International Payroll is risky

International payroll leads to compliance risks. Compliancy is not to be taken lightly. Issues could lead to significant fines, reputation damage or loss of engagement. What type of risk you run depends on the way you organise the international payroll. If you’re looking for ease of use and minimum risk, payroll outsourcing to one global partner could be interesting. However, if you have an international payroll expert within your company, it could be cheaper or more flexible to do some countries yourself.

This article is based on my experience as an International Payroll Manager in the last eight years at several multinationals. This concerns in particular, potential risks such as misunderstandings, unclear agreements, insufficient knowledge about Comp. & Ben., 30% matters and salary split which captured my attention during the assignments. Nowadays all national or international payroll vendors are compliant with the local law- and legislation. I am quite convinced of that, but how do you ensure all risks are sufficiently covered?

Expanding overseas

Starting a business in a foreign country is not always easy. Problems could be caused by various factors such as language barriers, different cultures and insufficient knowledge of the local law- and legislation. The Netherlands has one of the top economies of the world and it is one of the world leading exporting countries. The number of subsidiaries and offices abroad is still growing. Besides that, also low-skilled work disappears increasingly to low wage countries. In summary, globalisation leads increasingly to expansion of corporate activities abroad.

With new offices or mergers/acquisitions abroad you have to set up an international payroll overseas. There are various kinds of service providers on the market.

International payroll solutions

Currently there are a four options to process the global payroll:

1. Do it yourself;
2. Local payroll provider;
3. International financial provider;
4. Payroll aggregator.

1) Do it yourself

This option needs a lot of knowledge from your payroll staff about the law- and regulations of each country. Non- compliance with local law- and regulations leads to fines and penalties. So an annually recurring education/training program is necessary. Otherwise you have to hire staff for each country you are established in. Be aware that you may encounter difficulties by different time zones and languages (e.g. if you are established in USA, Hong Kong or Singapore).

2) Local payroll provider per country

Search the internet and you will find all the information you need about local payroll providers. This option requires a high level of knowledge and expertise from your payroll staff. Approaching a third party in the host country with expertise of the local market is recommended. A disadvantage of this option is that this can quickly lead to one or more different payroll providers in each country with many separately maintained interfaces, contracts and service level agreements. Local providers are for example in Belgium SD Worx, Partena or Securex and for the Nordics e.g. Visma or Zalaris.

3) International financial provider

Another option is to find an international financial provider (i.e. an accountant agency). Some accountants are represented worldwide and provide payroll services. In addition to payroll, they also offer a comprehensive range of financial and sometimes HR solutions. They are compliant with all local law- and regulations.

So they can help you to set up and maintain your books and records in accordance with local rules and legislation. An example of a financial provider: TMF Group or BDO.

4) Global Payroll aggregator

The last option is to outsource your payroll to a Global HR & Payroll provider. There is one contract and you have to deal with one Salary provider. This means centralised contracting, common data transfer, fixed timetable and centralised service level agreements. This option is attractive when you do business in more countries all around the world. Some outsourcing partners are physically present but most of them outsource it to local salary providers. There a several vendors in this domain, such as: ADP, SD Worx, NGA, Cloudpay, Active payroll etc.

Conclusion

Doing international payroll yourself isn’t better or worse than global outsourcing to a payroll aggregator. It does however impact the risk your company is exposed to, has a result on your headcount, and does not indemnify you for the responsibility for a correct payroll.

If you’d like to know more, please read the article ‘International payroll, how does it work?’.

Meet the international payroll expert

Paul Koopmanschap the author of this article, is a subject matter expert in international payroll.

If you have any questions or remarks, or would like to hire him as a payroll consultant or international payroll manager, please contact Paul Koopmanschap