The decision to expand your business internationally comes with a significant number of risks and hurdles including cultural, operational, compliance and technical.  The sheer number of new and unique business processes, staff and policies that need to be put in place and maintained to comply with international labor regulations is massive.

A thorough cost benefit analysis is necessary to determine the appropriate support model and whether HR and Payroll outsourcing is cost-effective.  Significant drivers of the analysis include the number of countries, the number of employees in each country and whether each location has Employer or Employee friendly labor laws.  Companies that are establishing a beachhead in a country (less than 10 employees) will typically find a local outsource HR / Payroll provider to manage the small population of workers.  With larger in-country populations, say greater than 100 employees, companies begin to consider their in-house HR and Payroll options due to cost considerations.  Another consideration is the high cost of labor liability for doing business in certain countries.  To compound the compliance challenges, regulatory requirements can change at any time, in any country, region or locality and can also be retroactive.   Staying on top of these ever changing rules is extremely challenging.

Typically, there are 4 models that organizations need to consider for their international operations:

1. Hire Global HR and Payroll staff at Headquarters – In this model, a centralized Payroll and HR team manages all payroll runs for each country and also addresses compliance issues.
2. Hire HR and Payroll staff in each Country – This model is appropriate where there are a few countries with many employees per country.
3. Hire an Outsourced HR and Payroll Provider in each Country – The challenge with this scenario is the need to deal with multiple vendors and data sources.
4. Establish a relationship with a Global Managed Services Company – Entails finding a HR Outsourcer and Payroll Aggregator that manages a sophisticated global payroll network.

In each of these models, the responsibility for the Capture Payroll Information to Paycheck and Benefits Selection to Benefit Accounting Mega-processes need to be distributed.   The elements that need to be considered by country includes payroll data load, gross-to-net calculations, payroll validation, payroll payments, tax filings and distribution, regulatory compliance, production of Bank and G/L files, consolidated reporting, year-end filings and Benefits compliance.

If HR and Payroll are going to be insourced, having the right technology infrastructure is key.  The ability to have HRIS localization and true BI reporting to aggregate employee and payroll information is a critical success factor.   Moreover, having a HRIS systems that supports multi-language, multi-currency along with country specific localizations facilitates compliance.

Global HR Complexity

Operating HR across multiple geographic and cultural boundaries with unique regulatory requirements in each country is difficult for many organizations.   Each country has different hiring practices, on-boarding requirements and payroll mandates depending on the geographic area of the country in question.   Working in multiple countries with multiple locations per country requires additional technical infrastructure to manage the complexity if it not being outsourced.   Only a few HRIS and Payroll technical solutions address the problems of multi-language, multi-currency and localization.

In most global organizations, the ability to find high-quality HR staff locally in country is a significant challenge. To address these challenges, some HR outsource providers offer the equivalent of a Professional Employer Organization (PEO) or at the minimum Co-employment capabilities to manage small employee populations internationally in a compliant manner.

Benefits Complexity

As a Global trend, Healthcare coverage costs are increasing in all countries and Governments are paying less and less.  Global HR Executives need to find strategic ways to create and support employee benefits programs for their distributed workforce.  The challenge with managing Global Benefits is to deliver appropriate level of services across different cultures and geographic locations.  This often requires tailoring of benefits to each country, while ensuring proper governance, compliance and cost objectives are met.

In many countries, there are 3 or more tiers of coverage including State, Employer and Employee contributions along with Workers Comp.  The biggest challenges are to remain compliant with benefit legislative requirements and stay on top of benefit operations and communications in multiple languages.   In some cases, various requirements to offer healthcare coverage at different levels along with additional supplemental insurance compounds the challenge.   Many companies also have Expatriate Workers that are still on US Benefit Packages, working abroad and are receiving a hybrid of services.  All these challenges factor in to an organizations Total Rewards analysis.

International Payroll

Attempting to handle Global payroll at headquarters is complex.  International tax withholdings, reporting, regulatory requirements, labor practices and overtime rules require significant vigilance to steer clear of liability.  In addition, employee expenses that are not handled properly can be treated as income to the employee for tax purposes.  Setting up processes to manage exceptions when tax or payroll errors occur are also unique by country.  Having appropriate staff with the ability to interpret regulations in a foreign language is key along with maintain local banking relationships on country to pay taxes.

The bottom-line is that organizations that are seeking to expand internationally need a Trusted Advisor to help design their Global HR, Benefits and Payroll capabilities.   For more information on how HBSC can help, please contact us at 1-800-970-7995 or send us an email at client-development@hbsconsult.com.