When you operate across borders, how do you keep your payroll consistent, compliant and cost-effective?
Ever heard of the aguinaldo? If you operate HR or payroll in Latin America, you almost certainly have. It’s the (usually) end of year bonus paid as a 13th salary payment and it’s not just a common perk. In countries such as Columbia, it’s mandatory.
If you happen to be setting up an arm of your operation in Columbia (or Brazil, Argentina, Bolivia, Coast Rica and more) you really need to know about it. That, in a fairly obvious nutshell, is the challenge with managing international payroll: everyone does things a little differently.
In addition to the cultural differences, there are vast legal and compliance differences. You may comply with UK GDPR when storing employee data domestically, but if you’re storing employee data in other countries you’ll be bound by very different legislation.
Take the simple example of transferring employee data overseas. In California, as Securiti notes, there are no specific restrictions. In Brazil you’ll need consent. And in New Zealand you’ll only be able to transfer data if the destination country has safeguards in place comparable to the New Zealand Privacy Act.
All of which presents international organisations with a challenge when it comes to managing an international payroll, because each of the various ways of doing it will present a range of risks and benefits.
Three ways to run your international payroll
In house, everywhere: Perhaps the simplest option (for payroll departments in individual countries, at least) is to run payroll in-house as a distinct entity in each country.
There are advantages to this approach. Local people manage a local payroll, so nothing is lost in translation and you avoid the cultural missteps that can creep in when, for example, a UK organisation tries to run a payroll for a Singaporean team from London.
Yet global organisations remain a single organisation. Each of their territorial operations shares the same DNA. Each contributes to the same level of global success. The problem with keeping payroll separate in each of the countries in which you operate is that you risk inconsistency of approach with regard to the elements of payroll which are shared across territories. There may also be differences in terms of platform.
That lack of consistency can unwittingly set precedents you’d rather weren’t set. It can create a minefield for data collection, because each operation may process things a little differently, even when interpreting the same rule book. Leaders may find it harder to gain true data visibility across the organisations. Then there’s the final and not insignificant issue that running multiple payrolls in multiple jurisdictions can get rather expensive.
Decentralised payroll: In this model, payroll is processed in each of the territories in which you operate, but rather than done in house, it is outsourced. Outsourcing typically lowers the cost of payroll and improves accuracy. This decentralised model may also lock in a degree of fast and flexible local decision making which could benefit service standards.
The disadvantages, as with in-house processing, revolve around consistency, security, accessibility and streamlining. It may not be as easy or as secure to share information across the wider organisation with a decentralised model. It will almost certainly take more effort to do it well.
Centralised payroll: It’s important to understand what we mean by a centralised international payroll model. This isn’t a model where a central outsourced payroll unit processes payroll for the world in sterling or dollars.
Rather, the outsourced payroll processor works with its international partners to pay employees in your preferred choice of currency (or combination of currencies). Because local teams are involved, nothing gets missed from cultural or legal perspectives.
This gives organisations the potential to run the same software platform globally, which makes data sharing simple and security much tighter. It gives leaders the visibility over their data to make informed decisions swiftly.
As with outsourcing domestic payroll, outsourcing a centralised international payroll makes life easier for overworked HR and finance departments, and it removes the need to build your own international networks of advisors because your payroll provider does that for you.
It also ensures organisations can take advantage of the cost effectiveness of leaving someone else to manage the intricacies of running a payroll globally.
Just Payroll’s international payroll
Just Payroll operates a centralised international payroll model that taps into the expertise and experience of local partners across the globe. Yet with a single contract, a single service level agreement and a single English-speaking point of contact, managing it all is simple.
Explore our international payroll services
And to find out more about tailoring the service to meet your needs, talk to us.
