No business wants to get audited by the IRS, but tiny startups are typical targets. According to data, businesses with the lowest levels of income are audited most frequently, and with the IRS pushing for more tax audits, it’s only going to get worse. But an audit isn’t a death sentence.
If you do get audited, but you’re maintaining your payroll within the means of the law, you can send over your tax documents and call it a day. However, this assumes you stay organized.
Streamlining and automating most of your payroll process, especially if you hire employees from different time zones, is necessary to maintain compliance. With that said, you need to face the challenges that affect your international payroll processing system to eliminate them for good.
The Common Challenges of International Payroll Processing
Companies that fail to streamline their international payroll processes will wind up with unhappy employees, late payments, and potential non-compliance. Not only could your bad payroll habits increase turnover rates, but it could also get you in trouble with the IRS and the state courts.
If you want to simplify your payroll process, tackle the following challenges:
There’s a big difference between an employee and a freelancer. If you misclassify your employees, even by accident, you’ll pay a fine.
Not Making Pay Stubs Available
Most states require employers to give employees pay stubs, even when your employees don’t work in the US. It’s easy to make pay stubs using templates. For example, you can print one off on this FormPros page.
Different Languages and Time Zones
Language barriers and time zone differences can make it difficult to complete payroll processing in one office or country.
Adhering to Different Tax Laws
Tax laws change frequently, and it can be hard to maintain compliance when you aren’t physically present in another country. A company that hires multiple international employees needs to keep track of these laws.
Making Zero Errors
International payroll demands zero errors, but that isn’t easy with a manual process. You’ll waste a lot of time reviewing and correcting payroll errors.
Poor Financial Forecasting
With so many different currencies and payroll laws, it’s hard to make an accurate financial forecast. It’s also common for companies to use more than one payroll solution, which makes it impossible to collaborate financial data.
Navigating Banking Systems
Payment processing rules and costs vary from country to country. To keep track of them, you’ll require technological intelligence expertise.
While tax compliance is the main issue with international payroll, you’ll come across other challenges like pay frequency, withholdings, and currencies. But once you understand where and how things can go wrong, you can start developing a streamlined payroll strategy.
How to Streamline and Simplify Your International Payroll
Companies that wish to maintain a healthy amount of international or remote employees can still make their payroll system work for them.
Here’s how to facilitate your payroll management.
Establish Policies Across Your System
The first step to maintaining an effective payroll system is creating policies and procedures that govern each process. Your payroll expectations will continue to become more complex. If you create a policy manual now, you can reduce complications and errors as your team grows.
All remote workers should have a way to track and report work hours. It’s a good idea to use a tax or timekeeping software that integrates with the rest of your payroll suite. That way, you won’t have to chase anyone around for their time cards or accidentally input the wrong hours.
Ensure Your Organization is Compliant
We already touched upon how frustrating international payroll regulations can be, but you’ll need to do what you can to stay compliant. First, establish internal controls that help you meet compliance regulations and identify priorities, as it’s the best way to minimize risks and errors.
Next, look up resources that help your company stay up-to-date. This liveabout article has a mix of free and paid solutions you should check out. Finally, encourage your team to review their countries’ statutory regulations. Your employees can help you maintain a clean payroll record.
Consolidate Pay Dates on the Same Day
If you have more than one pay schedule, you’re going to struggle to pay your staff on time. With that said, finding the right schedule becomes more complicated as you introduce far-away time zones. For this reason, you shouldn’t pay your staff on Friday if your business is in the US.
Depending on a person’s time zone, a Friday pay schedule will mean some employees won’t get their paycheck until Monday. To reduce duplication of multiple processes and ensure your staff gets paid before the weekend, send out payments on Thursday or Monday morning.
Set Up Alerts for Payroll Deadlines
No one expects you to keep every tax and payroll deadline in your head, and you risk forgetting an important process if you do. Instead of tracking your deadlines manually, use a calendar app to schedule certain dates. Make sure you set up alerts on your phone and company computer.
Even the most streamlined systems will experience a few hiccups, so have a backup plan if you’re unable to process payroll on time. Most companies will collaborate with their bank to process payments based on a previous month’s salary, but only if the main payment is missed.
Leverage Technology for Communication
The international payroll process is a team effort, and for it to be successful, everyone needs to work together. HR needs to communicate with finance officers, payroll staff, and other individual employees to create a simplified payroll system, and you can only do this with technology.
Make sure to establish a group communication channel that includes every department, so employees can update your team in case something changes. Alternatively, you can create a simple form that allows employees to correct commission, overtime, and vacation amounts.
Use Software or Outsource Your Payroll
All international businesses need tools to exist in a digital environment. Payroll management software, like Quickbooks, enables teams to access key financial data from anywhere. With the right integrations, your team can automate tedious payroll tasks and collaborate in real time.
But you still need to stay up-to-date with international payroll laws and regulations to stay compliant, which can seem like a hassle for some businesses. Fortunately, you can outsource your payroll to an experienced third-party company that can handle the work for you.
Implementing a streamlined payroll system is already difficult enough without the remote element. However, remote work is here to stay, so it’s in your best interest to tactile payroll problems head-on. Once you do, you can create a great payroll process for your startup.
Image Source: Unsplash
HR Future Staff Writer