With more businesses crossing borders,payroll has some increasingly international challenges
For employers with a global workforce, payroll can be a complicated game. On average, multinational corporations have 10 payroll systems and 10 HR systems of records, according to a May 2011 report from ADP.
“Now 10 vendors to manage, 10 contracts to manage, 10 different systems to integrate, it’s challenging and it’s frankly inefficient for many organizations,” Steve Hardy, vice-president of multinational client marketing, ADP GlobalView, based in New Jersey.
The report, A Study of Multinational Corporations, surveyed 1,216 international companies, across a cross section of industries.
It’s a “meat and potatoes” area, but it’s an issue dominating global payroll, he said.
“It’s about operational efficiencies, there’s an awful lot of inefficient ways of managing payroll and managing HR that are in practice in large organizations,” he said.
The world is getting smaller. More and more companies operate in multiple countries. Markets like Argentina, the Philippines, India and China are experiencing growth at a very high rate.
In total it’s estimated that about one-quarter of the world’s GDP comes from transnational corporations, or businesses that do business in more than two countries, said Hardy.
With increased globalization comes increased concern about payroll compliance, said Hardy.
“More and more, as enterprises are doing business globally, they want to know that they are compliant with local legislation and local laws that change rapidly on a day-to-day, week-to-week basis,” he said. “So they want to know that they’re doing business in a prudent way.”
That’s no surprise to the Canadian Payroll Association (CPA), where the organization’s payroll hotline receives 33,000 calls on an annual basis and an estimated 10 per cent of the calls come from members seeking advice on global payroll issues, said Janet Spence, CPA manager of compliance programs and services, based in Toronto.
The payroll consultants that work on the lines have noticed an increase in global payroll related calls year-over-year, she said.
“They’re calling to ask about the treatment of taxes,” she said.
Payroll professionals calling the line want to know how to treat payments to expats, how long an employee can remain on the Canadian payroll when they work outside of the country on behalf of a Canadian employer and what source deductions should be taken if a non-resident employee works in Canada.
“Some of the challenges that they face as a practitioner is that it’s very difficult dealing with multi-jurisdictional payroll to begin with, but as companies expand globally so does the complexity of their payroll,” said Spence.
The questions can be difficult to answer, even for the experts, because there are so many jurisdictions.
“The most typical question that they ask, really, is: ‘Do we withhold Canadian tax or foreign tax?’” she said. “Now for the purposes of withholding Canadian taxes, one of the key factors they need to look at is determining the residency or status of the employee."
To determine residency status, payroll professionals have to ask the employee questions such as whether they own a home in Canada, if they have a Canadian driver’s licence, if they have bank accounts or credit cards in Canada and if there are social ties like a spouse or dependents in Canada.
If practitioners have specific questions when it comes to the employee’s tax liability, the CPA always advises them to consult a tax expert specializing in international tax when considering particular credits and hypothetical tax when it comes to ex-patriot employees, said Spence.
“It is an increasing market as we find that many companies are moving cross-border,” said Spence. “As well, they also want to make sure that, when they’re considering an ex-pat employee, essentially the international assignee should be no worse off as if they were in their own country based on the tax treatment of his tax or compensation.
“So when you’re talking about hypo-tax you make sure that they’re almost the same is if they were in their home country.”
When Gilles Champagne, owner of Mosaic Advisory Group, was on the CPA’s board of directors from 1989 to 2000 the board started a dialogue with other payroll associations around the world.
“What we found was no matter where you are in the world the problems that the payroll associations face are very common,” he said. “The regulations, although every country has its own tax rules and all that, that’s the mechanics around it, but the core issues are pretty well universal.”
“Going forward, the world is even smaller,” he said. “There’s a lot more organizations now that do multinational payrolls whereas 20 years ago only the largest corporations did that, but now it’s not uncommon at all for smaller organizations to have offices in another country.”
It means companies have to be able to find out how the payroll works in other countries.
“This whole globalization thing has got to catch on to payroll, we’ve done it, we’re doing it, but mostly our membership I guess is fixed on what happens in our country, which is your primary concern all the time.”
When Champagne is working with clients in the United States that are coming into Canada there are still many businesses that don’t necessarily recognize the tax rules are different here, he said.
They don’t know there are no 401K plans or that yearly tax disclosure forms are called T4s instead of W-2s, Champagne said.
“Going forward I think it’s going to be even more critical that you find out how to be compliant in other jurisdictions,” he said, adding senior management is going to look to payroll practitioners as the body of knowledge in payroll in Canada to know what to do if the employer is going to set up shop in another country.
“To be able to fully manage payroll in another country is not yet really easy,” he said.
“Now 10 vendors to manage, 10 contracts to manage, 10 different systems to integrate, it’s challenging and it’s frankly inefficient for many organizations,” Steve Hardy, vice-president of multinational client marketing, ADP GlobalView, based in New Jersey.
The report, A Study of Multinational Corporations, surveyed 1,216 international companies, across a cross section of industries.
It’s a “meat and potatoes” area, but it’s an issue dominating global payroll, he said.
“It’s about operational efficiencies, there’s an awful lot of inefficient ways of managing payroll and managing HR that are in practice in large organizations,” he said.
The world is getting smaller. More and more companies operate in multiple countries. Markets like Argentina, the Philippines, India and China are experiencing growth at a very high rate.
In total it’s estimated that about one-quarter of the world’s GDP comes from transnational corporations, or businesses that do business in more than two countries, said Hardy.
With increased globalization comes increased concern about payroll compliance, said Hardy.
“More and more, as enterprises are doing business globally, they want to know that they are compliant with local legislation and local laws that change rapidly on a day-to-day, week-to-week basis,” he said. “So they want to know that they’re doing business in a prudent way.”
That’s no surprise to the Canadian Payroll Association (CPA), where the organization’s payroll hotline receives 33,000 calls on an annual basis and an estimated 10 per cent of the calls come from members seeking advice on global payroll issues, said Janet Spence, CPA manager of compliance programs and services, based in Toronto.
The payroll consultants that work on the lines have noticed an increase in global payroll related calls year-over-year, she said.
“They’re calling to ask about the treatment of taxes,” she said.
Payroll professionals calling the line want to know how to treat payments to expats, how long an employee can remain on the Canadian payroll when they work outside of the country on behalf of a Canadian employer and what source deductions should be taken if a non-resident employee works in Canada.
“Some of the challenges that they face as a practitioner is that it’s very difficult dealing with multi-jurisdictional payroll to begin with, but as companies expand globally so does the complexity of their payroll,” said Spence.
The questions can be difficult to answer, even for the experts, because there are so many jurisdictions.
“The most typical question that they ask, really, is: ‘Do we withhold Canadian tax or foreign tax?’” she said. “Now for the purposes of withholding Canadian taxes, one of the key factors they need to look at is determining the residency or status of the employee."
To determine residency status, payroll professionals have to ask the employee questions such as whether they own a home in Canada, if they have a Canadian driver’s licence, if they have bank accounts or credit cards in Canada and if there are social ties like a spouse or dependents in Canada.
If practitioners have specific questions when it comes to the employee’s tax liability, the CPA always advises them to consult a tax expert specializing in international tax when considering particular credits and hypothetical tax when it comes to ex-patriot employees, said Spence.
“It is an increasing market as we find that many companies are moving cross-border,” said Spence. “As well, they also want to make sure that, when they’re considering an ex-pat employee, essentially the international assignee should be no worse off as if they were in their own country based on the tax treatment of his tax or compensation.
“So when you’re talking about hypo-tax you make sure that they’re almost the same is if they were in their home country.”
When Gilles Champagne, owner of Mosaic Advisory Group, was on the CPA’s board of directors from 1989 to 2000 the board started a dialogue with other payroll associations around the world.
“What we found was no matter where you are in the world the problems that the payroll associations face are very common,” he said. “The regulations, although every country has its own tax rules and all that, that’s the mechanics around it, but the core issues are pretty well universal.”
“Going forward, the world is even smaller,” he said. “There’s a lot more organizations now that do multinational payrolls whereas 20 years ago only the largest corporations did that, but now it’s not uncommon at all for smaller organizations to have offices in another country.”
It means companies have to be able to find out how the payroll works in other countries.
“This whole globalization thing has got to catch on to payroll, we’ve done it, we’re doing it, but mostly our membership I guess is fixed on what happens in our country, which is your primary concern all the time.”
When Champagne is working with clients in the United States that are coming into Canada there are still many businesses that don’t necessarily recognize the tax rules are different here, he said.
They don’t know there are no 401K plans or that yearly tax disclosure forms are called T4s instead of W-2s, Champagne said.
“Going forward I think it’s going to be even more critical that you find out how to be compliant in other jurisdictions,” he said, adding senior management is going to look to payroll practitioners as the body of knowledge in payroll in Canada to know what to do if the employer is going to set up shop in another country.
“To be able to fully manage payroll in another country is not yet really easy,” he said.
