Payroll in North America - A Spotlight
Given that payroll can account for between 40% and 60% of total business costs, it is essential to have payroll operating at its optimal best. Especially for a company with a global employee base. While complexities in business are nothing new, there is a multitude of them to consider when it comes to payroll, especially if your employees are situated in North America.
So, here’s a ready-reckoner with a few key factors that complicate payroll processing in North America.
The two major countries in North America have their own set of legislative complexities to consider regarding payroll. On top of employees’ salaries, companies in the US must comply with Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA), and State Unemployment Tax Act (SUTA). In Canada, employers must pay Employment Insurance (EI) and Canada Pension Plan (CPP) contributions.
These payroll taxes are tricky to calculate as they are front-end loaded. This results in higher taxes being paid for employees in January than in December, depending on which tax bracket they fall into. In Canada, for employees earning between the Basic Exemption amount ($3,500) and 2022’s Maximum Pensionable Earnings ($64,900), the employer’s contribution to the Canada Pension Plan is 5.7%. This represents a 5.7% increase in the cost of employing someone in January instead of December.
In the US, you also need to consider that employers must deduct social security and medicare taxes, sales tax, corporate tax, and permanent establishment concerns. Aside from a flat corporate income tax rate levied by the federal government, employers also need to understand sales tax intricacies that vary based on each state. Only five states do not have statewide sales taxes, and the rate varies from Colorado’s 2.9%, which is the lowest among states that levy taxes, to California’s 7.25%.
If all this has your head spinning, you might want to take a second to compose yourself because that is far from everything.
Any time you have an organization spread across a vast area, there will always be issues associated with travel. That is a pertinent issue for employers with tax compliance related to short-term business travel. There aren’t any uniform methods used to track business travelers, and most either rely on travel and expense data or do not even track employee movements. This becomes an issue when it comes to year-end processing, determination of income tax withholding obligations, and reporting of taxable compensation to local payroll.
When processing payroll in Bermuda, companies usually employ partners based in the country. For organizations based in the country, their employees typically consist of locals and US citizens. And therein lies the challenge as US employees and their payroll needs to be processed as per US regulations while it is a different process altogether for locals. Thereby choosing the right partner is critical as they need to manually input data to process the payroll successfully.
If you are still wondering about a one-stop solution to all your payroll woes, look no further than Neeyamo, a market leader in providing global payroll and EOR solutions. Courtesy of our extensive global compliance knowledge, service expertise in 190+ countries, and our proprietary global payroll platform, you don’t have to worry anymore. You will have an efficient payroll system to assuage your payroll concerns.