Hiring employees across the country or the world often signals that a company is growing. That growth can open new market opportunities, boost revenues, and give teams new skills and perspectives. As remote work becomes the norm, business owners are expanding operations and teams in places they might have previously dismissed. But a growing business with remote employees in different locations means payroll systems can become more complicated.
Local labor laws, pay structures, and payroll policies are some of the top factors impacting global payroll systems. Currency fluctuations, language barriers, and cultural differences are a few others. As your team expands across borders, so must your payroll practices and systems. Let’s look at ways your business can do it.
Use an Employer of Record Service
Perhaps you’ve found the perfect candidate to add to your team. They check all the boxes and bring much-needed expertise to the table. Plus, the rest of your employees can’t wait to start collaborating on projects with this candidate. However, your ideal future staff member lives in Canada, and your company’s headquarters are in San Francisco.
You could establish a separate entity in Canada to bring this person on board. Yet that might take months, and you’re not sure you’ll hire more staff members from that country. By working with an employer of record service, you won’t have to set up a separate entity. You can hire the best person for the job no matter where they live. Meanwhile, an EOR ensures you comply with each country’s payroll tax and labor laws.
Sometimes businesses confuse EORs with professional employer organizations. An EOR differs from a PEO in a few key areas. Both can handle payroll services, but an employer of record hires employees on a company’s behalf. A PEO does not become the employer on paper; it requires companies to own their local business entities. The EOR vs. PEO decision depends on whether it makes business sense to establish regional branch offices or subsidiaries.
Consider Cultural Differences
Sometimes countries can share official holidays. While there might be slight celebratory or historical differences, both locations earmark the same day on the calendar. For instance, Canada and the United States designate Labor (or Labour) Day as the first Monday in September. More often than not, however, government holidays and mandated vacations vary between countries.
These dates can impact payroll, as local banks probably won’t accept direct deposits on official holidays. An EOR or PEO can help navigate these obstacles. However, a business may also want to streamline payroll dates across locations. It makes the most sense if a company only has a few small remote teams or employees in separate countries.
On the other hand, trying to coordinate payroll dates with rapidly expanding teams can get tricky and overbearing. In these cases, a business might work with a global payroll provider to streamline services per location or country. International payroll services can also handle differences in language meanings and contexts. For example, self-service portals for U.S. employees might say paycheck, while Canadian staff sees the word paycheque instead.
Pay Attention to Currency Changes
When your entire staff lives and works in the same country, you don’t have to worry about currency fluctuations. The value of the U.S. dollar remains the same whether employees work in New York or Los Angeles. However, all that shifts when you hire staff members from different countries. The value of the U.S. dollar to other currencies can go up or down each day.
It will likely impact the salaries and pay structures of global employees. Say a sales rep in Canada knows they’ll earn $500 for each closed sale. On the day they seal the deal, $500 is worth the same amount in Canadian dollars. But by the time payday comes around, the value of $500 drops to the equivalent of CA$450. A sales employee in the U.S. essentially gets paid more for the same work when currency values shift downward.
As the opposite scenario can also happen, businesses that hire globally often need to adjust their compensation structures. It applies to companies that rely on international freelance workers as well. Setting fair pay rates according to local market conditions is an obvious baseline. However, the practice of converting currencies behind the scenes might not be so explicit.
Businesses can set pay in another country’s currency and convert it to the home currency on the back end. For example, say sales reps earn $500 in local currency for each closed deal regardless of work location. That may mean the company pays out $550 to Canadian employees one month and $450 the next. This approach usually works best when workers are paid on commission or per project. Salaried employees may require the advice of an EOR or local expert.
Taking Payroll Systems Global
As long as you’re hiring employees where your business has a legal entity, you can manage your payroll through a PEO. Some owners might keep everything in-house if they have legal experts and staff to pull it off. However, businesses new to global expansion and hiring usually find it beneficial to work with an EOR.
Using an employer of record means you don’t have to set up separate entities. You also gain a partner who can help handle differences in payroll requirements, labor laws, cultures, and currency changes. Working with an EOR ensures your business expands its global payroll systems appropriately and avoids legal complications.
