Meeting the payroll standards in the countries where your team members are located is an essential part of managing any business, big or small. As payroll rules and regulations often vary significantly from one country to another, staying compliant in every country in which you run payroll can get complicated.
The consequences of failing to comply with payroll regulations can adversely affect your workforce and your employer brand, and can even create significant legal problems. That’s why it’s vital to reduce liabilities and follow payroll regulations in every country in which you operate. Here’s how you can do it.
What is global payroll compliance?
International or global payroll compliance is the process of making sure your payroll policies and procedures are in line with location-specific laws and regulations. Whether you're paying a team member in a country, region, or state, your payroll must comply with the laws of the land.
Depending on the location and its governing laws, running payroll could mean calculating wages in line with labor laws, withholding the appropriate taxes, and deducting social security, pension, health insurance, or matching contributions according to regulations.
What are the main challenges of managing global payroll compliance?
Every country has legislation regarding employer-employee relationships. These regulations impact everything from how much workers are paid to what taxes they owe and how their data needs to be protected.
Understanding all these laws and ensuring that you’re following them correctly is complicated enough when dealing with one country. When you're an international employer hiring around the globe, you have to figure out all these details for multiple countries.
On top of that, global payroll means dealing with diverse time zones, currencies, and languages. Here are some of the critical hurdles to consider—plus some tips for how to overcome them.
Using the right software
Not all payroll software solutions are equipped to accommodate international employees. A multi-country payroll solution like Oyster is the answer if you hire internationally.
Multi-country payroll software makes it easy to set up and manage payroll in different global marketplaces. You can even automate your payroll globally in order to increase efficiency while staying compliant. Find out more about multi-country payroll with Oyster.
Keeping records diligently
Record-keeping is an essential part of the payroll process. You need to keep track of how much you pay each worker and when you’ve paid them, as well as details like social security contributions or tax withholding.
This protects you in case of employee disputes regarding pay. Additionally, you’ll have a record to hand in case of audits by the local tax authorities.
Understanding local rules and regulations
Every country has unique regulations regarding labor laws, tax regulations, and social security protocols. Knowing your obligations as a global employer can be confusing.
The right international partner can help. For example, Oyster partners with local experts in more than 180 countries, giving you accurate, timely information to ensure compliance in all aspects of hiring, onboarding, and managing global employees—including payroll.
Being aware of employee misclassification
Requirements for worker payments vary, not just country to country, but also according to how that work is classified. For example, in the United States, the Internal Revenue Service distinguishes between a self-employed person and an employee. Contractors are responsible for their own taxes, while employers are responsible for tax withholding for employees.
Misclassification of an employee can result in penalties from the local tax authorities. Oyster has a worker misclassification analyzer that can help you avoid the risk.
Understanding permanent establishment risk
Permanent establishment is yet another issue in global payroll compliance. This is a tax concept related to where a company owes taxes. For example, if the company is permanently established in the U.S., that's a taxable presence and the company has to pay local taxes in the U.S.
Employers hiring globally need to understand the criteria for permanent establishment in the countries they hire in.
Protecting employee data
Employee payroll comes with inherent data protection risks. Employers can access sensitive information, like a worker's home address and bank account details, and have a responsibility to keep it secure.
Rules regarding data protection vary. For example, the European Union has stringent data protection policies under the General Data Protection Regulation (GDPR), which may sometimes apply to companies outside Europe. Violating such terms can result in legal issues, so being informed is essential.
Transferring money internationally
The payment method you use for domestic employees may not be available for all international employees. Either way, you’re going to deal with international money transfers as part of multi-country payroll. These transfers often involve additional documents and fees that can quickly add up.
With all the challenges above, it’s crucial that you educate yourself on the requirements of global payroll compliance and use a payroll provider that you can trust.
Global payroll rules to be aware of
To start getting up to speed with what you need to know about running payroll globally, here are a few universal rules that you should be aware of.
Tax laws and deadlines
Tax laws and deadlines vary significantly from country to country. It's essential to familiarize yourself with the specific tax requirements in each jurisdiction where you have workers to ensure accurate and timely payroll processing. Some important aspects of tax to consider include:
- Income tax rates: Income tax rates differ across countries and may be progressive or flat. Understanding the tax brackets and how they apply to your employees' salaries is critical for accurate payroll calculations.
- Social security contributions: Employers and employees may be required to contribute to social security systems, such as pensions, healthcare, and unemployment insurance. Contribution rates and caps vary by country and may change periodically.
- Withholding taxes: Some countries require employers to withhold taxes from employees' wages and remit them directly to the tax authorities. Be sure to understand the withholding rules and deadlines in each country.
- Tax filing deadlines: Tax filing deadlines can vary significantly across countries, ranging from monthly to annual reporting. Keep track of these deadlines to avoid penalties and interest charges.
- Year-end reporting: Many countries have specific year-end reporting requirements, such as issuing tax forms to employees and submitting annual reconciliation reports to tax authorities. Make sure you’re aware of these obligations and the associated deadlines.
Regulations for classifying employees
As mentioned in the challenges section above, properly classifying your workers is crucial for compliance with labor laws and payroll tax regulations. Misclassification can lead to fines, penalties, and even legal action. Here are some key considerations for classifying employees in different countries:
- Employee vs. independent contractor: The distinction between employees and independent contractors is often subject to strict regulations. Each country has its own criteria for determining worker classification, like IR35 in the U.K. The criteria usually includes factors like the level of control the employer has over the worker, the worker's economic dependence on the employer, and the nature of the work performed.
- Full-time vs. part-time employees: Some countries have specific labor laws and payroll rules for full-time and part-time employees. Be sure to understand the different requirements and benefits associated with each type of worker, such as overtime pay, minimum wage rates, and mandatory leave entitlements.
- Temporary vs. permanent employees: Temporary and permanent employees may be subject to different labor laws and payroll regulations. For example, temporary workers may not be eligible for certain benefits or may have different notice periods for termination.
- Expatriates and local hires: Companies employing expatriates should be aware of the specific payroll rules and tax implications for these workers. This may include special tax exemptions, social security agreements between countries, and additional reporting requirements.
Minimum wage laws
Minimum wage laws dictate the lowest hourly, daily, or monthly wage employers are required to pay their employees. It goes without saying that these laws vary significantly across countries and sometimes even within regions of a single country. It's important to familiarize yourself with the minimum wage regulations in each location where your company operates. This will ensure that you're compensating your employees fairly and in accordance with the law.
Mandatory employee benefits
Mandatory employee benefits are a type of non-wage compensation provided by employers to their employees as required by law. These benefits may include health insurance, retirement contributions, workers' compensation, and paid leave. Like minimum wage laws, the rules governing mandatory employee benefits differ from one country to another.
To ensure compliance with these regulations, it's crucial to research the specific benefits mandated in each country where your business operates. Working with a global payroll provider can also help you manage these benefits effectively, as they typically have in-depth knowledge of local labor laws and can advise on best practices, not just in mandatory benefits, but benefits that most good employers would normally provide to attract and retain top talent.
Exchange rates and currencies
Managing global payroll involves dealing with multiple currencies and fluctuating exchange rates. It's essential to have a clear understanding of the foreign exchange market and its impact on your payroll process. Timely conversion of currencies and accurate calculations are crucial to avoid underpaying or overpaying your employees.
To mitigate the risk associated with currency fluctuations, consider using a reliable foreign exchange service provider or partnering with a global payroll provider that offers currency conversion services. This will help you maintain accurate and compliant payroll records, while also minimizing the impact of exchange rate volatility on your business.
Time off laws encompass regulations governing employee leave, such as vacation days, sick leave, parental leave, and public holidays. These rules differ significantly across countries, making it essential for employers to understand the specific regulations in each location where they have employees. For example, did you know that employees in Spain are entitled to two weeks’ paid holiday when they get married?
To ensure compliance with time off laws, you’ll need a comprehensive understanding of the different types of leave and their respective requirements in each country. This may involve researching local labor laws or consulting with a multi-country payroll provider, like Oyster, that can offer expert guidance.
Steps to implementing a compliant global payroll solution
Establish clear payroll policies and procedures
Clear policies and procedures can make payroll compliance much simpler. It’s worth taking the time to create a manual for your business’s payroll process. From there, make sure all the members of your People team are familiar with the procedures so everyone is on the same page. Implementing an automated payroll system is one way to improve your existing payroll process.
Keep track of payroll deadlines
Payroll deadlines are generally available well in advance, meaning everyone has access to the same information and can plan accordingly. Make note of any deadlines that apply to your business and structure your payroll department schedule around those dates. That way, you can avoid the consequences of missing important dates.
If you’re prone to forgetting deadlines, set reminders to help alert you when due dates are approaching.
Continually update employee records
Maintaining accurate, up-to-date employee records is important for many reasons. When it comes to payroll, you need correct employee records to ensure that your employees receive the right compensation and benefits.
Keep an open dialogue between the People team and your employees. You should let your employees know that it’s their responsibility to update the company about any relevant changes in their lives, such as moving from one address to another.
Correctly classify employees
Making a mistake in how you classify an employee can lead to costly payroll errors down the line. Make note of the differences between full-time employees and independent contractors, for instance, and check that all your employees have the right classification.
Stay on top of changing payroll rules and regulations
Keeping up with changing payroll rules and regulations is one of the most challenging parts of compliance—but it’s also one of the most important. If one of the payroll laws affecting your business changes, you need to be aware of it and adapt accordingly.
Unfortunately, keeping up with all these laws can become a full-time job on its own. You can’t afford to miss any payroll law changes, but many businesses struggle to stay on top of them.
How can Oyster help your company follow global payroll rules?
Following global payroll rules and regulations doesn’t need to be time-consuming and costly. Oyster’s multi-country payroll includes built-in legal and tax compliance functions, so you can offload the heavy lifting of payroll compliance.
Oyster will manage all aspects of your global payroll and compliance so you can focus on what you do best—running your business. Rather than trying to become an expert in employment law in all the places where you want to hire, why not leave the details to Oyster?
You’ll be able to build an amazing international team while keeping everyone happy and staying completely compliant with payroll regulations, no matter where your employees live. You’ll have access to experts in local laws to reduce liability for your business and protect against country-specific risks.
If you’re ready to change how your business handles global payroll compliance, now is the perfect time to get started. Try Oyster for yourself to see what a difference it can make for your business’s global payroll compliance.
Oyster is a global employment platform designed to enable visionary HR leaders to find, hire, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.
Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.