Co-authored by Vignesh 04 February 2019
Did you know that the total population of expatriates worldwide is a whopping 66.2 million and is expected to reach 87.5 million in 2021? Massive, isn’t it?
Expatriates, who are they?
As per Wikipedia, an expatriate (often shortened to expat) is a person temporarily or permanently residing in a country other than their native country. In common usage, the term often refers to professionals, skilled workers, or artists taking positions outside their home country, either independently or sent abroad by their employers, who can be companies, universities, governments, or non-governmental organizations.
Wikipedia might be able to enlighten us with the definition of an expat, but not on how payroll could be processed for one.
Payroll processing for expatriates is considered the most complex process as it takes the most time. One of the biggest challenges in expatriate payroll processing is adhering to the region-specific compliances of the expats.
Administrating expatriate payroll will require,
- Constant updating and reporting based on local compliance regulations, in addition to exhibiting knowledge of local tax payment requirements
- Explicit delivery of benefits, compensation, and other policy-driven expatriate allowances irrespective of single or multiple currencies.
In order to fulfil these requirements, the following practices can be adopted.
- 1) Consolidation and reconciliation of payroll data:
Processing payroll for an expatriate differs from usual payroll processing; Most payroll data might come from the expatriate, as opposed to conventional methods of receiving payroll inputs from various other org-wide sources. So, when the data is received, certain important aspects of payroll processing like assignment-related amounts should be cross-checked and confirmed.
The additional payments that may require some extra hypothetical withholding should be monitored. The local taxes or deductions that are withheld should also be verified on a consistent basis.
- 2) Maintaining and conducting periodic reviews of region-specific compliances:
Expat payroll administration has the risk of failing to fulfil compliance regulations in accounting legislation among different jurisdictions. Payroll compliance differ greatly from country to country depending on several factors
It is a critical requirement for businesses to understand the corporate tax risks when employing staff in certain locations. A proper record with policies and procedures should be reviewed and updated on a regular basis. By employing a partner who specialises in in-country/global compliance or an audit consultant, one can significantly minimise the risk of non-compliance.
- 3) Implementing and managing tax equalization:
It is advisable to implement tax equalization for expatriates, to help prevent compliance issues. The corporation pays the employee’s entire tax liability – both local and international when a company decides to implement tax equalization.
Then, the company calculates the tax as per the norms of the home country of the employee which gets deducted from his/her paycheck. This tax is commonly known as hypothetical tax. This ensures that the employee pays the tax that he/she would have paid in his/her home country. This practice should be properly reviewed before and after the delivery of payment to the expatriates.
- 4) Out-source the payroll process to the ‘Glocal’ experts:
The expatriate payroll process requires global standards along with local experience and knowledge. So, it will be beneficial for a company to adopt the Glocal (Global-Local) service delivery model.
Leading providers offer access to standardized payroll processes as well as a network of proven in-country suppliers— enabling organizations to process expatriate payroll with ease.
An organisation goes through many thresholds in order to process an expat’s payroll. In that course, every organization seeks for accuracy in adhering to the timelines, but the challenge is the ever-changing regulations and policies. Partnering with an expert payroll provider would be the best approach to tackle this challenge.
Such service providing companies will have a world-class platform which can give you an edge to managing your global payroll operations, a framework that is supported by its in-house expertise, and vast global presence to effectively monitor and manage global payroll. With a professional payroll provider on your side, you can sit back and relax as they deal with all possible odds.
Are you one of those looking for such expertise? Click here to get in touch with the glocal specialists at Neeyamo.