Multinational companies of all sizes are capable of being truly global in nature these days due to unprecedented opportunities for scaling and international expansion. Companies are capable of growing at faster rates than ever before thanks to capital investment, technology infrastructure and a globally available workforce.
This has resulted in an explosion of scaling activity at many multinational companies around the world - these company now feature international locations and hundreds if not thousands of new employees on their books.
All this activity is accompanied by mass payroll data, regulation, cyber security and international payroll compliance obligations. It is simple, the larger you grow, the more there is to manage and control and the more room there is for costly payroll service errors.
Rapid company growth and international expansion means a sharp increase in the number of employees to be paid around the world. These new employees are based in different locations and time zones with languages and currencies to be managed too. But more importantly, local country regulation and labor law needs to be followed to ensure that any centralized team paying employees around the world is acting in a compliant manner on a global and international level.
In this article, we will examine the nuances and difficulties involved in achieving global compliance when it comes to global payroll process at multinational companies. We highlight some of the key mistakes you should be avoiding, or you risk non-compliance.
1 The local team is responsible for payroll compliance
This is never true, overall responsibility always has and always will remain with the global employer. A rapidly scaling organization will always need to find payroll specialists in the new country they are scaling into -local subject matter experts are needed to navigate intricate and nuanced tax and employee laws. The subject matter experts can be very valuable when it comes to processing global payroll and paying new employees in international locations, but they are not responsible for compliance on a global level -that is the responsibility of the employer.
They may have record-keeping controls in place, and technology support to prove compliance activity. This does not remove responsibility from the employer, and the centralized global payroll management team at international headquarters will need to understand the requirements in each and every country they process global payroll in. It is important to develop strong relationships and solid communications with these local country payroll providers and subject matter experts to ensure the tight controls are in place on a global level to ensure that global compliance is carried out and recorded.
2 Failure to properly classify employees
International expansion inevitably means the human resources departments enter into the war for talent in new countries and there is a need to tweak and tailor compensation packages to attract and retain the best talent in the market.
Sometimes, this means working very quickly to attract new employees, onboard them quickly to ensure that the new international office can gain momentum quickly. A global workforce can therefore be made up of permanent employees or independent contractors. It is important to classify these contract workers in the correct manner and in accordance with local employment laws- as the misclassification of contract workers is a compliance risk and regulatory authorities are watching compliance issues closely.
There is a lot of appeal when it comes to hiring independent contractors -they can be hired relatively quickly, and they tend to be less costly than traditional full-time employees. They are a very attractive option when a company has not had the time to give key considerations to an international expansion strategy- this happens more than you might think and employing independent contractors overseas often becomes the quick fix solution that enables an overseas project to start. Companies have good intentions to figure out a more comprehensive hiring strategy at a later date but sometimes things simply slip through the cracks - this is usually followed by an inevitable compliance failure and this brings with it a potential for significant fines and penalties.
Drafting employee contracts can be another issue- this can be influenced by country, entity and employment law. Proper research and due diligence need to happen to avoid drawing up a contract with an employee that does not hold up to legal scrutiny or labor laws. It is the responsibility of the global employer to gain a clear understanding of the requirements needed for legal employee contracts in any new country.
3 Failure to connect systems
Platform integrations are a hot topic at multinational companies today as there is now a lot of focus on inter-connected departments, and the level of technology that exists within them. Some of these departments have a strong reliance on each other, particularly when it comes to important data exchanges.
The human resources department and a global payroll department can really benefit from technology that connects them and facilitates a smooth and coherent flow of essential data. Global payroll calculations often require inputs from HCM systems while essential global payroll data needs to flow back into HR systems as well as finance and accounting software. If there is no or very limited technology connections between these business-critical units, then it is very difficult to streamline workflows are introduced efficiencies.
Platform integrations are a strong way to connect disparate systems within the technology ecosystem that requires multiple departments to interact with each other for crucial service delivery. Better integrations result in stronger connectivity and a knock-on effect of this, is tighter and better controlled compliance.
If HCM and global payroll department data flows are delivered via powerful and innovative technology, this will result in greater speed, accuracy and efficiency and these three factors contribute to improved compliance.
A good example would be automation technology in global payroll data - if the transfer of data from a connected HCM system over to the global payroll processing system was automated, then the risk of human error would be eliminated and data compliance would be immediately strengthened. Digital technology tools can also be deployed to create audit trails that create a historic record of the individual actions that various people performed in a service delivery - covering what they did and when they did it. This is a record that can be easily accessed and used to prove compliance in the event of an internal or external investigation into compliance activity. In these situations, multinationals are using technology to improve visibility, tighten control and empower professionals to meet compliance and regulatory obligations.
Many people now agree that there is a direct link between technology investment and time spent on compliance: those with newer technology solutions are a lot more likely to spend fewer hours per week on compliance.
4 Failure to set up a global payroll calendar
Multi country global payroll is a complex, data driven process that requires great diligence and accuracy to ensure a successful delivery. When an organization has many different entities spread across the globe, it can be difficult to keep track of who is paying employees and where.
The nature of global payroll often involves a complex mix of local payroll providers and centralized payroll processing systems. It is essential to set up a digital global calendar that consolidates all of these countries so that global payroll professionals can have full visibility of all their payrolls.
Failure to set up a global calendar could mean see a scenario where effective compliance happens in some countries but compliance failure in other countries due to being unaware of important dates. You may need to set up an individual payroll for each country or there may be an opportunity to synchronize by region and time zone.
Common pay dates occur in the middle and end of the month, but these can vary from country to country and cultural nuances can be a factor as some countries dictate that payments be made on a specific date. It is important therefore to take the time to fully understand the business culture in each of your payroll operation countries. An entity in a Latin American country for example, is one where employees are entitled to a “13th-month” salary, which is payable by the employer in December of each year.
5 Continued reliance on spreadsheets
It might seem extraordinary that non secure spreadsheet data is still relied on in 2020 but in many global payroll departments, this really is the case. Emails and spreadsheets still play a significant role in global payroll at many organizations as some companies have been slow to move to a cloud deployed environment featuring secure file sharing.
While acknowledging that excel files and spreadsheets have in the past been hugely effective business tools, they are simply no longer fit for purpose in this age of information security and international compliance. They now represent a data security risk and there can be no compliance if information is not supported with strong data protection measures.
With the use of spreadsheets, version control is difficult to maintain and they can be altered all too easily- this makes them subject to a degree of compliance risk that is simply unnecessary in 2020. Global payroll data is particularly sensitive and often contains personally identifiable information so protecting this employee data should be a priority at every company.
It is better and far more compliant to move payroll data inside a secure cloud-based environment where file sharing access and authorizations can be controlled at a global level.