Global payroll compliance is the adherence of businesses to laws and regulations related to payroll and payroll taxes across different locations. Legitimate organisations must comply with legislation at local, state, and federal levels to sustain their operations. Failure to comply can lead to penalties at every level, but companies that put payroll compliance first protect their most crucial HR processes - thus ensuring smooth operations and employee satisfaction.¹

According to the Global Payroll Management Institute (GPMI), global payroll compliance is the number one challenge faced by companies operating internationally. Each country has its own deadlines for filing reports and paying taxes - making timely submission a difficult task. Additionally, payroll taxes and rates vary between jurisdictions, along with rules for tax deductions and benefits administration. As businesses enter new locations, managing payroll compliance can then become increasingly complex which subsequently require a substantial amount of time and dedication to manage.²

Payroll compliance challenges

It is an obvious highlight that global payroll involves addressing numerous challenges associated with managing employee populations across multiple geographies. Amongst the primary legal compliance concerns, here are some key challenges:³

• payroll taxes
• compensation and benefits
• data security
• payroll registration
• reporting
• payments

Payroll taxes

Understanding the variations in payroll taxes from one country to another is essential. This not only encompasses the tax rates levied on employees and employers but also the nature of the imposed taxes and contributions. Each country has a distinct tax system, and managing a global payroll requires knowledge in tax in every country where the business has employees.

Compliant payments

Compliant payments are another significant challenge. Cross-border payments can be slow and expensive without a global payments solution, and many countries have strict rules regarding payments linked to payroll processes. For instance, payments to local employees and authorities may need to be issued from an in-country bank account, and some countries have restrictions on payments in foreign currencies. 

Correct payroll setup

Proper payroll setup is crucial and begins long before the actual payroll processing. This includes meeting registration requirements and deadlines, registering as an employer, obtaining necessary identification numbers, and timely registering new hires.

Statutory benefits compliance 

Ensuring statutory benefits compliance is another vital aspect of global payroll. Employee benefits vary by country, and it's essential to provide all legally entitled benefits, such as annual leave, sick days, and pension fund payments. A global benefits strategy is necessary to meet legal requirements everywhere. 

Compensation laws

Compensation laws also play a critical role; most countries regulate employee compensation, including minimum wage rates and overtime pay. Organisations must stay vigilant about legal changes to avoid lawsuits and fines. A global compensation strategy helps minimise compliance risks and ensures competitive compensation packages.

Global payroll reporting

Global payroll reporting is another major component, as statutory reporting oversights can have direct consequences on the business. Each country requires specific payroll reports filed at particular times, requiring a detailed global payroll and compliance calendar or collaboration with experienced in-country payroll providers. 

Data security

Additionally, data security is a crucial yet often overlooked aspect. Cross-border data transfers must comply with data protection regulations in every country where payroll data is collected, stored, and used, including adherence to international standards.

Streamlining payroll processes

Managing payroll and compliance across multiple countries can be complex and time-consuming for global business organisations. Each country has its own set of payroll requirements, tax regulations, and reporting obligations. 

An Employer of Record compliance service simplifies this process by leveraging their expertise and local office infrastructure. They handle payroll processing, ensuring accurate and timely payment to employees in compliance with local regulations. This includes calculating taxes, managing deductions, and handling other payroll-related financial tasks.

According to NelsonHall’s survey, 67% of organisations using Employer of Record services reported improvements in payroll accuracy and timeliness. By centralising payroll management through an Employer of Record service provider, companies can ensure consistency, reduce errors, and mitigate the risk of non-compliance. An Employer of Record can offer a streamlined solution to the complex and varied requirements of global payroll, enabling businesses to focus on their core operations while maintaining confidence in their compliance efforts.

How Employer of Record simplify global payroll compliance

Compliance with local employment laws is essential for companies expanding globally. Each country has its own intricate labour regulations, and this includes minimum wage laws, working hour restrictions, and employment contract requirements. Non-compliance can lead to severe penalties and legal repercussions for businesses. 

Employer of Record can be vital and can help in ensuring adherence to these regulations. With in-depth knowledge of local labour laws, businesses stay updated with any changes by engaging an Employer of Record partner. Acting as the legal employer, the Employer of Record partner assumes responsibility for compliance on behalf of the client company - including adhering to employment contract requirements, providing statutory benefits, and managing payroll tax compliance.

Here are some examples of how an Employer of Record may help in payroll compliance:

A technology company that is expanding into Singapore may utilise an Employer of Record to navigate the country's complex labour laws. The Employer of Record partner will ensure compliance with employment contract requirements, handle mandatory Central Provident Fund (CPF) contributions, and manage statutory benefits such as annual leave and medical insurance. By partnering with an Employer of Record service provider, the company can then avoid potential compliance issues and will then be able to focus on its core business objectives.

Another example is a manufacturing company expanding into Thailand. An Employer of Record can serve as the company’s compliance service provider; helping the company successfully navigate Thailand's intricate payroll management system - which include various social security contributions and tax calculations. The Employer of Record partner, which is responsible for providing accurate payroll processing, ensuring compliance with local regulations, can then help the company to reduce its administrative burden.⁴

Navigating payroll or HR administrative challenges? Let AYP Employer of Record solutions help you find the solutions you need and achieve your global business expansion ambitions. Book a demo with us here today!

1. A complete guide to payroll compliance in 2024 ↩︎
2. What are the main global payroll challenges? ↩︎
3. How to manage global payroll compliance ↩︎
4. How an Employer of Record simplifies payroll and compliance ↩︎