One of the complexities of being a finance leader in a multinational organization is handling the unique paycheck laws that are in place within the various countries where your business operates. Paycheck laws differ by country, and some countries have much stricter or complicated protections for employees. Finance leaders and other executives need to be prepared to take a nuanced approach when aligning their payroll expectations throughout the organization, depending on the countries or regions where employees are located.

Here are key points to keep in mind when managing compliance with payroll regulations in various international locations.

Local Laws Tend to Predominate

Even if your organization is headquartered in the U.S., your employment relationships with international employees are typically governed by the employment laws of the local countries where those employees live and work. It can be harder to terminate employees in other countries than it is in the U.S. Many other countries have labor laws that are more favorable to employees or that offer stricter protections for employees' rights than the laws in the U.S., and this can create additional costs, risks and complications that employers need to prepare for and manage. Even if employees are expatriates who are American citizens living temporarily in other countries, they still might fall under the jurisdiction of foreign countries' labor laws for purposes of severance compensation and other aspects of complying with paycheck laws. Employers should in these situations consult with their legal, finance and tax advisors.

Adopt Local Payroll Compliance Solutions

A one-size-fits-all approach won't work when dealing with employment law for employees in foreign countries. Every country has its own unique laws and payroll compliance processes. If your organization is hiring or relocating employees in a new country, it's often best to register an in-country corporate presence with the local country's government. However, some businesses might not want to register because they're in the early stages of exploring the possibilities of operations within a new country, they have multinational expats working for them who work within multiple countries within a given year or they have "floating employees" who are working remotely in foreign countries but not actually doing work with a physical presence in those other countries. Whatever payroll solutions you choose, have clear processes and consistent systems in place to minimize friction and inefficiencies for your employees. Employees will appreciate not having to worry about taxes or do extra paperwork on their own.

Understand Local Countries' Employment Laws

There's ambiguity when dealing with payroll compliance for international employees, and all of these situations require careful consideration to make sure you comply with relevant laws and other aspects of legally paying employees in foreign countries. Different countries have a wide range of local laws that affect how you pay your employees and which options you have for classifying your employees for payroll purposes.

For example, according to the Society for Human Resource Management, the U.K. and Thailand allow for a foreign employer exception, where organizations that don't do business or have permanent establishments within those countries "can hire and pay local staff without making local withholdings and contributions. The worker bears the burden of tax and social security filings as if self-employed."

Countries like France, Estonia and Sri Lanka offer a "payroll only" registration option, where employers can register the local countries' tax and social security agencies to issue legally compliant local payroll, even if the organizations have no physical in-country presence. Additionally, some countries tend to be less concerned with protecting the employment law rights of non-citizen residents, which means your organization might be able to negotiate more favorable employment agreements with employees based in those countries. Unified and integrated payroll systems can help organizations address these complexities with ease and take some compliance burden off their plate.

Globalization Continues to Ramp Up

Multinational organizations are likely to continue to hire and transfer employees to foreign countries as the globalization of the economy and the rise of mobile work technology continues to expand and become more sophisticated. However, it's important to remember that just as individuals are bound by the laws and legal practices of the countries where they reside — even if they're not citizens of those countries — employment laws and compliance expectations are often based on the local laws and standards. You will need to be prepared to adapt your hiring and HR practices, including compliance with paycheck laws, to suit the local laws and requirements wherever your employees live and do business.

Tags: Payroll legislation Global Workforce