Why your business can’t have a truly global payroll system, and why that matters

Many HR and other executives who have not implemented global payroll assume that related challenges can be easily addressed by a single payroll processing platform. After all, enterprise management and human capital management platforms offer a single solution for global financial and HR data and processes. These executives naturally ask: “Why can’t we have a global payroll system?”

This article answers that question, and outlines some of the important misconceptions and realities of global payroll delivery.

Why international companies want global payroll

Multinational companies that expand and operate across borders face many challenges unrelated to their core business, including fulfilling compliance obligations related to tax, immigration and labour laws in all their countries of operation. Payroll delivery is typically affected by all these obligations, most prominently by income tax and social security requirements. On top of compliance requirements, payroll delivery carries additional urgency because employees understandably demand to be paid on time and accurately for their services.

Given the stakes and complexities of cross-border payroll delivery, most multinational organisations must vet, hire and manage local payroll providers in each jurisdiction of operation. Maintaining this network of vendors is costly and administratively burdensome, and those costs and burdens grow as the organisation grows.

Sooner or later, most multinational organisations begin looking for a single global payroll platform to meet all their needs, including uniform payroll reporting for all countries of operation. This sounds simple enough, though anyone performing due diligence on global payroll providers must understand the limitations placed on all providers.

The payroll puzzle

Developing and maintaining a payroll platform for use in just a single country is a complex, time-consuming and costly endeavour. Each country — and typically states or other local jurisdictions within a single country — has myriad regulations that must be accounted for in the payroll platform, from local legislation and mandatory insurances that may be based on headcounts, to tax and social security and complicated statutory returns.

These obligations typically correlate or map to dozens or even hundreds of fields within a payroll platform. The obligations are subject to change, while new obligations may be added at any time, so that the payroll platform must be updated in a timely manner to ensure compliance with local rules.

Now, consider that there are about 40 countries in the world where most businesses operate, and another 60 or so that are less commonly used for international expansion and operations. That leaves approximately 95 countries around the world that are seldom part of a multinational’s payroll networks but of course may be part of any given organisation’s operations or plans.

Given the complexity of each country’s regulatory regime, the disparities between countries, the changing nature of laws and regulations, and the high number of countries around the world, developing a one-size-fits-all global technology solution isn’t realistic or commercially viable. Building one solution that includes all the rules, regulations and reporting requirements of all the world’s countries would be an enormous task with exorbitant costs. And keeping the platform continuously up to date with all relevant regulatory changes around the world would be as monumental a task as the original development of the system, and that task would never end.

To put payroll-platform development into perspective, consider Brazil, a country with notoriously onerous compliance requirements. The implementation of the country’s eSocial reporting platform affects more than 100 fields of employee data, including income tax withholdings, contributions to the country’s unemployment compensation fund, unemployment insurance, family allowance and leaves for sickness, temporary time and holidays, and more.

It is true that some payroll providers have developed regional platforms, such as those that cover Nordic, Asia Pacific or South American countries. But while helpful in certain situations for certain clients, these platforms have only regional capability and are not truly global.

Reporting challenges

The unique nature of each country’s payroll-related obligations also presents reporting challenges. Creating centralised reports from various country offices can be virtually impossible depending on the number of countries involved. Reports from the jurisdictions will have different data elements and may be listed in different languages.

Gathering historical data can also be problematic due to language barriers, time zones, changing data elements and more. Ultimately, it can take months to get an accurate picture of a multinational company’s payroll, and it’s not likely to be comprehensive.

What current cross-border payroll solutions can provide

While global payroll providers can’t yet promise a true single-solution platform, there are providers that offer centralised web platforms. These can give broad visibility and high-level payroll reporting for all major countries, though as we've mentioned, due to regulatory and other disparities these reports may not be easily consolidated or compared. These web platforms are smart, however, and enable a single means of data entry and consolidated global reporting in single formats, and include dashboards to help control-processing functions.

Just as importantly, a global payroll and services provider can act as a single point of contact in the event of payroll questions, help coordinate reporting across all jurisdictions, and provide advisory services related to tax, labour and other compliance obligations in each country of operation.

In this sense, there are what might be called genuinely global payroll services providers, but it’s a rarefied group, and as we’ve emphasised, no single payroll processing platform is capable of truly consolidating payroll across all countries.

Due diligence and setting realistic expectations

It’s critical for multinationals looking for a global payroll solution to understand the true benefits and limitations of multi-country platforms. This will enable project managers and others to create realistic budgets and timelines, and set realistic expectations with leadership, investors and other stakeholders about reporting and other important capabilities. It’s also important to know the right questions to ask when vetting providers, some of whom might gloss over compliance and reporting challenges.

Finally, it’s worth remembering when performing due diligence on a global payroll provider just how important and central payroll delivery is to virtually all organisations. If anything, this importance is even more acute in recent years, given the fact that digital news stories can spread almost instantly around the world. Corporate ESG initiatives also emphasise a level of engagement and transparency that employees have come to expect. Payroll errors do make headlines and can lead to reputational damage that can limit an organisation’s ability to attract and retain talent.