International payroll management remains top concern for remote, hybrid firms

COO at Global PEO Services warns HR leaders who allow employees to 'work from anywhere'

International payroll management remains top concern for remote, hybrid firms

Since the COVID-19 pandemic forced many people to work from home for the first time, employees have been taking advantage of their newfound freedom by working wherever they please.

However, if that’s in a different state or country, their employer may be subject to tax and immigration laws. While most HR professionals recognize the benefits of remote work, the data suggests that tax and immigration compliance remain a great risk. In 2021, 60% of HR professionals were confident they knew where most of their employees were located, according to Topia.

That number has fallen to 46% in 2022, revealing a major blind spot.

“There’s no doubt businesses worldwide have made incredible strides this year entering new markets and implementing work-from-anywhere policies,” Raj Inda, chief operating officer at Global PEO Services, a Safeguard Global company, told HRD.

Read more: Beware the legal challenges of ‘work from anywhere’ policies

“When expanding globally, companies are often faced with organizational challenges that could make or break the business if not carried out correctly,” Inda says. “One of the biggest concerns for global companies is international payroll management, which is especially critical when dealing with countries and governments that have a zero-tolerance approach for mistakes.”

If payroll management is carried out incorrectly, companies can face government audits, expensive fines, legal penalties and more drastic consequences. Nobody wants to deal with those headaches, especially after just emerging from the COVID-19 pandemic.

According to a recent survey, 40% of HR professionals discovered employees working from outside their home state or country. That’s not surprising because the pandemic has led to an increase in employee desires to have international experiences as part of their career path.

However, these international experiences aren’t always legal. It comes down to whether a company has created a “permanent establishment,” which means a fixed place of business in a state or country aside from its residence. There are formal ways to create a permanent establishment, such as building an office and hiring people to work there, and informal ways, like the CEO spending time in other countries to sign new customers there. Once the business generates taxable revenue in another state or country, it has become a permanent establishment that the new residence can tax and regulate.

Complex government regulations are the root cause of some of the most detrimental issues with international payroll management, according to Inda.

“These laws and requirements are ever changing and are constantly evolving,” he says. “So, even if your company was set up compliantly, you need to keep a strong pulse on government policies to ensure any changes are reflected in your payroll systems. Having a comprehensive understanding of global payroll systems and access to in-country expertise for employment law is critical. Implementing the right technology designed to simplify the global payroll process is also a requirement for managing an international workforce, especially for companies trying to scale quickly.”

Of course, many business leaders feel their hands are tied when it comes to offering flexibility in where and how employees work. Nearly two-thirds (64%) of employees forced to return to the office full-time say this makes them more likely to look for a new job, according to Topia’s 2022 “Adapt” study. Of the nearly 1,500 office workers, 41% said flexibility to work from home is or was a reason to change jobs.

That’s a red flag during the Great Resignation, in which companies across the United States are experiencing historic turnover. In June, 4.2 million Americans quit their jobs, according to the U.S. Bureau of Labor Statistics, down slightly from 4.3 million in May, which declined only a hair from April, March and February. Since the beginning of 2021, roughly 73 million Americans have fled their positions.

Prompted by the pandemic to re-evaluate their priorities in life, employees have been leaving their positions for greener pastures, demanding higher salaries, better working conditions, improved work-life balance and more opportunities to advance their career. If companies want to attract and retain talent in 2022 and beyond, they’ll have to be willing to offer workers unprecedented autonomy.

But it’s up to HR leaders to make sure that newfound freedom doesn’t come back to haunt the company.

“When it comes to running accurate and timely payroll for international employees, companies need to ensure they have a provider with in-depth knowledge of local regulations,” Inda says. “The same goes for paying international employees in their local currency, as the fluctuation with currency exchange rates can be challenging for payroll teams. Overall, leveraging a global payroll provider with a long history of success in foreign markets can lift several burdens from an organization expanding globally.”

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