Getting your payroll right for international employees comes with challenges — and getting it wrong can be costly
As the world continues to go more digital than ever before, businesses are learning to adapt to new ways of working.
But while the nature of digitalisation means that remote workers and digital nomads are viable options when hiring, their global locations make it tricky to pay them.
This is why partnering with a global payments platform is important — especially if you have workers abroad.
But first, why have an international team? For Gabriel Grisham, VP and head of business development, US at Nium, a global payment infrastructure provider supporting payroll platform providers with collections, treasury management and disbursement services, there are a few reasons.
“If you have customers located globally, having an international team means you can usually respond in real-time if you’ve allocated resources correctly,” he says. “If you don’t have an international team, but you have an international client base, you end up with employees burning the midnight oil to serve your overseas clients.”
Grisham believes having an international team also helps a business recognise new opportunities in their local market without the need to pay expensive consultants.
Despite the array of perks, hiring internationally comes with significant challenges when it comes to payroll.
“It becomes almost exponentially more complicated when you go from a purely domestic payroll situation to an international one,” says Grisham.
“Legal and compliance issues pose a challenge. Each country has its own payment laws, tax regulations and payment schedules — for both full-time employees and contractors. Failing to comply with these requirements and missing payment deadlines can result in penalties and legal consequences,” he continues. “You’ve also got currency challenges. Where you’ve been used to operating only in one currency, now you’ve got multiple currencies with a constantly changing FX [foreign exchange] rate.”
For example, you may have one FX rate on the first day of the month to calculate how much it’s going to cost to pay somebody overseas, but come the 30th of that month, when you actually have to pay them, you’ll likely have a different FX rate and the amount that actually has to go out.
If you don't have a global payment platform and you're relying on banks. You're almost completely limited to slow wire transfers like SWIFT payments
Partnering with a global payments infrastructure can alleviate these stresses for the payroll firms implementing these services. Nium, for instance, offers multicurrency support and FX solutions so businesses can convert currencies in bulk and lock in the exchange rate ahead of time to manage risk.
Delivering in local currency also means faster payments, which is particularly crucial for payroll. “If you don’t have a global payment platform and you’re relying on banks,” says Grisham. “You’re almost completely limited to slow wire transfers like SWIFT payments.
“Using wire transfers, you can have multiple banks involved from the start to the end, and you don’t really know if you’re delivering local currency,” he continues. “You don’t even really know exactly how much is going to get delivered, and then every bank wants to make some money in this process and will take fees. We see it all the time with wires that people come back saying, ‘Hey, I got less money than expected’.”
Earlier this year, Nium also introduced transaction tracking via SWIFT gpi, so each time a Nium customer sends a payment abroad, they’ll know exactly how much it will cost before initiating the wire transfer, who sent it and will be able to track it in real-time.
An Employer of Record (EoR) is an external business that manages the legal, HR, tax and local compliance responsibilities of a company’s talent in any country where a business doesn’t have its own legal entity — which is particularly useful when it comes to payroll.
Daniel Westgarth is COO at Deel, a platform solution for companies looking to expand their hiring reach across different geographies. Through its EoR offering, it enables companies to hire across borders without the need for incorporating a local entity.
The platform also features an international HR information system, which takes care of cultural differences such as state holidays. This means that companies can navigate the nuances of different cultures with ease without being bogged down by the complexities of global HR.
Employer of Record is one of our preferred models because it's easier to onboard an individual and know who these employees are
“It’s crucial to pick a partner who knows the ins and outs of the global HR landscape,” says Westgarth. “You need a partner who can offer a comprehensive solution that includes an all-in-one HR system of record and competitive benefits.
“This is where your choice of partner can make all the difference. By selecting a partner who understands the complexities of global labour regulations, you can ensure that you’re always in compliance and avoid any potential legal issues down the road.”
Grisham adds that EoR models are advancing, especially in terms of payroll. He notes that if someone is scheduled to get paid every two weeks but come that first week of the month when they’ve done the work and need it right away, EoR companies are able to be a little bit more flexible and allow that employee to request those funds and get paid the same day.
It's crucial to pick a partner who knows the ins and outs of the global HR landscape
“Employer of Record is one of our preferred models because it’s easier to onboard an individual and know who these employees are,” says Grisham. “Where Nium comes in is in the delivery of those funds and making sure that we’re doing everything by the book correctly with compliance, legal obligations and local regulations.”
If you don’t pay your employees on time and the money arrives days late, it’s a problem not just with your employee but also potentially with local regulations. Grisham notes that payroll has a fine line for getting it right — and if you don’t, the penalties are large.
“The focus for Nium has always been real-time payouts via local rails, and there are a few advantages to that,” he says. “We provide 24/7 FX capability, meaning you can get a rate from us at midnight on Saturday and know exactly how much money is going to be delivered when banks open on Monday in any market that we serve — that’s a powerful thing.
“If you’re a contractor, you do your day’s work and should be able to get your pay. It’s not very efficient to make payments every day, but if you do have a unique situation that requires this, you should be able to get it to them quickly — that’s been our focus. We’ve really seen good adoption of our platform across a number of global payroll companies just because of what we can deliver.”
This article was originally published on Sifted.com on April 21, 2023.