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14 February 2023
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4 minutes

Are payroll departments putting businesses at risk?

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Seven out of ten global professionals surveyed by TMF Group in conjunction with the Global Payroll Association (GPA) said they were unable to view the status of their global payroll processing activities across all the countries in which they operate.

It’s a worrying scenario that increases companies’ risk of payroll errors and delays.

“If you’re an international company with employees in different countries around the world, it’s essential to have a clear view and understanding of your global payroll operation,” said a TMF UK payroll and HR expert. “How else can you have the right information at your fingertips to make informed business decisions?”

Business risks

Gaps in global payroll policies and procedures can damage a business. If the payroll department makes a mistake, even unwittingly, there’s a risk of penalties, which can also harm the company’s reputation.

For companies operating in multiple jurisdictions, issues can snowball. Once a regulatory authority in one jurisdiction identifies non-compliance and issues a fine, authorities in other countries might begin to question a company’s activities too. Nobody wants multiple investigations, not least because they’re time-consuming so require the allocation of resources to prepare for inspections and justify actions taken.

“We once had a client come to us after being investigated in the USA, suddenly, the issue had escalated, and the client became worried about its operations in 45 other countries. How could they be sure they were compliant? The client was in turmoil, wasting valuable resource to try to validate everything.” TMF UK payroll and HR expert.

How can multinational companies work to avoid these risks?

Local knowledge is key

International expansion poses its own payroll challenges. A startup might only have a handful of employees to build a presence in a new country. With no local HR or legal department, there is often no experienced professional on hand to follow the correct local processes. Head office might only be concerned with getting those new employees paid on time, so global payroll departments may try to get by without following correct local employment procedures. Such procedural gaps can cost companies dearly.

Seven out of ten (69.4%) of the professionals in TMF Group’s survey said they had gaps both in global policies and processes. Lack of local knowledge is another big challenge for the global payroll industry, with 41% of those surveyed admitting to a lack of knowledge of local payroll legislation and requirements.

“These results indicate that many inhouse global payroll departments don’t understand local rules, and don’t know how to find the information they need about local markets,” TMF Group HR and Payroll expert, UK

Technology balanced with expertise

Many organisations are yet to adopt appropriate technology to support payroll on an international scale. And misconception is rife about the capabilities of technology currently available.

“Companies mistakenly think there is one global payroll system they can buy. There isn’t. But there are organisations who can manage payroll for them on a global basis, but with local expertise,” notes a TMF US payroll and HR expert.

“Some third party providers might offer global payroll support, but it’s likely to be via a shared service centre. A global call centre handler doesn’t necessarily have the more granular information companies need about employment legislation in Chile, or Vietnam or Bulgaria.”

Taking a global view

One way to ensure a company’s global payroll practices meet international and local requirements in every country is to have a global view of what’s happening across the workforce.

Many companies have attempted to do this by producing a global report based on manual data uploads, but this is difficult to replicate regularly, to ensure compliance. And a lack of visibility makes it difficult to identify problems. A global payroll team might remain unaware of a developing issue until the situation hits crisis point.

For true visibility of global payroll, working with an external provider can offer peace of mind, and valuable information to enable confident decision-making. The ability to compile global reports and analyse the data through a middleware solution creates business insight, to maximise efficiency and inform strategy.

If you’re looking for a payroll partner with in-country professionals who speak the local language, and have an intimate understanding of that country’s legislation and regulations, check out our global payroll services.

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