How to overcome global payment processing challenges
If you are researching how to pay employees internationally, congratulations!
You’ve likely done one of the following:
Embarked on a new project
Identified a valuable business opportunity
Expanded your global footprint
How can you simplify global payment processing?
Just the thought of making cross border and cross-currency payments can make an accountant break into a sweat!
It is a complex process full of country-specific regulations. Ultimately, the goal is to pay employees correctly and on time. And given the intricacies of making global payments, it is important to fully understand the associated challenges.
There are several challenges to navigate
But, as with every challenge, there are potential solutions.
When placing employees overseas, many companies choose to partner with a provider who specializes in making global payments.
Are you weighing up whether this is a viable option for your business? Here are a few obstacles to consider when handling international payments.
Challenge #1: Entity Set Up and Compliance
A legal entity must be established in every country that a company operates in.
This is an expensive and lengthy process that can take up to a year. Additionally, the payroll, tax and labour laws vary by country.
Violations of those laws can carry civil penalties and fines. Thus, there is risk associated with operating in a country where you have no existing footprint.
Due to lengthy timelines, expenses and risks, many companies expanding into new markets decide to use an Employer of Record.
Using an Employer of Record can be an efficient way to employ personnel in a new market. As an EOR will have an established legal entity, they can manage payroll, employment and immigration requirements.
Challenge #2: Moving Money
This movement of money is done through international wire transfers, at a cost incurred by the company.
Costs can vary depending on the transfer provider and the negotiated rate between the provider and the company.
For each country in which a company is employing people, money must be transferred to foreign bank accounts for payroll payments.
A global payments processor will make payments from the client company’s bank account directly into employee bank accounts. This bypasses the need to initiate multiple international wire transfers.
Not only does this simplify the process, but it is also more cost-effective. Typically, client companies are charged a minimal processing fee for the payroll transactions.
Challenge #3: Calculating Pay Rates
If you are already processing payroll in your home county, this might sound easy. However, when dealing with paying employees internationally, this takes on another facet.
Now, you must think about paying employees their contracted rate in the host country’s currency.
For example, a US based company has an employee working in France with a contract rate of $1000 USD per week.
In order to ensure the employee receives the correct amount, the sending date’s exchange rate must be calculated.
This ensures the correct amount is taken from the client’s bank account. It also ensures the employee gets paid exactly $1000 USD in Euros.
A global payment system will automatically do this, removing unnecessary calculations and reconciliation payments. This ensures employees receive the exact amount they’re expecting.
Remember that the goal is to pay employees correctly and on time.
Transferring money domestically is usually a very quick process.
Sadly, it isn’t the same for transferring money internationally.
That is because there are different sets of country specific banking processes required in order for funds to clear.
These processes vary by country and also vary depending upon the home country from which the funds are being sent.
While transferring money to one country may take two days, transferring to another country may require an extra working day. This can easily get out of hand from a tracking perspective, ensuring payments are initiated with enough time to clear.
This confusion is easily removed by using a system that specializes in this space. They will set payroll runs by delivery date, ensuring that enough lead time is allowed for funds to clear.
Challenge #5: Validating Account Details
Making payments to foreign bank accounts requires knowledge of each country’s banking system so that account details are formatted correctly.
Since each country’s required format is different, there is a greater chance of error in entering the details.
And, if the account information is incorrect, payment will be rejected, which most certainly means irate employees.
Global payment platforms have built-in logic for each country’s banking system. These platforms will reject incorrect account information, allowing errors to be rectified prior to a payroll run.
Additionally, many providers have employee portals into which employees can directly enter their account information. This reduces errors and eliminates the transmission of sensitive data through insecure means such as email and text.
Overcoming global payment challenges
In summary, partnering with a global payment provider streamlines the international payroll process by distributing funds using a secure web-based banking system.
This means your employees get paid the correct amount in the host country’s currency on the correct date.