to keeping your payroll data safe. Whether it’s GDPR compliance or a certification like SOC 2, the top global payroll teams are serious about data security.
Improve the Employee Experience
Global payroll services contribute to a positive employee experience by ensuring timely and accurate salary payments (in their local currency), competitive benefits packages, and adherence to local employment standards. For example, through an EOR service, a company may provide localized benefits, such as health care and other insurance benefits, in their employee's country of residence.
This can significantly contribute to attracting and retaining talent, which should always be an HR priority.
Pack more HR Features into the Same Payroll Platform
Savvy international payroll providers have figured out that the same system can be a godsend for SMBs if it packs more than the essential features.
Many also offer a fully-fledged human resources management system (HRMS). After all, the same payroll data you have for each international employee is also critical for other HR processes. A global payroll platform can now also help with the employee onboarding process, absence and leave management, time tracking, expense reimbursement, and more, all with an employee self-service approach.
Which Businesses Should Consider Outsourcing Global Payroll Management?
Outsourcing global payroll is a strategic choice that aligns with the needs and goals of several types of businesses. Consider the following scenarios where outsourcing becomes a valuable option:
Remote-first Companies
Companies whose entire headcount is 100% remote international employees (or close to that percentage) are arguably the most obvious use case of global payroll.
Regardless of the business size, the benefits of outsourcing their payroll operations to take care of their people in different countries can far outweigh the cost of these platforms.
Small to Medium-sized Enterprises (SMEs)
SMEs with international employees can be relieved of the burden of establishing legal entities in each country. In their case, outsourcing global payroll mainly means access to professional expertise and resources without the need for extensive in-house HR infrastructure.
Businesses with a Fluctuating Workforce
Companies experiencing variations in workforce size due to project-based work or seasonal demands can leverage outsourcing to scale payroll processes accordingly.
Think of a developer agency or content creation. This flexibility ensures efficient payroll management without the challenges of constant restructuring.
Multinational Corporations
Large corporations with a global workforce spanning multiple countries can also find outsourcing beneficial. It allows them to manage payroll processes efficiently, ensuring compliance with diverse international regulations while focusing on their core business operations.
Final Thoughts on Global Payroll Solutions
Navigating the complexities of global payroll requires a nuanced understanding of available models, challenges, and the potential benefits of a software solution. Whether opting for an EOR, PEO, or contractor approach, businesses must align their choices with specific hiring needs, budget constraints, and the intricacies of managing a diverse international workforce.
Far from being a pandemic necessity, global payroll software has established itself as a transformative and necessary solution. Many types of businesses can benefit from streamlined processes, enhanced compliance, and improved data visibility offered by these tools.
As organizations continue to expand across borders, the strategic outsourcing of global payroll functions becomes an essential consideration for sustained growth and operational efficiency. By embracing these advancements, companies can foster a positive employee experience, ensure legal compliance, and focus on driving success in the ever-evolving global business landscape.
