Five common Pitfalls in Global Payroll Compliance

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Globalization has had a profound impact on the operational fabric of Global Payroll. Not only has it introduced newer ways of operating payroll but has also intensified the complexities and challenges associated with ensuring compliance. Employee salaries constitute a significant piece of the overall expenses pie incurred by any organization. It can also be considered highly sensitive because every employee needs to get paid, and an organization should comply with a wide range of complex laws before paying them.

Payroll processing is often associated with “opportunities & risks”

  • The opportunity is paying employees efficiently and effectively with accuracy and within the set timelines.
  • The risk, both financial and reputational could be hampered by inaccurate payroll processing and non-compliance with the ever-changing payroll, taxation, labour and data privacy and protection regulations.

The common pitfalls that an organization faces in its journey to attain cent-per cent compliance in its payroll function are:

1.    Lack of understanding of local laws and requirements

Companies operating globally at times lacks in maintaining multiple statutory compliances. The reason of this is inadequate knowledge of local laws and requirements of the particular country. This is becoming more challenging as regulations across countries are becoming complex because of continual amendments. Missing out any important mandates can have significant repercussions on business.

2.    Inconsistent and inadequate documentation of compliance policies and procedures

Businesses are exploring new markets and bringing multi-country operations on a single platform. An organization’s executive leadership holds an important role in developing and maintaining robust payroll policies and procedures for the smooth running of the business. But there are many companies who do not have adequate global payroll policies that could govern across all countries of operations. The disintegration of global payroll policies and procedures increases the possibility of non-compliance.

3.    Contrasting and fast-changing taxation policies of different countries

Ensuring compliance especially when an organization deals with multi-country payroll and keeping up with those changes that seen to ever so constantly occur is a herculean task. When an organization runs their business in various countries, they have to manage payroll taxation policies accordingly. Each country comes with its own set of due-dates for filing paper-work, varying penalty structures, and diverse tax structures. Many times inconsistency between different jurisdiction leads to errors and misunderstandings. Taxation and compliance is a phenomenon that no company can take for granted.

4.    The compliance dilemma in long-tail countries

Organisations who are multi-national in nature are faced with the need to manage a diverse workforce. The unequal employee split across geographies will certainly result in certain countries having a low headcount workforce working remotely from different countries (called the Long-Tail Countries). It increases the risk and challenges for the organization and especially for payroll function because employers falling short to manage the peculiarities of multi-country legislation. The possibilities of committing an error (including non-compliance to tax-laws) in these countries are much higher in comparison to an organization’s primary or secondary countries simply because of the resources that an organization cannot commit to the Long-tail countries. There are significant chances that the cost (penalties) incurred due to non-compliance in these countries can exceed the ROI generated by operations in a tail country.

5.    Lack of process-visibility and control over the payroll processing value chain

For a payroll professional it is crucial to track the sinister situations in the processing of payroll. The payroll cycle has different stages and organizations struggles in executing a transparent payroll process. Due to ambiguity in the data generating and improper reporting, professional lose their hold on the accuracy. The inefficiency in identifying the errors and glitches on time can put companies under the jurisdiction of non-compliance.

The panacea for effective global payroll compliance

In order to build and maintain a global payroll ecosystem, it is paramount for payroll professionals to structure their processes in order to comply with multi-country legislation. To drive an effective payroll function, professionals should develop a comprehensive understanding of multiple jurisdictions and make a periodical alteration in the payroll system according to the changes in laws and regulations.

Lastly, there are several options that an organization can adopt for becoming compliant with international rules and regulations and it depends on decision makers and payroll professionals what strategy they choose – in-house, fully outsourced or partially outsourced.

Local compliances dynamically impact the global payroll industry. It is quite possible that myriad of global compliance needs – especially in countries with sparse employee population (long-tail region) – may get unattended. It may be important for organizations to partner with companies with global infrastructure, expansive network, and technology/ platform that institutionalizes best-practices and requisite controls.

Experiencing nebulous processes in managing your global payroll compliance? Reach out to Irene Jones at irene.jones@neeyamo.com.

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  • Excellent article. Thank you for for Publishing. In addition to what has been mentioned in article I think one more important aspect is Data Privacy especially with GDPR going in to effect on 5/25. I have often observed that data privacy is not a focus area and that awareness about data privacy especially at junior level in payroll process is very minimum. People at junior level are the once who handle personal data and need to be aware of data privacy principles since niglegence is an excuse under GDPR. It is high time that data privacy become key aspect of payroll compliance.

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