Recent times have seen a global paradigm shift in the employment landscape, with remote hiring and gig workers dominating the work culture. In 2023, the projected gross volume of the gig economy is expected to reach $455.2 billion. As work cultures evolve, so do the supporting technologies.
To accommodate the needs of a more globalised workforce amid a rising gig economy, companies adapt to using different software with integrated features to support their HR functions like payroll, administration and regulatory compliance. One of the most important functions, regardless of company size or location, is payroll processing. Nearly 55% of employees in the US live paycheck to paycheck, and they don’t even have a three-month savings cushion. This makes it extremely important to ensure smooth and timely payroll, a mandate for most companies.
With workers spread across borders, a blend of independent contractors, freelancers and full-time employees, managing a remote payroll poses another challenge. How do you ensure a smooth payroll process for employees working from a different time zone, with differing implications, compliance regulations, and currency differences?
This article delves more into remote payroll systems designed specifically to navigate these challenges.
What is Remote Payroll?
Remote payroll is a system designed to manage, calculate, and disburse salaries for remote workers. These can be workers in different states or even different countries from where the company is headquartered.
The payroll system is based on local requirements for select foreign employees. A payroll for remote workers is also referred to as a global payroll.
Things to Consider For Remote Payroll Strategy
The decision to consider a remote payroll begins when you hire across states/borders. To ensure timely payments and error-free calculations, you must have a defined strategy that addresses all the challenges of a remote payroll.
Here are some factors to consider:
- Employee Classification: Misclassifying employees can result in incorrect payment, underpayment and significantly sever ties with the concerned employee. The most common of these errors is classifying an individual as an independent contractor instead of an employee.
In 2019, the US Wage and Hour Division of the Department of Labour recovered a record $322 million in back pay for misclassified employees. This can not only attract hefty fines but also tarnish the company's reputation in the long term.
- Local Tax Compliance: The tax slab and deductions in your remote employee’s location may differ from yours. When you pay international contractors, you need to be aware of the tax deductions applicable to them. During payroll processing, you cannot overlook the local compliances. If you have people from multiple countries, a slight confusion between two countries can have grave differences in payments.
- Country-specific Benefits: There is no one stipulated format of employee benefits globally. 50% of employees in the Asia Pacific region feel the employee benefits are below market. When running a remote payroll, you need to provide customised and local benefits for your employees.
If you hire employees from India, you must know that employee benefits are classified under seven categories, from health insurance to childcare benefits.
- Currency Fluctuations: Exchange rate fluctuations can affect the value of an employee's salary when converted from one currency to another. Employees who are paid in local currency may experience variations in the amount they receive each month.
It can also lead to compensation disparities among employees in different locations. For example, if you play an employee in a strong currency and the exchange rate weakens, they may receive higher salaries in their local currency.
- Manual Errors: Payroll errors are more common than one would anticipate. The Internal Revenue System penalises nearly 1 in 3 businesses for payroll mistakes. While automated systems can save time with faster calculations, those with manual systems will likely bore the brunt of human errors. 18% of companies still use manual and paper-based activities as part of their payroll processing, which only increases the risks of errors in managing remote work payroll.
Tips to Plan Effective Remote Payroll Management
Planning an efficient payroll management involves addressing all the previously stated risks. Here are some tips to help you develop a smooth remote work payroll strategy:
- Maintain Documentation: When onboarding new employees, have formal documentation that specifies the employee’s role, nature of working (part-time or full-time), remuneration and reimbursements, if any. This reduces the risks of misclassification and miscommunication between employees and employers.
- Decide Salaries Based on Local Regulations: It is important to consider local labour laws when fixing up employee remuneration. Consider the potential benefits and deductions to calculate the gross amount that the employee will receive each month.
Also, consider the exchange rates and conversion charges if the employee wishes to be paid in their local currency.
- Automates Processes: Remote payroll encompasses many things like attendance, timesheets, leaves, reimbursements etc. Keeping a tab of these for a diverse team is susceptible to errors and takes time.
An EY survey finds time/attendance and expense errors are most common, occurring on average more than once per employee per year. On the contrary, the adoption of automation has reaped significant benefits. Lenovo’s switch to robotic automation bots helps the HR team save at least 6,000 hours annually!
- Set Up Payment Channels: To manage a remote work payroll, companies should set up the required channels to facilitate timely payments. With digital transformation, several electronic payment platforms allow for easy and secure transfers of funds.
There are different methods of paying overseas workers, such as direct transfers, wire transfers or freelance platforms. You will need to register in advance to initiate payments.
- Consider Outsourcing: Payroll outsourcing means hiring an external organisation to handle a company's payroll operations, which entails salary, deducting taxes, generating payslips and ensuring timely disbursements. If you want to scale up your business globally, consider adopting EOR expertise or outsourcing payroll, freeing you of these administrative tasks. 12% of companies stated they fully outsourced their payroll in 2019.
3 Ways to Run Remote Payroll
Whether you are a small business or a well-established organisation, there are several ways to run a payroll system:
- Internal Teams: Despite the shift to digitisation, many companies practice traditional methods of having an internal payroll processing team. This includes a trained team of professionals dedicated to each payroll function, such as collecting data, calculating bonuses, tax deductions, filing reports, etc.
Companies with unique payroll requirements may find it easier to manage internally as they can tailor the process to fit their specific needs. It also allows for full control over the payroll data.
- Payroll Software: A dedicated payroll software integrates automation to simplify all the data collection and calculations. All one needs to do is fill in the relevant details for each employee. The ease and convenience of payroll software have even prompted some companies to use multiple services for their remote work payroll.
The number of businesses in the US HR & Payroll Software industry has grown 5.5% per year on average over the five years between 2018 - 2023.
- Employer of Record Services: Businesses who are new to exploring foreign business markets can benefit from the services of a trusted employer of record (EOR). They help companies hire in countries where they don't have a legal entity. The knowledge of local labour laws, taxes, and employment regulations, ensures compliance in each jurisdiction.
They can take the burden of setting up your business abroad, hiring compliantly and managing the payroll for remote workers as well.
The decision ultimately lies in your needs and requirements. But to opt for a complete package, it is wise to choose an EOR service provider so that you can concentrate on growth strategies while your payroll is handled in an integrated manner.
Trust Rapid To Ease Remote Payroll Management
Suppose you are considering expanding your business operations in India you can trust Rapid EOR for a smooth and hassle-free experience with payroll for remote workers. With a well-integrated platform, a deep knowledge of the Indian market and an unwavering commitment to precision, we bridge the gap between the challenges and opportunities associated with outsourcing payroll.
With an impressive track record spanning over 25 years, our expertise speaks volumes. You will also benefit from access to an expansive service marketplace with us. We can help you connect with qualified talent and immigration experts to hire from India compliantly. Count on us for comprehensive payroll support, encompassing full payroll processing and strict adherence to Indian tax withholding standards.
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