A Complete Guide to International Payroll Processing

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How should your international enterprise best manage international payroll processing?

Evidence suggests that international payroll processing is already a strategic focus for multi-nationals: In a 2018 Deloitte survey of international enterprises, 49 percent reported that they had a global payroll strategy, or intended to put one in place.

Here we set out some of the key challenges for international payroll processing and the steps you should take to rise to that challenge.

The Operational Challenge for Global Payroll Processing

Some of the challenges of operating an international payroll include:

  • Managing remittance and payment methods
  • In some countries, employees still have the right to demand payment by check. Businesses need to consider which payment mechanisms they will permit in different countries, within the bounds of the law. Having multiple payroll processing methods can be time-consuming, costly and lead to an increased rate of error.
  • Prompt error correction
  • Some degree of error in payroll processing is inevitable. However, significant time can be sucked up for organizations that do not have a process in place for detecting these errors and promptly correcting them.
  • Accounting for employee leave and absences
  • This is a general sticking point for payroll processing systems. Systems need some way of automatically accounting for the effect of employee leave and absence on employee payroll. As many company systems still require employees or their managers to manually account for these absences, there is significant room for human error.
  • Integrated software systems
  • Payroll errors regularly occur where there is a disconnect between human resources (HR) software platforms and payroll processing platforms. Not all organizations have integrated these systems, particularly across international boundaries.
  • International variations
  • With employees spread over several different countries, international enterprises need to manage the tension between payroll differences in each country (see, for example, the distinct payroll processing requirements in China or in Australia), and the importance of implementing enterprise-wide policies.

The Compliance Challenge for Global Payroll Processing

Being responsible for payroll across several international locations means ensuring that complex payroll requirements comply with each location. Some matters that need to be taken into account include:

  • Correct calculation of payroll withholding tax
  • Employers have a responsibility to ensure that the correct amount of tax is withheld and sent to the tax authorities in each jurisdiction they operate in. A related tax concern is whether the presence of employees in a country will create a ‘permanent establishment’, and leave the company liable to pay corporate income in that location.
  • Withholding/deducting amounts in employee benefits administration
  • This means ensuring the correct amounts for employee benefits such as health insurance workers’ compensation and pension contributions are paid.
  • Data protection
  • Payroll information contains employee personal data which is protected under a range of data protection laws including the General Data Protection Regulation (GDPR) for employees in the European Union, the California Consumer Privacy Act for customers based in California, and the China Civil Code for employees based in China (comes into effect 1 January 2021). 
  • Payroll processing must have systems in place to protect this information from unauthorized processing or disclosure.

Possible Solutions to Global Payroll Challenges

Given the challenges involved, what can an international enterprise do to improve its payroll processing? Possible options include:

  • Set up regional payroll processing hubs
  • If an enterprise has several locations in Asia, for example, they might process payroll in just one location. This strikes a balance between fully ‘localized’ payroll processing, and reducing the possible costs of duplicating payroll processes.
  • Establish quality improvement processes and policies. While some degree of error is inevitable, international enterprises need systems in place to monitor their payroll processing on a range of metrics to identify areas for improvement. For example, possible measures include the number of payroll errors as a percentage of total payments and the number of days needed for error correction. Payroll should be marked in a rolling schedule for review and internal audit.
  • Outsource payroll
  • You could contract payroll processing to a third party as a form of business process outsourcing (BPO). This company would be responsible for ensuring that payroll is processed in accordance with applicable laws and any internal policies. These obligations are set out in a contract for service.
  • Engage a global PEO
  • Through this option, a Global Professional Employer Organization (‘PEO’) becomes the legal employer of the workforce in a particular country. Your company (the ‘client company’) still retains day-to-day control of the workforce, but the PEO takes on all employer obligations, including payroll. The key difference between using a global PEO and outsourcing is that a global PEO takes on the legal and compliance obligations of an employer, whereas in outsourcing they do not.


Ensuring international payroll processing is integrated across different countries, as well as sensitive to local differences, is a major challenge for international businesses. That challenge partly arises from operational processing issues: managing various payment methods, promptly correcting errors, dealing with employee leave and absences, integrating software systems, and managing local variation. But it is also a result of potential compliance risks, including tax and employee benefit liabilities and data protection.

New Horizons Global Partners supports businesses with their international payroll processing & outsourcing through several different mechanisms.

We can provide a fully outsourced payroll processing solution, or be engaged as a global PEO to become the legal employer of your employees.

Request a proposal

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