After a tumultuous few years, today’s global mobility landscape is rapidly evolving and reshaping from the one we once knew. To keep up with this new landscape, especially when it comes to payroll, organizations are looking for new, automated capabilities that enable smarter, safer and more employee-friendly processes than ever before.
Much of this is in response to the pandemic, which radically changed modern working patterns. Since then, we have seen an increased appetite for remote working and international assignments, while at the same time, the world’s governments have concentrated more on revenue collection, remittances and real-time compensation tracking. As a result, many financial directors are struggling to ensure their organizations remain globally compliant and cost-efficient in the face of these regulatory demands. Combined, this creates a difficult landscape that’s both challenging to navigate and rich in opportunities.
While some may reject this new way of operating, most finance directors are very aware of the benefits of remote working for employees and employers alike and are inclined to embrace the new normal, lest they lose their staff due to the Great Resignation, anticipating one in five employees will leave for new pastures by the end of 2022.
In response to this, many finance directors have found themselves overwhelmed and overpaying monthly payroll tax requirements as a result — ironically in fear of making accidental underpayments. Once made, such overpayments can be difficult to reclaim, which results in further headaches as that cash can be tied up for several months or simply never reclaimed.
In many organizations, it can also be difficult to keep track of employees’ movements, especially if no formal work from anywhere policy is in place. The consequences of not establishing such a policy are that some employees may create tax liabilities, both personal and corporate, without realizing it. These instances increase risk dramatically and lead to unwanted additional costs. To make sense of the evolving global mobility landscape and avoid such miscalculations, finance directors need reliable data that allows them to deliver accurate, timely budgets.
All of this points to a clear and urgent need for digitalisation and the adoption of technology solutions that can help finance directors remain compliant, capitalize on new opportunities and alleviate the growing burden of managing payroll at scale in multiple locations.
Shadow payroll
One such solution to the complexities modern directors face is utilizing a shadow payroll methodology and process, whereby the payroll in the work country shadows (or mirrors) the compensation paid to the employee in their origin country. Promising to ease the management of a global, cross-territory workforce, shadow payroll helps them calculate the appropriate tax and social security liabilities for each employee, regardless of their location.
Payroll can then be correctly submitted in the employee’s region of operation whilst the employees themselves continue to be paid from the payroll of their organization’s home country. Ultimately, this reduces the headache for finance directors who need to report wages for remote or assigned employees in both their home and host countries.
Shadow payroll offers a much-needed lifeline to organizations looking to thrive, not just survive, as their perimeters extend to new and uncertain regions. As the globalization trend continues, shadow payroll is set to become an integral tool in every finance director’s arsenal, helping them save on operational costs, achieve timely tax filings and compliance, and thereby reduce overall finance risk wherever they operate.
The problem is that it’s not something many finance directors are prepared to implement themselves unless they have dedicated teams of seasoned professionals with up-to-date knowledge backed up by the relevant data to keep up to speed with international tax laws.
And it’s not exactly the place to learn as you go; the directors need to have a clear understanding of the regions and regulations they have to adhere to if they are to reduce risk and cut costs. Thankfully, technology continues to charge ahead at speed following a sudden and ongoing acceleration of post-pandemic digital transformation, and there are technologies out there that are custom-built to support organizations’ payroll as they begin or continue to expand globally.
Without such technologies, navigating the global mobility landscape will be a daunting and difficult task, not to mention a time-and-resource-consuming one. This is especially true if finance departments attempt to single-handedly juggle global corporate, transfer pricing compliance and VAT and more, as well as the consequences of employee movements on the organization’s global compliance.
If today’s finance directors want to help their organizations navigate an increasingly complex global mobility landscape in a way that reduces their risk exposure while allowing them to save on unwanted costs, they are going to need the right technology so they can enjoy peace of mind as they manage international nuances, changing regulations and global payroll with confidence.
