Global Payroll: Challenges, Services, and Solutions

This comprehensive guide to international payroll shows you everything you need to know about running global payroll – including common challenges, services, solutions. Plus, get a downloadable checklist and list of FAQs to help you choose the best global payroll service provider for you.

Global payroll

With the growing recognition of the many benefits of remote work – to both employer and employee – comes a rising trend of companies hiring people that work from anywhere in the world. While location independence strengthens diversity and inclusion in the workplace, it also comes with unique challenges. Chief among these are international or global payroll and taxation requirements.
  • Earnings
  • Withholding and social taxes
  • Bonuses and commissions
  • Expenses
  • Benefits (e.g., paid time off)
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What is global payroll?

Payroll, according to Investopedia, "is the compensation a business must pay to its employees for a set period or on a given date."
  • Earnings
  • Withholding and social taxes
  • Bonuses and commissions
  • Expenses
  • Benefits (e.g., paid time off)
International payroll is essentially the same process. It simply happens on a broader scale, involves two or more countries, and is managed via one or more systems. In short, global payroll is the compensation a business must pay to its international and domestic employees for a set period of time or on a given date.

Global payroll services: What does an international payroll provider do?

Managing global payroll, which involves compensation, tax, and labor laws in many countries, can be complicated. Ideally, a global payroll provider gives expert advice that helps international businesses comply with multiple, sometimes competing, laws.

Global payroll services vary across providers based on the specific international payroll challenges they address as well as the technology at their disposal. Some providers focus on delivering pay to international workers, while others have developed add-on features.

Pilot, for example, is a payroll and HR platform that handles compensation and can also assist with visa and immigration issues for international employees.

Challenges of global payroll

When companies headquartered in one country have to compensate employees who are citizens of or residents in another, the following challenges often arise:

Localization complications

Each country has laws and regulations governing labor, compensation, and taxation. A company headquartered in California that hires a South African employee permanently based in the Philippines may need to contend with the rules of three different countries. For example, they may need to pay their employee a 13th-month bonus, which is not required in the US.

Laws can also sometimes change abruptly, changing the compensation that must be paid.

Data overwhelm

In cases where multiple countries and workers are involved, the payroll data that must be gathered and interpreted – sans the help of a global payroll provider – can be overwhelming.

If a company has employees in the US, Australia, and Germany, then their payroll team needs to collect and consolidate the following payroll data for each location:
  • Attendance
  • Expenses
  • Benefits
  • Bonuses
  • Commissions
While the US and Australia use English, Germany does not. The spreadsheets and expense invoices there will likely be in German and use different units of measure.

Unless standardized from the outset, global payroll can result in data that is unwieldy and difficult to use.

Privacy and security risks

To process payroll quickly, accurately, and in legal compliance, companies need to collect sensitive information, which is protected by the General Data Protection Regulation (GDPR) in Europe and the California Consumer Privacy Act (CCPA) in the US.

Global payroll can pose a risk to data security and the safety of people's personal information because the international context makes it easier to miss or overlook different legal requirements around data collection and processing. There are a few questions that you need to remember when you’re doing global payroll:

Why are you collecting personal data, and do you really need it?
What will you use this data for; is it required by law?
How long will you keep it?

Working with a company like Pilot will ensure that you adhere to relevant privacy laws, protecting you from high financial penalties. For example, employers who violate the EU’s GDPR could face fines of up to 20 million euros or 4% of annual revenue, whichever is higher.

Payment requirements

Payment requirements can also be challenging. Not only do different countries have different currencies, but the laws and regulations in each mean that companies sometimes need to pay other local entities (e.g., tax authorities) in addition to the person they hired.

You may also find yourself having to juggle multiple platforms or adhere to multiple payroll deadlines if you’re paying contractors and employees internationally, or US employees in one system and international employees in another. In other words, multiple platforms can be costly and time-consuming – and they come with a higher risk of not meeting payroll deadlines on time, which results in poor experience for your team.

Using one payroll system for domestic W2 employees, international employees, and global contractors makes your process so much easier and faster. For example, Pilot has a powerful platform that allows you to run payroll for your entire team simultaneously in 240+ countries, including the US.

What is a global payroll solution?

A truly global payroll solution allows you to overcome all the challenges in the previous section. It lets you streamline your payroll and payments processes for different teams – regardless of location – into one platform. It standardizes and consolidates payroll data from different countries into one system that’s user-friendly but still takes into account the nuances of each worker's case and each country's requirements.

Benefits of global payroll solutions

Using a global payroll solution means that you get to enjoy the following benefits:

Access to expert international payroll knowledge

A global payroll solution like Pilot has expert knowledge in multiple countries, allowing you to comply with their employment and taxation laws and regulations.

Increased productivity

Global payroll solutions can streamline your processes so that your human resources team spends more time working with your employees than poring over spreadsheets looking for errors. Result? A dramatic increase in morale and productivity.

Increased efficiency and effectiveness

In many cases, implementing an international payroll solution is more efficient and effective than opening a foreign subsidiary, which can cost thousands of dollars and take months to complete.

Reliable payment

People want to receive their payment on time. A global payroll partner like Pilot will help ensure you don't miss payroll deadlines for your team – wherever they are.

How to choose a global payroll service provider

Ready to work with an international payroll service provider? You need to make sure that your prospective partner:

  • Can secure personal information – yours and your workers
  • Has expertise in the countries you plan to expand in or hire from
  • Has excellent customer service
  • Offers a lot of resources you can employ, such as customized employment contracts
  • Can manage payments for workers worldwide
Pilot offers domestic and international payroll services – and an HRIS – in one easy yet powerful global payroll and HR platform.

Best practices for global payroll

To master international payroll, you need to follow these steps:

Choose the right service provider

Partnering with a global payroll provider means making the right choice depending on your needs – and the needs of the people you seek to hire. Question your prospective partner on their privacy and security protocols, offered services, expertise and experience, customer service, and resources.
Look at reviews by current and former clients on third-party sites, such as G2. Work with a company that fits your needs, budget, and culture.

Prioritize WX – worker experience

You've heard of UX (i.e., user experience), but have you heard of WX (i.e., worker experience)? A positive worker experience is something you'll need to prioritize if you'd like to master international payroll. 
  • Pay on time
  • Make the process easy and efficient
  • Provide responsive customer service and technical support
  • Practice honest and transparent communication
These will all ensure that your workers feel valued and happy. Happy workers are more productive – and also more likely to stay with your company.

Understand worker classification

Do you know if your workers should be classified as employees or contractors? Remember, misclassification has legal and financial repercussions because employees have benefits and entitlements that contractors often don't enjoy.
Protect your company — partner with a global service provider like Pilot. We’ve fully supported hiring both employees and contractors from day one. Our team can help you learn the difference between employees and contractors and offer unbiased advice on which option might work best for you.

Take a hybrid approach to remote compensation

Keeping your employees happy often starts with a well-thought-out compensation plan. How do you equitably meet the needs of two people doing the same role but who live in different countries?
Pilot's own team is distributed across six of the world's seven continents (still working on Antarctica!). Our recommended solution to paying our remote team equitably? Take a hybrid approach to remote compensation. Align with competitive market rates — by region and by role. Then work with an international payroll provider with the appropriate expertise.

Consider whether you need your own entity

It's not always a good idea to open a foreign subsidiary, especially if you only hire one person. Perhaps working with an employer of record (EOR) like Pilot is all you need.
For more information on international payroll best practices, read 7 Best Practices to Master International Payroll.

How Pilot's powerful platform makes global payroll easy

ChallengesSolutions
Localization complications
Pilot is familiar with the local laws and regulations governing labor, compensation, and taxation in 240+ countries – helping you comply with important employment regulations and avoid fines.
Data overwhelm
Pilot can standardize and consolidate payroll data from multiple countries, regardless of language or units of measure – making data more manageable and easier to use, reducing the risk of errors, and ensuring accurate and timely payroll processing.
Privacy and security risks
Pilot takes privacy seriously and adheres to important laws, such as the GDPR in Europe and the CCPA in the US. Working with us will help protect you against potential fines for violating these laws and ensure the safety of personal data. It will also help ensure that data collection and processing are compliant with local legal requirements.
Payment requirements
Pilot can handle multiple currencies and payment requirements in many countries, which:
  • Simplifies the payment process
  • Reduces the risk of missing payroll deadlines
  • Ensures that payments are made in the correct currency
  • Makes any additional payments, such as taxes, to the appropriate local entities.
Decreased productivity
Pilot improves morale and productivity by streamlining your payroll processes, which allows your human resources teams to spend more time doing the irreplaceable work of looking after your employees.
Increased cost
Working with Pilot is more efficient and cost-effective than opening a foreign subsidiary, which can cost thousands of dollars and take months to complete.
Payment issues
A global payroll partner like Pilot will help ensure you don't miss payroll deadlines for your team – wherever they are.

Frequently asked questions about global payroll servicesDo you have more questions about international payroll? Get your copy of our How to Choose a Global Payroll Service Provider guide – complete with a comprehensive checklist and FAQs.

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