Running payroll in one or two territories can be complicated enough, but running a global payroll operation across many different countries can be a huge administrative challenge. That’s because regulations around tax, social security, business registration and employment law vary substantially from place to place, and are liable to be changed on an annual basis (and sometimes even more often than that).
Of course, some countries’ requirements make payroll much more difficult to process than others, often leading to negative impacts on payroll performance. In this blog, we’ll explore the key factors that influence payroll processing in different territories, and highlight four countries with particular issues that global payroll teams should be aware of.
What causes region-specific challenges?
There are many different considerations that can cause payroll processing challenges in a specific country or region, including (but not necessarily limited to):
- Data: the need to ensure payroll data is accurate for integration with HR and other processes, and make planning, reporting and auditing easier
- Rewards: facilitating easier integration of new rewards and benefits into payroll processing (such as cryptocurrency and on-demand pay), and the ability to easily adjust benefit packages as employee status changes
- World of work: adapting payroll for the post-pandemic working landscape, including remote working allowances, hybrid working management, and mitigation of disruption caused by political upheaval
- Technology: developing and evolving technology that is easy to manage, flexible for the challenges of the future, and protected against security and data protection threats
- Human resource: embracing technology and automation to respond to the global shortage of qualified payroll professionals
Which countries face the biggest challenges?
Our recent Global Payroll Efficiency Index report includes the PEI Matrix, ranking a range of different countries on the difficulty and efficiency of their payroll. These rankings were determined across three different parameters:
- Payroll complexity: considering legislation, compliance, and operational limitations
- Software maturity: how available sophisticated software is between countries
- Talent access and availability: the depth of talent available within a particular country (at different levels of seniority), and how easy it is to hire them
Through this analysis, we were able to identify the top six countries which registered the highest difficulty scores:
- Japan: take one look at a typical Japanese payslip and it’s easy to understand why running payroll there can be so difficult. They can contain as many as 70 different categories of information, ranging from wages and travel allowances, through social security and pension contributions, to holiday and overtime allocations. Further adding to the complication is the need to pay leavers within seven days of their departure and a strong bonus culture. Both of these contribute to a high supplemental impact rate, as highlighted in our recent PEI report.
- China: the size and population of China can easily make it an administrative nightmare from a payroll perspective. As well as withholding income tax, employers also have to withhold (and make their own contributions to) as many as six different kinds of social insurance, and the rates of these insurance contributions vary from region to region, and even from city to city. To complicate things even further, these contributions are calculated according to an annual amount, even though the contributions themselves have to be made to the relevant authorities monthly.
- Brazil: running payroll in Brazil is like aiming at a moving target, perhaps more so than just about any other country in the world. Labor laws and agreements vary across different states (as well as federal laws applied nationally), and these rules are prone to frequent adjustment. At the same time, the power of trade unions and collective bargaining agreements is high, and so a range of allowances and benefits are also applicable to individual industries, and even individual employees. This generates further variables for payroll teams to deal with.
- Argentina: the main barrier to easy payroll in Argentina is a complex web of requirements around financial reporting. Every month, businesses in Argentina are obliged to submit financial reports around income tax, social security, and employer wage tax returns. Additionally, payroll reporting has to be submitted quarterly at local, state and federal levels. Putting these reports together consumes time and resources that divert payroll teams away from other vital tasks.
- Spain: the political make-up of Spain plays a big part in preventing the easy running of payroll. Spain is made up of a collection of states and autonomous territories, and the scope of law-making powers can vary substantially from one area to another. From a payroll perspective, this creates complications through varying tax rates (national and municipal), and differences in deductions and statutory leave. Add in complex reporting demands and it’s easy for businesses to find running payroll in Spain tough.
- Italy: regional taxes, local taxes, variations in statutory leave, monthly reports and declarations, collective bargaining agreements: Italy is almost a perfect storm of payroll complexity. And beyond all these factors is the legislation round mandatory severance pay, which involves complicated calculations of the length of service, amount of salary and inflation. It’s no surprise, therefore, that running payroll in Italy is both time-consuming, resource-intensive and involves a high supplemental impact rate.
The six examples we’ve provided here are relatively extreme cases, but these kinds of characteristics are present in countries all over the world. It demonstrates the burden on payroll teams to keep track of all their different responsibilities in order to stay compliant and run payroll efficiently. But perhaps just as importantly, it highlights the benefit of partnering with a global payroll expert who can help businesses stay on top of everything they need to do in all their territories.
Get a more detailed view of regional variations in payroll performance with the new edition of the CloudPay Global Payroll Efficiency Index. Download your copy of the report today.