When it comes to ensuring global compliance, accurately managing payroll across countries is essential. Of the many activities that organizations engage in, the payroll process is one of the few corporate activities with a straightforward goal — pay employees accurately and on time. Yet, differences in labor and tax laws among countries, states and cities make global payroll complex and challenging.
Payroll Compliance: Challenges Facing Multinationals
In today's highly regulated global marketplace, businesses with global operations face an increasingly complex array of payroll-related regulations in overseas markets.
Here are three examples of the types of regulations that organizations face in foreign markets.
Working Time Directive in the EU
Created to help promote employee health and safety, the Working Time Directive includes limits on the number of hours worked per week and amount of leave available, according to the European Commission. Yet similar to many laws enacted within the EU, member nations can amend elements of the regulation. While the underlying principles of the Working Time Directive remain the same, how it's enforced varies — it's, therefore, critical for HR leaders to have a firm handle on all of its possible permutations and how to comply with them.
Labor Law of the People's Republic of China
In effect since 1995, China's labor law serves as the country's primary method for policing the labor markets, according to the Commission on China. For example, the law caps the work day at eight hours, and the work week at 44 hours. The law also provides for overtime payments ranging from 150 percent of standard wages to 300 percent if work takes place on a holiday.
Wages Protection System of the United Arab Emirates (UAE)
In an effort to create transparency in payments to foreign workers and address timely salary payments, the UAE government created the Wages Protection System. Organizations must register with the Ministry of Labour and transmit salary payments by established deadlines, according to the International Labour Organization. Businesses that fail to register or fail to transmit timely payments face the denial of work permits until payments are made.
The Reality of Global Payroll Mishaps
While payroll mistakes are always upsetting to employees, they can also result in significant penalties and liability.
Here are three examples from the U.S., U.K. and Canada of what can happen when an organization's payroll processes fail.
1. U.S. fast-food chain fined $1.45 million for failing to pay minimum wage
The city of Los Angeles fined a large fast-food chain $910,000 for failing to pay 37 of its employees $5,400 due under minimum wage law, CNBC reports. In addition, the city plans to collect $541,000 for two unrelated infractions related to the payment of minimum wages.
2. U.K. department store fined for underpaying employees
HM Revenue and Customs fined a UK department store £63,000 for underpaying employees an average of £10 in 2015, The Guardian notes. The organization corrected the error by paying employees £134,894. It also corrected its payroll system to calculate payroll payments based on 52.17 weeks in a year, instead of 52 weeks in a year, which was what had triggered the underpayment.
3. Payroll consolidation by Canadian government impacts civil servant pay
When the Canadian government consolidated several payroll systems, the new system affected the pay of tens of thousands of government employees. While some received no pay, and others were underpaid, the government issued approximately $54 million in over payments, reports Radio Canada International.
As these regulations and the consequences for non-compliance show, regulators continue to increase their expectations of the payroll function. While the specifics of each country's payroll regulations vary, at their core they require that organizations pay their employees on time, for amounts they've earned and in the manner agreed. In the past, most businesses did just that, but the mosaic of global payroll compliance laws makes this task more complex. Organizations, therefore, must have the systems and processes in place to be able to pay employees accurately and on time, no matter where they're located.
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