Payroll News

Navigating the Global Payment Quagmire: Plan, Be Diligent

May 14, 2019, 9:24 PM

It’s the set-up that matters.

Nothing dictates success in transferring money globally more than knowing how the financial players and government requirements are interconnected, speakers representing three global payroll providers said May 14. Once understood, organizations can adequately plan and develop paths to global wage payments.

General considerations fall into seven categories, said Catherine Ann Honey, vice president at Safeguard Global, a provider of payroll and human resources services. Honey, who spoke at a session of the annual American Payroll Association Congress in Long Beach, Calif., said employers must know the amount of the payment, how fast it needs to be delivered to the payee, the country of the payment’s origin, the destination country, currency conversions, cross-border restrictions on money flows, and fees and transfer formats.

To start, organizations wanting to make global payments need to identify options available for such payments. In some cases, choices are limited; in others, such payments may be prohibited.

For example, some countries do not accept funding transfers from out-of-country banks to make net-wage payments in-country, said Kira Rubiano, head of international payroll management at the Spanish service provider Auxadi. A relationship with a local bank needs to be established, and the time it takes to provide payments to workers in those countries needs to be factored into the arrangement.

Establishing a local banking ability in Russia can take six months, and Brazil requires such an arrangement as well. Paying taxes in countries also can require a local banking arrangement, Rubiano said.

Maybe a service provider can handle this burdensome administrative task? This should be checked when entering into any third-party agreement, Rubiano said, because providers run the gamut from not offering much banking assistance to allowing a company to directly transfer funds to the service-provider’s account. A more full-service model could have some legal limitations as well as concerns about liability. If a provider says it can facilitate such transactions, do some research to determine if that is possible, Rubiano said.

Money moving formats need to be considered because they are dictated by not only country and regional rules, but also by banking institutions, said Michele Honomichl, a vice president with ADP LLC. The U.S. has the Automated Clearing House system and the United Kingdom has Bankers Automated Clearing Services, she said. There also is a regional Single Euro Payments Area that streamlines payments between member countries in the European Union, she said.

A plethora of government requirements and those by the banks must be followed, Honomichl said. Leaving out particulars can mean a transaction is rejected or lost until all the information is available. With wire transfers, originating companies are not always told that a payment has been delivered, she said.

Various fees also may apply, depending on the payment type, Honey said. Meeting the payee’s needs can mean facilitating payments into separate foreign bank accounts. In much of Africa, for example, payments are made by mobile phone applications, she said, adding that some countries prefer eliminating cash currency altogether.

How long a transaction takes to clear the processes and can be received by a payee varies from one day to 10 days, depending on the route the transaction takes, bank transaction policies, and in-country requirements, Rubiano said. Payments to Asia can take the longest, she said.

Another key factor in determining the original amount to derive a net pay are currency exchange rates, which fluctuate, depending on the currencies involved, Honomichl said. To develop a set amount for accounting purposes, many organizations work with banks to develop a 30-day foreign exchange forward rate, which is negotiated and sets a rate for payments used within a month, she said. There also is a foreign exchange forward-window method of setting exchange rates for multiple dates that may be better for the accountants, but has limited use across currencies, she said.

Country-specific limits for certain other countries, as the U.S. does for Cuba, or for payments to individuals on the U.S. Specially Designated Nationals list, have to be included in any payment set-up process. For the list of designated nationals, the paying organization needs to demonstrate that it reviewed the list to ensure payments are not made to known terrorists. The monetary penalties can be severe and involve jail time for willful participants, Honomichl said.

In addition to following the rules and knowing the pitfalls of certain processes, Honey said that having a good relationship with bankers is important in securing timely and accurate payments to workers.

To contact the reporter on this story: Michael Baer in Long Beach, Calif., at mbaer@bloombergtax.com
To contact the editor: Michael Trimarchi at mtrimarchi@bloombergtax.com

To read more articles log in. To learn more about a subscription click here.