?? ??Understanding the Complexities of Global Payroll ????

Introduction

The objective of a global payroll strategy is to ensure precise and punctual payment for all employees across multiple countries. However, 33% of global companies, according to a survey by EY, lack a formalized global payroll policy. As ardent proponents of global hiring, we have created a blog to shed light on the essential considerations for creating a comprehensive global payroll strategy. Using our expertise in India, we also provide global employers with recommendations on how to pay their Indian workers and share some of the best practices for efficient payroll management.

While you can read the whole blog on the Wisemonk platform, here’s a quick summary of the same:

Factors to Consider in International Payroll

Choosing the Correct Type of Employee-Employer Arrangement

When expanding your workforce internationally, you have the option to hire contractors or recruit full-time employees. This can be done by establishing a new entity or partnering with an Employer of Record (EOR). While the choice of arrangement is flexible, it is essential to be cautious about potential worker misclassification issues. Seeking guidance from local experts is highly recommended to ensure full compliance with local regulations and maintain a legally sound employment structure.

Currency Exchange Rates and Payment Methods

The rise in popularity of digital payment platforms such as Wise for international remittances is undeniable. With their competitive currency conversion rates, rapid transaction processing times, and transparent fee structures, they have become a highly favored choice. On the other hand, international bank transfers, while still a viable option, tend to have higher charges and significantly longer processing times, often taking days instead of hours.

Here’s a detailed breakdown of the final amount received when you transfer $10,000 from the USA to India through two different channels.

Legal and Compliance Infrastructure

When dealing with international payroll, it is crucial for companies to consider two important aspects:

• Double Taxation Mitigation: To avoid double taxation on items such as welfare, Social Security, and health insurance, it is recommended for companies to hire individuals from countries that have established tax treaties with their home country. These treaties ensure that you are not burdened with paying these expenses twice and promote fair taxation.
• Compliance Against Money Laundering: Compliance with anti-money laundering regulations is vital. In India, the Forward Income Remittance Certificate (FIRC) is enforced to address this concern. Possessing a FIRC certificate can act as a safeguard for your employees if government authorities, like the RBI, raise questions about their transactions. While banks and payment aggregator platforms provide the necessary FIRC documents, having a reliable partner helps the employee and employer with year-end compliance for all foreign remittances.

Best Practices for International Payroll in India

Paying a Contractor

Opting to pay via the contractor arrangement facilitates smoother money transfers, but it comes with several operational challenges. Contractors are required to generate invoices regularly, adding to the administrative burden. Indian employees generally prefer full-time employment, as it provides the security of regular payslips and access to employee benefits. Those earning over Rs. 50 LPA (~$61,000) annually face significant tax compliance requirements. However, the most significant concern is the risk of worker misclassification, which can result in substantial fines and financial penalties for employers.

Paying a Company

Employees can choose to form their own company, and setting up an LLP is recommended as compliance requirements are simpler than those of a private limited company. The employer will be paying the LLP on behalf of the employee. However, this will require the employee to do:

• Tax planning
• Quarterly advance? tax filing
• Tax audit
• Take GST for exports?
• Monthly GST filings

This will entail an additional Rs. 7,000 per month (~$86) with a one-time setup fee of Rs. 15000 (~$183). Although this is a viable option, Indian employees prefer full-time employment as compared to owning a company. We find this to be a subject of interest for employees who are earning more than Rs. 40 LPA (~$49,000) while being employed with global companies, as they try to offset the above cost through incremental savings on taxes.

Engaging an EOR

Partnering with an Employer of Record (EOR) proves to be the most convenient and efficient approach for global companies to pay their international employees. By engaging an EOR, the company entrusts the payroll responsibilities to them while maintaining control over day-to-day operations. This collaborative arrangement guarantees adherence to local regulations, offering peace of mind and legal compliance. Moreover, employees enjoy the advantages of being associated with a well-established global brand. EORs take care of crucial tasks such as contract management, ensuring compliant payroll processing, fulfilling legal obligations, and? providing comprehensive support for smooth operations.

I hope that this blog has provided valuable insights into the intricacies of international payroll. Undoubtedly, managing payroll across multiple geographies can be challenging due to the varied regulations involved. Your existing local payroll software may not always suffice for this task. Before starting your search for a global payroll service provider, take into account the factors discussed in this blog. Should you have any further questions or require assistance, feel free to reach out to us at Wisemonk. We'll be delighted to help you. ??