Having employees who work abroad is common among many businesses today. For the most part, this is because more companies are opting to hire worldwide to access a bigger talent pool. They may be responding to expert predictions that by 2030, there will be a global human talent shortage of more than 85 million people, with millions of jobs going unfilled. This could result in $8.5 trillion (R160.8 trillion) in unrealized annual revenues. With a globally distributed team, businesses can fill this talent shortage.
However, one challenge with having employees overseas is managing their payroll. Companies must deal with foreign exchange (forex) rates, which can be confusing or time-consuming. To find out how to deal with forex rates when paying employees abroad, take a look at these tips:
Know how forex rates affect overseas workers’ payroll
The first thing to know is how forex rates influence abroad workers’ pay. Exchange rates constantly fluctuate because of economic events—like changes in inflation, interest rates, and geopolitical developments. One important factor people look out for when engaging in forex trading is the release of economic news. The forex market and exchange rates can experience price instability before and after a news release. As such, you may have noticed trading platforms alter their margin requirements to protect traders against this volatility.
In a similar way, fluctuating forex rates affect how much your overseas workers get. If you pay them in your local currency and have them exchanged when the rates aren’t in their favor, they may get a lower salary than you intended. To prevent this, keep up with global economic news. You may also consult an economic calendar, a tool that forex traders use to track important news releases. Doing so allows you to distribute overseas employees’ salaries when exchange rates benefit them.
Consider partnering with a professional employer organization
A professional employer organization (PEO) is an outsourcing firm you can work with to help establish and manage local employment relationships. PEOs have experts familiar with local labor regulations, payroll laws, employer compliance, and forex rates in the country where your overseas employees reside. They will assist you with forex rates and exchanging currencies for your employees’ payroll.
Another benefit of investing in PEO is reduced HR-related costs since you don’t need to assign local HR personnel or outsource your own to handle overseas employees. PEO services can exchange employees’ salaries for their local currencies, so you don’t have to facilitate it and risk skimping out on compensation due to exchange rate fluctuations. This may be a more convenient way to deal with foreign employee payroll depending on your business needs, as you can be assured that they’re getting accurate salaries thanks to a PEO’s expertise. As a bonus, you can direct all foreign employees’ concerns on salary or forex rates to the PEO you partner with.
Outsource your payroll management services
If you still want to be hands-on with your overseas employees HR-wise but need assistance with their salary arrangements, you can outsource payroll management services instead. This helps businesses save time and resources by ensuring that overseas employees get paid on time and with an accurate amount despite having to exchange currencies.
Doing so also offers ease and convenience, as it typically involves using software that can automatically compute, monitor, convert, and distribute salaries to your overseas workers. No computations or manual money exchanges will be done on your part, as the software will do this on your behalf. At the most, you might have to double-check salaries. Outsourcing also doesn’t involve human interaction, unlike PEOs, so you’ll only have to pay for the software you use. With this, you can guarantee that employees abroad get their salaries in their local currency on the right schedule.
Having employees abroad benefits companies, but dealing with forex rates associated with their salaries can be confusing. Luckily, you can use the tips above to make this process easier for your business.
HR Future Staff Writer