Multiple Routes Lead to Global Payroll Expansions

Putting together a new global payroll operation requires due diligence both before and after expanding into new countries, two practitioners said July 9.

Businesses should start by asking themselves key questions, such as why they are expanding internationally and if it is a one-off or part of a larger expansion, Mokscha Haack, global payroll process excellence leader for Zimmer Biomet, said. Other important considerations include what is starting the expansion, such as creating an entity, acquiring one, or by converting contractors into employees, and who is responsible for the expansion, whether HR, finance, or another area of the business, he said.

Which model should be used for a global expansion, whether running payroll in-house or using a vendor, aggregator, or employer of record, can depend on how many employees will work in a country, Haack said. For example, he said that a vendor would make more sense when placing a single-digit number of employees in a country.

Each type of model has its own use cases and risks, said Deborah Piacitelli, CPP, global payroll leader for Zimmer Biomet. Running payroll in-house works best with “really big populations” and can lead to more risks if it is done without a subject matter expert for that country, she said. When outsourcing to a vendor, Piacitelli said also outsourcing time and attendance tracking may be useful in some situations.

Aggregators can allow data for multiple countries to be passed through one system to in-country providers, Piacitelli said, and employers of record can “perhaps be a good solution if you are not going to have a legal entity established in that country,” she said. An employer of record would formally hire and manage employees in that country, she said.

When using vendors, Piacitelli added that employers should be aware of whether the vendor has to handle anything in a local language and what they consider in scope and out of scope. “Maybe it’s something that the vendor can help facilitate, like tax payments, but maybe it’s something that the vendor actually has to outsource to a third party,” Piacitelli said of out-of-scope services. “And what’s your line of sight as the employer remembering that you are responsible for your compliance at the end of the day?” she said.

Haack and Piacitelli spoke at PayrollOrg’s Virtual Congress.

Haack recommended doing what he called a legal “health check,” including making a list of what is required to register an entity and receive a taxpayer ID number in a given country, and what is required to be shown on payslips. He also emphasized particular “local quirks,” or very specific rules that are also specific to one or a few countries. Those can include requirements to report sick leave through payroll in Spain, Turkey’s practice of not allowing employers to make payments to employees post-termination, end-of-service gratuities for all employees, such as in the UAE, or some employees, such as in France, or Italy’s severance pay program which requires monthly employer contributions, Haack said.

If acquiring an entity, Haack recommended checking whether the acquiring business is responsible for past payroll errors. “Spoiler alert, yes, in the vast majority of jurisdictions the answer is yes, but how far back into the past are you liable for these payroll errors?” he said, adding that the acquiring business should check what records it must obtain from the acquired business.

Piacitelli recommended validating formats for dates, amounts and bank codes, to ensure that the correct date format is used, and checking whether decimals are allowed or rounding is required. She also suggested checking whether HRIS systems include country-specific fields such as an employee’s taxpayer ID or union status and whether a local time and attendance system is required, also mentioning that the European Union’s Working Time Directive sets standards for time and attendance reporting for EU members.

“Test, review, and improve every single cycle,” Piacitelli said, recommending using checklists to log and fix errors and keeping documentation up to date. She also recommended having a primary country specialist responsible for a given country’s payroll and a backup who shadows them, alternating with the backup doing the payroll while supervised by the primary.