A career in global payroll can be exciting yet daunting. Some common challenges that global payroll professionals may encounter include unfamiliar tax and labor laws and navigating language barriers, foreign customs, and time zones while ensuring payroll is accurate and timely. It is a great profession, but it can be challenging and, at times, a little overwhelming. Yet, learning about payroll in other countries while interacting with employees and other professionals worldwide is an eye-opening experience. Global payroll can also be a logical step in a payroll professional’s career progression.
Domestic vs. Global Payroll
While working domestically, a payroll professional develops in-depth knowledge of payroll administration, including labor standards, wage and hour law, taxes, garnishments, leave laws, and employee benefits. Additionally, payroll professionals gain knowledge and experience dealing with multi-jurisdictional issues, such as multistate payroll issues in the United States and multi-provincial payroll issues in Canada. Payroll professionals may also seek formal certifications to enhance their work experience, including PayrollOrg’s Certified Payroll Professional (CPP) and Fundamental Payroll Certification (FPC) designations. Both domestic work experience and professional certifications provide a solid foundation from which to build upon when learning global payroll.
In a sense, working in domestic payroll is quite similar to performing as an in-country service provider (ISP) or local service provider (LSP) in a global payroll context. After all, local payroll is being processed either for a locally-based company or as part of an overall global payroll function for a multinational corporation. In fact, global payroll is essentially managing payroll processing in numerous countries, all while managing local payroll in each country the company operates.
Global payroll will probably seem frustrating to the experienced payroll professional, at first. While many payroll professionals are highly proficient and knowledgeable in local payroll matters, they will undoubtedly lack in-depth knowledge of payroll administration in other countries. Also, global payroll involves providing and receiving payroll information from LSPs in different countries. In reviewing the payroll output (i.e., reports, payment files, payslips, etc.), a payroll professional may have enough knowledge to review most items included with the payroll output (i.e., monthly pay, allowances, certain deductions, etc.) to ensure items are correct before providing final approval to the LSP. However, the payroll professional is still heavily reliant on the service provider to provide accurate output and expertise on all aspects of payroll administration in a particular country. For someone new to global payroll, this can feel uncomfortable and risky.
If payroll in a particular country is processed by an LSP or all global payroll is outsourced to a third-party service provider, such as an aggregator or a business process outsourcing firm (BPO), the payroll professional should ask the service provider for any materials that provide an overview of payroll in a specific country.
Materials provided by service providers are ideal for understanding the basics of payroll in a particular country and they provide a common basis of understanding when asking the service provider detailed questions or working with them to resolve any issues. Other great resources are the Country Spotlights included in this Global Payroll eMagazine every issue, available on the PayrollOrg website. These articles provide an excellent starting point for a payroll professional to become familiar with a specific country’s payroll.
Helpful Information Needed for Global Payroll
In reviewing the reference material below, global payroll professionals should note the following items included in a specific country’s payroll:
Pay Frequency and Dates
In most countries, salary is paid monthly. Some countries also provide a 13th month and 14th month salary payment. Generally, a 13th month payment is an extra monthly salary paid near the end of the year, such as in December. Meanwhile, a 14th month payment would be paid in the middle of the year depending on local law and customary pay practices. In certain countries or for certain jobs, pay could be more frequent than monthly.
Allowances such as a car allowance or shift allowance may be included with salary as either a flat amount or a percentage of monthly salary.
Minimum/Living Wage
Each country’s labour standards establish minimum wage/living wage and overtime requirements. Overtime hours may be calculated based on daily hours, weekly hours, or monthly hours. Also, specific overtime rates could apply to hours worked on weekdays, weekends, and public holidays. In addition, the rate of pay used as the basis of either the minimum wage calculation or overtime calculation may involve a calculation more complex than a simple hourly rate. In certain countries, the minimum wage could depend on the specific job being performed by the employee. Finally, some countries establish a maximum number of hours that can be worked (including overtime hours). Labour standards may allow time off in lieu of overtime pay; however, work during certain shifts on weekends or public holidays could include both time off and overtime pay.
Social Security Registration
In certain countries, new hires (joiners) must be registered with the country’s social security system before their hire date. Terminated employees (leavers) must also be deregistered with social security. And, in some countries, any leave taken by the employee (sick leave, maternity, paternity, etc.) must also be reported to social security by the employer since social benefits are directly impacted.
Termination Pay
Termination pay may be required by local law. This could simply be the payout of unused vacation (holiday) balances or, under certain circumstances, severance pay must be included. Also, advanced notice must be provided to employees by the employer (and vice versa for voluntary resignations), although employers may be able to provide pay in lieu of notice (PILON). Although not required, most employers also provide ex gratia pay with termination pay based on company pay practice. Finally, some countries require payment of a retirement allowance to leavers. A retirement allowance is a lump sum payment separate and distinct from an employee’s pension or retirement plan benefits.
Holiday Accruals
In many countries, vacation accruals (holiday accruals) are mandated by labour standards and local law. Employees may need to work during the current year to earn holiday accruals in the following year. Also, some countries mandate that such vacation must be used by the end of the year, or laws may allow a portion of the unused vacation balance to carry over into the following year (or years). Balances that are more than the allowed carryover balances are forfeited.
Public holidays can also be mandated and must be paid to employees as paid time off. Some countries may require unused public holidays to be available to employees later under certain circumstances (i.e., public holidays occurring during maternity leave).
In addition to vacation accruals, local legislation may require payment of a holiday bonus during the time employees use their vacation (holiday) time.
Non-Cash Benefits
Certain non-cash benefits, such as use of a company car or employer contributions to medical insurance, result in taxable income and may need to be included with the monthly payroll. For company car benefits, many countries’ tax laws provide the specific calculation to follow in determining the benefit value (benefit-in-kind or BIK) to be included with taxable pay, such as defining the specific components to include in the calculation (i.e., cost of the vehicle, CO2 emissions, model, year, etc.).
Paid and Unpaid Leave
Local legislation will mandate the specific types of paid and unpaid leave employers must provide to employees, such as sick, maternity, paternity, parent’s leave, military duty, bereavement, personal leave, etc. Very likely, such leave is coordinated with social security benefits the employees will receive (i.e., leave is paid by the employer for a certain amount of time, then it becomes unpaid leave where the employee applies for government social benefits). If government benefits are low compared to the employee’s pay, employers may include additional pay to ensure total payments equal the employee’s regular pay (“top-up” social benefits).
Pension Contributions
Pension contributions (both employee and employer contributions) may be mandatory in certain countries and may include auto-enrollment. However, certain countries may allow employees to opt out of making pension contributions. Pension contributions may go to a government-approved financial institution (i.e., insurance company or investment firm), a specific government-administered provident fund, or a retirement plan sponsored by the employer. However, several countries allow the employee to choose his or her own pension fund. This means the employer could be making pension contribution to numerous different provident funds or insurance companies.
Income Tax Deductions
For income tax deductions, the country’s tax laws will define how taxable income is calculated (i.e., whether social security taxes and employee pension contributions are deducted from gross pay). Most countries use a graduated tax system that includes different rates and different income brackets that increase as an employee’s taxable income increases during the pay period. However, some countries utilize “cumulative tax” where the employee’s taxable income is initially taxed at a lower rate until the accumulated year-to-date (YTD) taxable income exceeds a specific tax bracket and triggers a higher tax rate. For cumulative tax countries, the local payroll administrator will require a tax statement for new joiners from their previous employer to correctly calculate the income tax deduction. Also, most countries may not require an employee to complete a tax form to be used for calculating the income tax deduction. Instead, the local payroll administrator would receive specific tax codes and information directly from the tax authority.
Social Security Tax and Local Tax Laws
Social security tax and income tax deductions could include separate rates to fund specific social benefits (i.e., government pension, unemployment, disability, leaves, long-term care, etc.). In addition, the employer social security tax rates may be higher than the employee rates—especially if the employer social security taxes include provisions for workers’ compensation.
Local tax laws will dictate the type and timing of annual tax statements to be provided to employees. In some countries, the reporting is completed electronically, and no actual reporting is required to be given to employees since they can obtain this information from their online accounts with the tax authority.
Collective Bargaining Agreements
Collective bargaining agreements (CBAs) may include payment provisions and benefits that are more generous than local labour standards. Employers’ pay practices and compensation structures may also be more generous than local law requires. Written employment agreements may include these more generous provisions as well. In addition, certain countries may require employers to register their pay practices with the ministry of labor (or similar labor authority). These work rules will be enforced in a similar manner to local labor legislation.
Please note that this is not an exhaustive list of unique items for payroll professionals to consider when learning about payroll in a specific country. In addition, there may be other issues that payroll professionals may encounter that will require specialized knowledge the local payroll administrator or global payroll service provider may not have. Such specialized areas include global mobility (i.e., assignee or relocation payments and expenses paid by the employer, immigration issues, company policies regarding tax equalization such as hypothetical tax deductions, etc.) and equity compensation (i.e., providing restricted stock units or stock options to employees in different countries). These specialized areas entail unique tax issues that directly impact periodic payroll processing as well as year-end tax reporting. For these items, payroll professionals may need to engage expert resources or consultants (labor attorney, accounting firm specializing in international tax, etc.).
Additional Resources and Knowledge Base
Finally, payroll professionals working in global payroll may need to obtain more in-depth knowledge for certain topics beyond the materials provided by the service provider. Using paid resources such as subscriptions and memberships in professional organizations are ideal. Relying on “free” resources via internet searches is helpful but risky. When conducting internet searches, payroll professionals need to pay attention to the source and date the material was posted to ensure they are accessing the most reliable and current information available.
To avoid retrieving “expat-related” material (i.e., material intended for expatriates working in a particular country rather than local employees), payroll professionals can try conducting an internet search in the local country’s language. Using a language translation app such as Google Translate is extremely helpful for this. And developing professional networks outside of work can also be beneficial as a resource for country-related questions (such as Global Payroll’s free to subscribe resources and The Payroll Community).
Working in global payroll is rewarding even though it may seem overwhelming to learn payroll in a particular country. However, by building on knowledge and experience gained from working in domestic payroll, payroll professionals can partner with LSPs and professional organizations such as PayrollOrg to learn about payroll in other countries and expand their knowledge beyond domestic payroll. Gaining experience in global payroll also provides excellent opportunities for professional development and career growth.