Businesses have long been able to ‘go global’ and expand their reach around the world. But for many organizations, it’s only been in the last few years that they’ve been able to do the same with their hiring strategies and talent acquisition.
The use of virtual collaboration tools, accelerated by the pandemic and the normalization of remote work, means that most of the old geographical barriers to office-based work have been broken down. For countless enterprises, there is no longer anything stopping them from hiring team members from all over the world, and connecting teams and departments digitally.
While there are many advantages to having a globally distributed team (for example, more flexibility and the ability to hire staff on lower salaries), it can still be challenging on a practical level. In particular, managing payroll across many different currencies and timezones, legal frameworks, and tax jurisdictions can be extremely difficult and time-consuming to manage.
In this blog, we’ll highlight the main considerations involved in paying a globally distributed workforce, and how to make sure everyone gets paid accurately and on time, every time.
The main factors in paying a globally distributed workforce
You may find that some of these priorities are more applicable than others, depending on the nature of your business and global team. But in more general terms, these are the five biggest issues to take into account:
Which currency should you pay remote employees in?
Many employees will expect to be paid in the currency of the country in which they live, which is completely understandable. However, doing so accurately can be difficult due to exchange rate fluctuations from one payroll cycle to the next. In some cases, you’ll be able to avoid this problem by sticking with a single ‘business’ currency for making all payments, but some countries mandate payroll to be run in local currencies.
When and how often should you pay remote workers?
Payroll dates and frequencies can vary substantially from country to country, and it’s vital to stay on top of them in every country where you employ remote teams. For example, Japanese employees expect to be paid on or around the 25th of every month, while Mexican employees can be paid weekly, biweekly or monthly (and not always into a bank account). Additionally, the payment of 13th-month or even 14th-month bonuses is customary in many countries, especially in Asia and Latin America.
How much tax will you need to withhold and pay?
You’ll be used to withholding tax contributions from your employees’ salaries and remitting them to the relevant tax authorities as required. But when you employ staff in different countries, you’ll need to do this in accordance with many different tax regulations and timeframes, as the taxes will need to be paid in the respective countries where each employee works. This requires familiarity with multiple tax regimes, rather than just one.
Are there any other deductions you will need to make from their salaries?
Similar to the previous point, withholding and remittance will also need to be carried out to support various social security programs, and these can vary enormously from one country to another. For example, this ranges from the ‘superannuation’ pension system in place in Australia, to the USA where separate social security and Medicare contributions have to be made.
Which payment methods should you use?
Working out how to actually make payments to employees is also more complex when there is a global workforce involved, because currency conversions and cross-border bank transfers can be extremely expensive. Similarly, opening bank accounts in each relevant country is also impractical because it will necessitate further legal entities to be set up in those countries, creating yet more administrative headaches.
You may well have read all of the above and come to the conclusion that hiring internationally is far more trouble than it’s worth. However, there is a relatively simple solution that can help you navigate all of these challenges and reap the benefits of a global remote workforce.
Working with a global payroll provider like CloudPay that can combine payroll and treasury services can relieve you of the admin headaches of hiring and paying a globally distributed workforce.
Not only do we have the technology to handle all your payroll requirements, but we also have expertise on payroll and tax legislation in all the countries you want to hire staff in. That way, you can expand your talent reach at will, safe in the knowledge that your payroll will be fully compliant and deliver on employee expectations, all over the world.