The rise of distributed teams spread across the planet has led to new challenges in areas like cross-border payroll payments. Rather than paying a team that works in the same building or city, we now need to consider the demands of cross-border payroll management.
It introduces elements like different currencies and unique tax regulations to take into account. Payroll compliance varies by country, so a company’s payroll system must take into account the local requirements and available payment methods in each location. Payroll payments crossing borders can be carried out in various ways to meet each type of situation.
We’ll be looking at how to make timely payments that reach employees’ bank accounts or cards with no hassle. It means using the latest technology and a suitable strategy to create payroll solutions that make sense in each case. Find out about the best practices for making cross-border payments easier.
What is cross-border payroll?
Any business that wants to hire staff globally needs to support that goal with the ability to pay those team members. The approach to global payroll management has to include the following key elements to run smoothly.
ISMS framework
By using an ISMS framework like ISO 27001, businesses can put in place a series of processes that enable them to handle payroll payments more easily. It is necessary because a global payroll system must remain confidential when handling the sensitive personal details of employees in different countries.
Risk management
Any global payroll system must consider the identified risks. The likes of data breaches, fraud, and local payroll compliance all need to be taken into account. With multiple currencies and different countries in the process, global payment management is more complex than payroll in a single country.
Continuous improvement cycle
Effective risk management involves regularly assessing the processes and procedures for carrying out cross-border payments. Monitoring and updating payroll solutions allows companies to find and fix any weaknesses. This continuous improvement cycle means that cross-border payroll payments should become smoother over time.
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How cross-border payroll works
The process of making payroll payments to various countries can be broken down into the following steps.
Onboarding international employees
When setting up a global payroll platform, a process must be in place for onboarding international employees into the payroll system. This is where the correct data has to be collected to allow their entry onto the payroll system.
Local regulations need to be taken into account when details like address and bank accounts are gathered to be stored on a database. International payroll requirements include working out how taxes are to be paid on the money the employer sends. To ensure compliance in the global economy, companies also need to verify that employees can legally work in the country where they reside.
Calculating gross/net pay
You need to take into account the local employment laws when calculating gross and net pay for international payroll payments. Areas like the national minimum wage and the maximum number of weekly hours that can be worked need to be understood to ensure compliance.
Statutory leave rights and sick leave are among the other issues that affect the way payments are processed. This should all be clearly noted so that there is no confusion or lack of trust.
Managing FX
Currency conversion to local money should be done using up-to-date, independent exchange rates. It creates the need to carefully manage the payroll budget, taking into account possible rate changes. The salary costs for a business may increase at short notice, according to the exchange rates.
Dealing with fluctuating exchange rates and different countries can also affect the value of the employees’ salaries. If their local currency loses value, they may feel that their salaries aren’t as worthwhile as they were before.
Payment delivery
Payroll frequency is a crucial part of accurate payment delivery between any two countries. The most common frequency of payroll payments varies from one country to another, with special rules in place in certain countries.
Any global payroll system should automatically deduct taxes and all other mandatory deductions for all of the countries being dealt with.
Payslip issuance regulations vary by country, too. The employer needs to confirm any specific requirements that should be added to their general payslip data. To comply with local laws, the payslip should be correctly issued in the employee’s language.
Payment methods for cross-border payroll
There are different methods for an employer to manage its global payroll. The following are the main ways to transfer funds abroad.
International bank transfers (SWIFT, SEPA, ACH). These are the most common approaches for payroll managers to use. The global reach of SWIFT makes it a solid choice for geographically dispersed teams, while SEPA transfers are Europe-focused, and ACH payments are mainly for the US.
Payroll or expense cards are useful options that don’t involve depositing into a local bank account. Payroll cards are typically prepaid with funds, while expense cards have set spending limits. The employee uses them to spend, like they would with a regular debit or credit card.
Digital wallets or fintech platforms allow smooth online payments across the planet. The employer can deposit each person’s salary directly into their wallet instead of sending it to traditional bank accounts. Fintech solutions include specific business-to-employee payroll solutions.
Employer of Record (EOR) services are operated by third parties. They simplify the company’s payroll compliance by handling all of the key issues on their behalf.
Benefits of efficient cross-border payroll
Setting up an efficient cross-border payroll process offers several valuable benefits. Employee satisfaction is important, as team members are more likely to be happy if their salaries are paid promptly and without hidden fees or other issues. It should help boost retention rates among staff.
It’s also easier to comply with global tax laws and labor laws in this way. Businesses that employ global workers avoid high costs and other additional costs when paying their salaries in the right way.
Automation and integrated systems help save time while meeting regulations effortlessly, using a single dashboard. It can prove to be a vital step in scaling operations globally to generate more income without increasing costs.
Key challenges of cross-border payroll
Businesses that employ workers in different countries face several challenges in managing their payroll.
Multi‑currency account conversions & FX fees can add to the costs and complexity of transfers.
Local payroll regulations, such as taxes, benefits, and social security. Compliance with national and provincial taxes, as well as other payroll-related issues, must be clearly managed.
Banking infrastructure & payment options. With a variety of payroll options, selecting the ideal one can be challenging. Some have high fees or make it difficult for transfers to be processed quickly.
Data privacy & compliance rules vary. Businesses with international employees need to comply with local laws, which can affect their data collection and payments.
Cultural/localisation nuances in payroll practices. Some countries have unique laws or practices that global businesses have to adapt to. These include mandatory bonuses or the inclusion of a 13th-month salary each year.
When to use payroll providers
Payroll providers make life easier for businesses that pay global workers. The following pros and cons show when they’re most useful.
Advantages
They help ensure compliance with tax laws and other legal matters.
A single dashboard to control payroll matters easily.
Expert knowledge means fewer in-house training needs or potentially costly errors.
Employer of Record (EOR) services may provide added legal protection.
More efficient transfers with consistent exchange rates.
Small businesses get scalability to help them progress.
Disadvantages
Extra fees may be applied to the salary process.
Businesses lose some of the direct control over their payroll payments by passing them to a third party.
It may become more difficult to communicate with staff about payroll matters when it isn’t handled in-house.
In-house teams can manage cross-border payroll in certain situations. This is typically an option when the business already has established payroll experts and a global presence. Other businesses may feel the need to get extra support from a team of experts to help them make payroll payments,
For most companies, their view on the trade-off between cost, compliance, and convenience lets them decide how to proceed.
