Mastering payroll processing and timing, especially on a global scale, requires careful planning, knowledge of local regulations, and efficient systems. Are you considering setting up international payroll in-house? Let’s first take a look at what goes into setting up your own payroll system for your remote team.
Key steps a business should follow to set up international payroll
Expansion strategy: Define your global expansion goals, including the countries you plan to operate in.
Legal research: Research labour laws, tax regulations, and compliance requirements in each target country.
Entity setup: Determine if you need a legal entity (subsidiary, branch) in the target country or if an EOR is a better option.
Payroll model: Choose between in-house management or outsourcing to a payroll provider or EOR.
Banking and currency: Set up international bank accounts for payroll and consider currency exchange needs.
Software selection: Choose HR and payroll software capable of handling multi-country payroll and local compliance.
Employee classification: Determine employment contract types and classification for local compliance.
Tax registration: Register with local tax authorities and obtain necessary identification numbers.
Contract documentation: Draft employment contracts, offer letters, and other documents adhering to local laws.
Data privacy compliance: Ensure compliance with data privacy laws like GDPR in the EU.
Payroll Processing: Develop payroll processes considering tax withholding, social contributions, and deductions.
Tax and reporting: Stay current with local tax filing deadlines and reporting requirements.
Benefits administration: Administer employee benefits in line with local norms and regulations.
Record-keeping: Maintain thorough records of payroll transactions, including payslips and tax documents.
Currency management: Handle currency exchange and ensure salaries are paid in preferred currencies.
Compliance monitoring: Continuously monitor legal changes and adapt payroll processes accordingly.
Audits and reviews: Regularly audit payroll processes to identify and correct errors or inefficiencies.
Problems with managing your payroll in-house
Firstly, local HR and payroll compliance is complex. Setting up international payroll that requires expertise, which if managed internally, comes at a cost.
Different regions, countries, and even cities may have unique labour laws, tax regulations, and employment standards that must be adhered to. These regulations cover a wide range of areas, including minimum wage, working hours, overtime, taxes, employee benefits, and termination procedures. Ensuring compliance with all these intricacies is a challenging task.
If you open an entity in a country, it will trigger additional administrative responsibilities just by having a company which will eat into your resources and add to the complexity i.e. corporate tax filings. This is not ideal when you have a small presence as it increases the cost.
Secondly, setting up your entity and ensuring you have all compliance items in place takes time. This is time that you could be using to find the right talent or build your business.
Thirdly, managing a network of payroll vendors is difficult because of a lack of standardisation in processes, scope of services, contracts or costs.
What if we told you it’s possible to hire a company that can take care of all these steps for you?
Ar WorkMotion, we help companies pay employees on time and in their local currency through an Employer of Record (EOR). An Employer of Record is a third-party organisation that takes on a significant amount of the work involved when hiring abroad. An EoR does not recruit, but gets involved in the process once the company has selected a candidate.
By providing all the necessary information, an EOR makes sure that the customer acts compliantly throughout and moves within the safety of the framework that is provided.
Advantages of using an Employer of Record (EOR)
Choosing an EOR is a strategic approach that can help you expand your global workforce while mitigating certain responsibilities and risks associated with hiring employees in a foreign country. Here's an elaboration of this point:
|Global Compliance||EORs are well-versed in local labour laws, tax regulations, and compliance requirements in multiple countries. They ensure that your business remains fully compliant, minimising legal risks and penalties.|
|Speed to Market||EORs enable swift market entry by offering an established infrastructure for employment. You can begin operations in a new country without the delays and complexities associated with setting up legal entities.|
|Cost Efficiency||While EOR services come with a cost, they are often more cost-effective than establishing and maintaining legal entities in multiple countries. You avoid the overhead of hiring local HR and legal staff.|
|Flexibility||EORs offer flexibility in managing your workforce, allowing you to scale up or down as needed. This agility is particularly beneficial for businesses with fluctuating staffing needs.|
|Risk Mitigation||EORs assume some of the legal and administrative responsibilities of employment, reducing your business's compliance and operational risks. They handle payroll, taxes, and benefits on your behalf.|