Payroll

Top 10 Global Payroll Errors and How to Avoid Them

10
Min
Top 10 Global Payroll Errors and How to Avoid Them
Written by
Mayank Bhutoria,
Co-Founder
July 9, 2024

Key Takeaways

  • Understand the specific challenges of managing payroll across multiple countries and their impact on operations and compliance.
  • Learn practical strategies to avoid payroll errors, streamline operations, and ensure accuracy across international payroll processes.

For a multinational organization, managing payroll for employees across multiple jurisdictions is a complex task.From staying compliant with diverse tax laws to handling multi-national currencies, the process can be tough and complex. Even a small data error in payroll can lead to payroll issues and significant financial, legal, and reputational repercussions for businesses.Therefore, it is crucial to take proactive measures to prevent errors in global payroll.In this blog let’s explore the top 10 common global payroll errors and practical solutions to avoid payroll errors. By understanding these challenges, you can ensure accurate and compliant payroll processes.

Top 10 Global Payroll Errors And How To Avoid Them

There are several reasons why errors may occur in global payroll processing. These include:

1.Missing deadlines for tax filing and reporting

In a multinational company, the payroll department is responsible for filing tax returns in jurisdictions where the company operates. Each jurisdiction has its deadlines and requirements, making global payroll compliance a complex task. 

This complexity can lead to missed deadlines due to administrative oversights, insufficient tracking systems, and lack of team coordination.

Missing tax deadlines have serious consequences, such as substantial penalties, fines, reputational damage, and other legal risks.  

How to avoid it

  • Maintain a comprehensive calendar with tax filing deadlines for each jurisdiction and set up automated reminders in advance of each deadline. 
  • Implement global payroll solutions that offer automated tax calculations and filing features. 

2.Misclassifying workers

Correctly classifying workers as employees or contractors is crucial for tax obligations, benefits, and compliance with labor laws. Misclassifying employees as contractors can lead to:

  • Ineligibility for employee benefits.
  • Reduced job security
  • Working hours and wages disputes
  • Loss of overtime pay

Each jurisdiction has distinct criteria for classifying workers, and misclassification can lead to severe legal risks and penalties. For example, the California Labor Code 226.8 imposes penalties between $5,000 and $25,000 for misclassifying employees as independent contractors. 

For companies operating in multiple countries, keeping track of complex and varying criteria can be challenging, increasing the risk of misclassification.

How to avoid it

  • Provide ongoing training for HR and payroll staff on classification rules, the importance of compliance, and the risks of misclassification.
  • Engage local payroll experts for guidance on worker classification.

3.Selecting the wrong payroll partner

Partnering with third-party payroll providers has become increasingly common. According to a Deloitte study, 73% of organizations outsource some part of their payroll process.

A payroll partner is responsible for processing payroll data, providing timely and accurate payments, calculating and withholding taxes, and ensuring compliance with local labor laws. 

However, not all payroll partners have the necessary expertise, technological capabilities, and reliability to handle your company’s payroll needs effectively.  

Selecting the wrong payroll partner can cause critical errors and delays in payroll processing, leading to employee dissatisfaction, financial losses, and potential legal issues. 

How to avoid it

  • Before selecting a payroll partner, assess their expertise in handling payroll for companies similar to yours. Review their track record by reading client testimonials and case studies to ensure they have a history of competent service.
  • Choose a partner that uses up-to-date payroll technology that can integrate seamlessly with your HR and finance systems to ensure efficient processing.

Read this blog on PEO vs. Payroll Services – Which suits your business goals?

4.Handling various payroll providers without automated data consolidation

When companies expand globally, they often engage different payroll providers in various countries or regions where they operate. 

However, working with multiple vendors becomes more challenging as the volume of data flowing between external service partners and the central Human Capital Management (HCM) system increases.  

Without proper integration and consolidation, payroll data becomes scattered, leading to inefficient workflows, poor data transparency, and difficulty in generating comprehensive reports.

How to avoid it

  • Partner with a single global payroll provider or platform that can integrate data from various sources, ensuring consistency and accuracy.
  • Establish standardized payroll processes and data formats across all regions to streamline consolidation efforts.

5.Skipping Business Registration

When hiring international employees, companies must establish a legal entity or register as a foreign employer before initiating payroll activities. 

Proper registration is essential as it establishes the organization's legal status and obligations within the host country, enabling the employer to hire employees and conduct business activities legally. It also ensures employees receive their rights and entitlements, such as benefits and leaves, as stipulated by local laws

Not being registered properly to hire abroad can result in legal and financial liabilities and operational disruptions. 

How to avoid it

  • Engage with an EOR. An EOR acts as an official employer by allowing you to onboard employees on their local entity, and manages payroll, taxes, compliance and employee benefits on your behalf.  
  • Research registration requirements in the countries you plan to hire from and initiate the process before hiring.
  • Companies can partner with Employer of Record (EOR) services to expand internationally, adjusting staffing levels and locations without the constraints of setting up a legal entity.

6.Neglecting Data Protection

Payroll data contains highly confidential and sensitive employee information, like social security numbers and tax details, making it a prime target for cyber attacks. 

Failing to protect this data can lead to data breaches and privacy violations, legal penalties, and reputational damage. Each jurisdiction has its own stringent data protection laws as it contains sensitive personal information, making it a target for cyber attacks. For example, Europe has a data privacy and security law - General Data Protection and Regulation (GDPR) that governs how organizations collect, use, store, and process personal data of individuals within the EU/EEA.  

How to avoid it

  • Employers should stay informed about the varying data protection laws across different jurisdictions. 
  • Encrypt payroll data both in transit and at rest, and implement strict access controls and authentication mechanisms to protect it from unauthorized access.
  • Outsource payroll to a trusted payroll provider with high data security standards and compliance certifications.

7.Not reserving time for international payment delays

Paying remote employees in different countries is different from paying your local employees. 

International payments take longer to process due to various factors, such as multiple intermediaries, currency conversions, and local holidays. Additionally, different countries have distinct banking regulations governing wage transfers,  which may impact processing times. . For example, foreign employers in China need to set up a local bank account to pay their employees. In Canada, on the other hand, foreign employers can pay directly from their foreign bank accounts without the need to set up a local bank account. 

Failing to allocate additional time for these payments can result in missed paydays, leading to employee dissatisfaction and potential legal penalties.

How to avoid it

  • Plan international payroll cycles well in advance, accounting for potential delays in currency conversion and transfer processing.
  • Choose a global payroll provider that uses efficient processing systems to reduce delays and streamline international payments to employees. 

8.Failing to account for exchange rate fluctuations

Failing to account for exchange rate fluctuations can result in significant financial discrepancies. Exchange rates can change rapidly, and without accurate, up-to-date information, your payroll team may face challenges in ensuring the correct amounts are paid to international employees. This can lead to underpayment or overpayment, causing financial inconsistencies. Additionally, inaccurate currency conversions due to outdated exchange rates can exacerbate these issues, leading to further losses. 

How to avoid it

  • Implement payroll software that supports multi-currency payments. This system should automatically update exchange rates and handle currency conversions, ensuring accurate payment.  
  • Partner with a global payroll provider like Gloroots with expertise in managing multi-currency payroll.

9.Relying on spreadsheets

Relying on spreadsheets for payroll processing not only slows down the process but also increases the frequency of payroll errors and exposes an organization to compliance risks.  Additionally, spreadsheets lack robust security features like encryption and access controls, increasing the risk of unauthorized access and data breaches.

How to avoid it

  • Conduct periodic audits of payroll processes to ensure accuracy and compliance with regulations.
  • Opt for cloud-based payroll software that automates calculations, tax withholdings, and benefits management, reducing the risk of human error.
  • The payroll software should also reflect changes in payroll laws and regulations automatically, to ensure compliance. 

10.Failure to Accurately Administer Benefits and Allowances

Global payroll administrators may find it difficult to keep track of all applicable benefits and allowances due to varying legal requirements across multiple countries.

Other common pitfalls include incorrect calculation of benefits and allowances and failure to update benefits and allowances according to changes in employment status or location.

Neglecting to properly administer all applicable benefits and allowances while processing payroll can result in employees receiving less than their due compensation. This may cause employee dissatisfaction, potential legal issues, and damage to reputation. 

How to avoid it

  • Train your payroll team on the importance of accurately accounting benefits in the payroll and encourage employees to report any discrepancies promptly.
  • Use payroll automation software that automatically includes benefits and allowances in payroll calculations. 

The Consequences of Errors in Global Payroll

Global payroll errors can have far-reaching consequences that impact organizations and their employees. Below are key potential consequences: 

Financial losses

Rectifying payroll errors, such as underpayments or overpayments, increases operational costs. According to an EY report, the average cost to remedy a single payroll error is about $291.

Delayed or incorrect tax filings and payments can incur additional fees and interest charges. Additionally, fines imposed by regulatory bodies, settlement costs, and other legal expenses can significantly add to the financial burden.

Employee dissatisfaction and turnover

According to a Market Splash survey, 65% of employees rely on each paycheck to cover their financial obligations. This means payroll issues such as late or incorrect payments can cause financial hardship and stress for employees, leading to a decline in employee satisfaction and trust. Additionally, ongoing payroll errors make it challenging to retain employees resulting in high employee turnover. As per a survey, 44% of the respondents said that they would contemplate quitting their jobs if they were paid incorrectly.

This, in turn, negatively impacts employee morale and the overall engagement of the employees with the organization. 

Legal and regulatory issues

Non-compliance with local tax and labor laws can lead to substantial fines and penalties from regulatory bodies, and potential lawsuits from affected employees. Persistent payroll errors can also trigger audits and investigations by tax authorities and labor regulators, leading to legal complications.

Operational disruptions

Correcting payroll errors consumes valuable time and resources, diverting HR and finance teams from other critical tasks. Payroll errors lead to employee demotivation and decreased morale directly impacts productivity and overall business operations.

Reputational Damage

Consistent payroll errors erode trust between employees and the organization, leading to a negative perception that can be difficult to reverse. Additionally, the publicity surrounding payroll issues may damage the organization’s reputation, deterring potential candidates from applying. It also affects relationships with clients, partners, and investors. 

Gloroots: Your Global Payroll Software

Gloroots Global Payroll Software simplifies payroll processes and ensures quick and precise payments for your employees worldwide. Gloroots can help you avoid payroll errors and ensure a smooth, compliant, and efficient payroll process. We offer

Tailored Payroll Solutions: Every business is unique, and so are your payroll needs. Gloroots offers customized solutions to match your specific payroll requirements, ensuring a perfect fit for your global strategy.

Streamlined Operations: Enhance efficiency with our unified employer dashboard that integrates various payroll aspects and provides instant payroll data access across countries. 

Multi-Currency Transactions: Effortlessly manage payroll in multi-currencies, facilitating smooth currency conversions and transactions. Gloroots provides insights into currency conversions and tax deductions for full transparency.

Cross-Border Compliance: With Gloroots you can ensure compliance with international tax and labor laws, keeping your business compliant in every country.

How Gloroots Helped Sketchnote Pay Its International Contractors in One Go

Sketchnote is a project management software platform with a small distributed remote working team. 

Challenges:

Managing payroll for 15 contractors across multiple countries was time-consuming, with extensive email correspondence for invoices and payments.

Solution: 

Gloroots streamlined Sketchnote’s payroll, with our single-click multi-currency payments consolidating 15 separate payments into one monthly transaction. We managed all currency conversions and administrative communications, including invoice collection. 

This dramatically reduced payroll time and eliminated the need for multiple international transfer fees. 

Using Gloroots’ Unified Employer Dashboard,  they were able to view all the details about upcoming invoices, payment statuses, and contracts. 

Results:

  • 87% reduction in payroll time
  • 15 multi-currency payments consolidated into one
  • 100% compliance with Indian, Spanish, Pakistani, and Californian laws

With Gloroots, our team of experts is always available to provide support and guidance, helping you navigate the intricacies of global payroll management. Ready to Simplify Your Global Payroll? Book a Demo to see how Gloroots can transform your payroll management.

Ready to take your hiring global? Let’s talk.
Our experts have got you covered. 

Join our monthly newsletter

Stay informed with the latest insights on managing global teams, delivered straight to your inbox.

Download free ebook now

Gain exclusive access to expert-driven strategies and insights for effective global hiring.

Enter a valid work email address!
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Thank you for downloading!

Enjoy discovering new insights in your expert guide to global hiring!

Closing in 5 sec