How does global payroll function?

Global payroll is a comprehensive process that involves calculating employee wages, withholding taxes, administering benefits and bonuses, and delivering payments to employees in different countries while ensuring compliance with local laws and regulations. It encompasses various aspects, including tracking working hours, maintaining payroll records, delivering payslips, protecting employee data, and managing international payroll data.

Difference between Global Payroll and Local Payroll:

Global payroll differs from local payroll in that it requires accounting for diverse labor laws, providing local benefits, calculating wage conversions, and making payments to multiple unique countries. Each country has its own set of regulations regarding minimum wage laws, available payment methods, currencies, tax regulations, employee classification requirements, and mandatory benefits.

Main Challenges of Global Payroll:

Employment Laws: Compliance with foreign labor laws is crucial, covering aspects such as minimum wage, maximum working hours, and mandatory benefits like paid time off, maternity leave, health insurance, and social security. Tax Regulations: Understanding and adhering to federal and regional income taxes, payroll taxes, tax deadlines, withholding regulations, and other tax-related requirements in different countries is essential. Data Management and Security: Payroll involves handling sensitive employee data, posing risks such as data exposure, leakage, unauthorized access, phishing scams, and ransomware attacks. Compliance with international data regulations, such as GDPR, is necessary. International Money Transfers: Transferring payments internationally involves fees and considerations like available payment methods, currency exchange rates, bank fees, and processing time. Compliance with documentation requirements and transaction legitimacy is also necessary.

Handling Global Payroll Services:

Businesses have three options for paying international workers: Hire Non-Employee Workers: Hiring independent contractors, freelancers, or sole proprietors is a cost-effective option, as it avoids recurring payments, payroll taxes, and local benefits management. Use an Employer of Record (EOR): EORs act as third-party companies that manage global hiring, payroll, and compliance. They set up local entities worldwide, serve as legal employers, and handle payroll management and compliance. Open a Foreign Subsidiary and Outsource Payroll: Opening a foreign subsidiary allows businesses to hire employees locally and outsource payroll to local payroll providers with expertise in compliance and payroll operations. However, this option is time-intensive and involves establishing a business presence in the foreign country.