10 risks of running global payroll and how to mitigate them

Actionable tips to help avoid 10 common global payroll risks

In today’s interconnected world, startups are rapidly expanding their operations across borders, hiring talent from various countries to fuel their growth. While international hiring offers exciting opportunities, it also introduces a complex landscape of global payroll risks to navigate. 

Failing to address these risks can lead to financial penalties, legal disputes, and reputational damage. In this article, we’ll explore 10 critical global payroll risks and provide actionable insights on how to mitigate them.

Looking to simplify your international payroll operations? Pay your global team compliantly and on-time with Oyster.

Understanding and mitigating global payroll risks

1. Compliance and regulatory risks

Risk: Different countries have distinct payroll laws, tax regulations, and employment requirements. Non-compliance can result in hefty fines and legal consequences. Even if your company is perfectly compliant in one country, the same practices could easily be non-compliant with the labor laws in another country. 

Mitigation: Stay informed about local labor laws and tax regulations in each country where your business operates. The more countries you operate in, the more complicated this process will become. Engage local legal counsel or experts to ensure accurate payroll processing and global payroll compliance

Rather than one uniform approach to payroll and other employment practices, you’ll have to adapt to ensure your company is compliant in each country—even when those countries have contradictory regulations. 

2. Currency fluctuations

Risk: Exchange rate fluctuations can affect payroll costs and create budgetary uncertainties. If the currencies you use to pay some of your workforce shift significantly, you could struggle to meet all your payroll obligations. 

Mitigation: Implement a currency risk management strategy, such as using forward contracts or hedging tools, to mitigate the impact of currency fluctuations on payroll expenses. Choose carefully between paying your workforce in the local currency or your country’s own currency. Keep a close eye on inflation in any of the countries where you hire employees. 

3. Data security and privacy

Risk: Cross-border payroll involves handling sensitive employee data that is protected by data privacy laws but can be vulnerable to breaches. Data breaches and security violations can severely damage a company’s credibility. Companies may also have to pay significant legal fees and fines dealing with issues that arise from a breach or legal violation. 

Mitigation: Adhere to data protection regulations—like the European Union’s General Data Protection Regulation (GDPR)—and implement robust cybersecurity measures. Store data on secure servers, conduct regular audits, and ensure compliance with data protection standards. Regularly check your data security measures to verify that they’re sufficient to deal with the newest cyber threats. 

4. Complex taxation

Risk: Businesses are responsible for meeting their tax obligations in every country where they operate, not just the country that houses their base of operations. Navigating complex international tax codes can lead to overpayment or underpayment of taxes. 

Mitigation: Collaborate with tax professionals who specialize in international taxation. They can help you optimize tax strategies, ensure accurate withholding, and manage reporting obligations. You can also outsource your payroll entirely using a global payroll service

5. Employee classification

Risk: Misclassifying employees as contractors can lead to tax liabilities and legal disputes. Countries have different laws and regulations that determine whether a worker is an employee or a contractor. One country’s laws may consider someone a contractor, while another country’s laws could consider the same worker an employee. The rights of employees vs. contractors also differ from country to country.   

Mitigation: Understand each country’s employee classification criteria and seek legal guidance to ensure accurate categorization. Regularly review and update classification decisions based on changing regulations. Don’t assume that just because a worker would be considered a contractor in one country, the same classification would apply in another country. 

6. Social security and benefits

Risk: Different countries have varying social security systems and benefit requirements. Inadequate compliance can lead to employee dissatisfaction and potential legal issues.

Mitigation: Research and implement compliant social security contributions and benefits for workers in each country where your business operates. Partner with global benefits providers to ensure consistent coverage and employee satisfaction. These providers can help ensure that your company offers benefits that are in line with the local laws and employee expectations in each country. 

7. Recordkeeping and reporting

Risk: Countries differ in the data they require companies to report and the level of detail those reports must contain. Inaccurate recordkeeping and reporting can lead to audit failures and financial penalties. 

Mitigation: Establish a payroll system that tracks all payroll-related data accurately and generates comprehensive reports. The ability to integrate with your existing HR and accounting systems is a key factor to look for when choosing your global payroll service. Regularly review records for discrepancies and conduct internal audits to ensure compliance.

8. Local employment contracts

Risk: Using standardized employment contracts across countries may not align with local labor laws and regulations. Many countries set requirements on the items that employers must include in their employment contracts. Failure to use appropriate employment contracts can lead to legal disputes and possible trouble with labor law enforcement agencies. 

Mitigation: Tailor employment contracts to each country’s legal requirements, ensuring clarity on terms, benefits, and expectations. Leverage local legal expertise to draft and review contracts.

9. Pay dates

Risk: Different countries have different holidays when banks will be closed and unable to process payroll. Workers in these countries may have different expectations about when they’ll receive their pay if the payday falls on a bank holiday. 

Mitigation: Make sure you have local experts in each country who know how long it will take for payroll to be processed and reach the employees or contractors at all times of the year. If you plan to use a global payroll platform, ensure that the provider knows all relevant holidays and other possible sources of payroll delays. 

10. Evolving regulations

Risk: Payroll regulations and compliance requirements are subject to frequent changes. Even if you are currently in compliance with all relevant regulations in the countries where your business operates, that could change in a moment. Becoming non-compliant with these evolving regulations and requirements puts your company at risk of facing legal action. 

Mitigation: Ensuring compliance with local labor laws in all the areas where your company operates is not a one-and-done measure—it requires ongoing action. Stay proactive by keeping a watchful eye on evolving regulations through regular monitoring and engagement with local legal and financial advisors. 

Global expansion presents exciting growth opportunities for startups but comes with its share of challenges, especially in managing global payroll risks. By being proactive, staying informed, and seeking expert guidance, founders, HR leaders, and finance leaders can navigate these risks successfully, ensuring smooth operations, compliance, and sustainable growth on the global stage.

How can Oyster help you manage payroll risks in multiple countries?

Oyster offers a streamlined solution to help you pay your workers, regardless of where they are in the world. Stay compliant in over 180 countries from a single, convenient platform. The platform handles salaries as well as bonuses and expense reimbursements. As your company scales, and you add new hires in new countries, Oyster scales with you.

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.

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