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Organizations are increasingly administering payroll globally, with payroll professionals sometimes in leading roles in the overall effort to reign in and process data related to employment activities, said Regina Lee, a president at Automatic Data Processing Inc.
The growth in international employment is real, Lee said, adding that more companies with 50 to nearly 1,000 employees are contracting with ADP because they “have a need today, or believe they will tomorrow” for international payroll-related services.
Administering an international payroll is complex and payroll professionals need certain skills and attributes to be successful in a global environment, said Lee, president of ADP national account services, major account services, GlobalView, and ADP Canada.
In general, those successful in international payroll need to have strong relationship and collaboration skills and have a willingness to learn and respect other cultures. Having good project management skills and an ability to think strategically also are helpful in directing an organization toward practical and compliant global payroll administration, Lee said.
Among the best practices for employers to consider when embarking on global workforce administration include ensuring senior leadership is supportive; determining the overall local or global approach to administration; ensuring compliance, visibility, consistency in applications; linking the effort to the human capital management strategy; and ensuring that payroll operations are represented in the systems-development stage, Lee said.
Generally, there is a lack of knowledgeable resources to support the demand for expatriate and international payroll administration, said David Leboff, president of Expaticore, a third-party aggregator of expatriate and host-country payroll services.
Companies need to determine their desired state for international payroll administration and include an integrated set of structural elements in the plan, Leboff said. The end result consists of a rational and functional global payroll organization that uses capable resources via a controlled process or workflow that also fits for technological purposes into practical administrative policies.
There is no simple solution to integrating these pieces, Leboff said. Hindering efforts are regulatory requirements, multiple decentralized operations, and the limits of payroll-processor capabilities to integrate operations, he said.
Typical processing models that firms develop can be broken down into those that administer global pay internally, use aggregators or brokers, and outsource payroll processing, Leboff said. Companies that choose to bring all or most of the operation in-house generally are large enough to easily customize processes, he said.
The use of international payroll aggregators or brokers can be effective for smaller employee populations abroad and they can help set up host country payroll processing, but are limited in applying resources, and data security can be an issue, Leboff said.
Leboff said the total business processing outsourcing model remains attractive for organizations that view the administration of payroll and other employment-related activities as not core to the overall business, but this model appears to be growing out of favor.
Of the three models, no single approach will fit all the needs desired to administer payroll internationally, Leboff said. While organizations seek centralized command and control with decentralized delivery, technology itself is not a solution, he said.
Focusing on expatriate assignments, payroll needs to be part of the mobility policies set up by organizations, said Sue Wines, a vice president at SIRVA Inc., which provides relocation and moving services.
The process, Wines said, has three parts: when the assignment is being contemplated via cost estimates and budget accruals, when a letter of assignment is developed, and when the numbers from that assignment actually begin to hit the organization's balance sheet.
Payroll should be careful in not trying to work out the numbers too early in the process. The balance sheet for the assignment contains the best information available for payroll to do its work in determining hypothetical tax calculations and other variances from in-country pay, Wines said. “A pay period view of the balance sheet is what you need to see,” and from there payroll needs to determine who in the organization is doing the calculating, who is paying, if one-time payments are involved, and if there is any imputed income to consider, she said.
According to a 2012 joint survey of clients by SIRVA and the Hackett Group, 90 percent of the organizations have a tax equalization policy to try to keep employees on assignment on equal terms with what they would pay in taxes had they not been working overseas.
Where the pay is delivered also needs to be determined. According to the survey results, 54 percent pay via home-country payrolls, 12 percent use host-country payrolls, and 33 percent split payroll delivery for expatriates. Some countries, such as Brazil and Russia, require at least a portion of pay be remitted within the country, Wines said.
Monitoring and keeping up with changes in employee status can be cumbersome, but they are necessary, Wines said. Calculation errors can balloon into serious compliance and morale situations, making the collection of the changed data and recalculations more critical, she said. Salary changes, a change in family size or status, cost-of-living allowance adjustments, and one-time payments, such as bonuses, can skew the original tax and pay calculations.
Earnings updates by period with accumulations are a must, he said.
Leboff said for U.S. expatriates, payroll will always need Form W-4 and Form 673, if applicable, to claim the Internal Revenue Code Section 911 foreign earned income credit; any social tax certificates of coverage, under totalization agreement treaties; recommendation from the employee's tax adviser on the state that meets possible tax nexus for the employee; and a balance sheet or grid of employee data.
Gregg Gordon, senior director of manufacturing at Kronos Corp., said firms are responding to the global human capital management challenges to achieve a high “overall labor effectiveness,” he said.
A Sept. 12 article about expiring Internal Revenue Code provisions incorrectly said that tax-excluded adoption assistance (Section 137) would end with the expiration of the provision. If Congress does nothing, the excluded amount would revert to as low as $5,000 in 2013.
In his book Lean Labor, Gordon said labor productivity is still job No. 1, but currency exchange issues need to be factored into an equation made up of three components: utilization, or time paid vs. productive time; performance; and quality.
With payroll viewed as an end product, quality can be measured via identifying inaccurate payments, inaccurate reports, and returned payments and complaints, Gordon said. Key problems, such as time monitoring, occur at the start of the process, and the perfect paycheck cannot be achieved “unless the front end is right,” he said.
In the international environment, payroll professionals should be asking how they can help increase revenue, Gordon said.
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