Shadow Payroll: Get it done with automation

Shadow payroll is a term used to describe the practise of ensuring employment payroll and tax conformity abroad while continuing to pay employees in their home country. It is a payroll system that is run and reported to the proper authorities to ensure that any organization with an overseas entity is in a position to fully meet its obligations under local labor and tax laws.

Shadow payroll involves calculating local payroll taxes, medicare tax contributions and social security contributions as appropriate without necessarily delivering any net pay to the employee. The "true" payroll still takes place in the home country of the employee, and this is the payroll that delivers the net pay amount to the employee.

Shadow payroll was initially complex to begin with, and in recent decades has become even more complex due to the surge of global mobility activity and the ever-changing tax rates, compliance and regulatory environment. So, like many other aspects of payroll, a solution is required to manage all of this complexity and ensure greater operational efficiency, speed and accuracy. The solution lies in automating the process. In this blog, we will discuss how automation technology can help businesses get shadow payroll for a foreign country done more efficiently.

Shadow Payroll is important and needs to be prioritized

It is an ever-changing business environment, and in a post-covid working world, employees have more choice and options than ever before when it comes to how and where they work. Global employers are naturally keen to both hire and retain top talent-so in response, they have developed new working practises and tweaked their compensation packages.

Global organisations wish to capitalise on a highly mobile and ambitious workforce and are much less concerned with location. Having ex-pats, independent contractors and mobility workers working and paying tax across multiple jurisdictions is both commonplace and necessary. But is also results in complex tax situations and compliance considerations. All of this means that shadow payroll is becoming increasingly important, because compliance with local country labour and tax laws is essential. Shadow payroll helps both employers and employees meet their obligations when working in other countries.

A lot of data and information is required to stay on top of shadow payroll. This means that it is ripe for automation technology, which can cut out all of the manual data entry work and allow global payroll teams to focus their attention on priority tasks such as meeting monthly, quarterly and annual tax and compliance obligations for employees located in other countries.

How Can Automation Technology Help?

Automation technology can help businesses get shadow payroll done more efficiently. Mundane data gathering and import tasks should no longer be a part of shadow payroll in 2024. Manual work represents a data accuracy risk but above all else, it is hugely time-consuming and frustrating.

Global payroll teams are tired of the way it monopolises their time and takes their attention away from priority work. Such manual processes are open to human error, and mistakes can lead to late filings, and large underpayments or overpayments at year-end. When it comes to shadow payroll and local country tax laws, these kinds of errors can have significant implications, even including financial penalties.

Here are some ways automation technology can help:

Accuracy: Automation technology can help ensure that shadow payroll calculations are accurate. Shadow payroll calculations can be complex and time-consuming. Automation technology can help reduce the risk of errors and ensure that calculations are done correctly. When a lot of manual data entry is required, AI-powered automation and machine learning technology can take over this task from humans- uploading, validating and detecting errors across thousands of lines of spreadsheet data in a matter of seconds. The payroll professionals monitoring this process would only need to investigate the discrepancies or anomalies. Hours can be saved across every pay run and these hours even convert to days when you have multiple pay runs across 20 countries.

Efficiency: Automation technology can help reduce the amount of time it takes to complete shadow payroll calculations- saving the business time and money. Automation can also happen in the form of communication tools such as automated system alerts which have the power to alert various payroll professionals and stakeholders that specific data calculations or compliance calendar deadlines need their attention. Important compliance dates are much less likely to be missed and shadow payroll data is more likely to be accurate.

Compliance: Automation technology can help businesses ensure that they are in compliance with local tax laws and avoid penalties and fines. Automated processes can help create a framework of integrated data sources all designed to ensure that shadow payroll processing happens in a smooth and efficient manner. If the data is clean and accurate and if the communications happen on time, then there is a much better chance that compliance and regulatory deadlines will be met first time without delay or error. AI-powered global payroll automation technology can include intelligent rule-based systems and built in data validation thresholds designed to adhere to local country compliance specifications.

Reporting: Automation technology can help businesses generate reports quickly and easily. This can help businesses see clearly what is happening across each of their payrolls in each of their countries, making it easier for them to meet their compliance and regulatory reporting requirements. Automation can be deployed and leveraged to provide on-demand data and tax reporting for both new home and host employee countries. If the entire shadow payroll process is automated from end-to-end, then it can automatically generate employment taxes and/or wage type taxability data reports as well as automate the process of bank file generation for timely and accurate shadow payroll employee payments. Detailed and comprehensive shadow payroll reporting ?enables global mobility teams to assess costs, manage inter-company billing and meet local country tax filing deadlines and data disclosure requirements.

The automation of shadow payroll is the right move for large multinational companies that have hundreds of globally mobile employees. It is a complex process and tax & compliance obligations mean there is no room for error. Such a process needs to be prioritised with automation technology which can eliminate the possibility of human error, make data gathering and validation so much faster and improve the overall operational efficiency of this essential business service.

This article originally appeared on payslip.com