By Deborah Williams, Head of Global Business Services, TMF Group
Think a global banking relationship can be used for global payroll? Think again. Local payroll needs will not always align with corporate HQ’s wishes, says Deborah Williams, Head of Global Business Services, TMF Group.
We recently had a client who dotted every ‘I’ and crossed every ‘T’ and is a global player—the company was moving to Italy and we were helping to get them set up. They had global processes and directives that HQ insisted on—including the bank used for accounting and payroll.
But therein lay a problem: Italy only allows third legislated party payments from a specified list of local Italian banks—and the client’s bank, the one they had negotiated a global relationship with, was not on that list.
What to do? Fortunately in the end, TMF Group’s local knowledge in Italy really helped us to navigate the minefields in that delicate situation and we negotiated a solution involving payment coming through a trust account we set up. The scary thing is that it is not an uncommon situation, nor is it the only foreign money-related issue that international companies can face when placing staff in a new country.
When paying salaries to staff overseas, it is prudent to monitor several issues, including:
- Reliability of money transfer;
- Exposure to currency risk for both the company and employee;
- Country-specific legal, banking and compliance issues; and
- Consolidation and cost of accounts and reporting, and so on.
Problems with foreign exchange
Paying from a foreign account exposes your payroll to risk—foreign exchange is not an immovable object, and it can make it tricky when consolidating, forecasting and executing payroll. It is a risk worth considering when thinking about paying salaries. At TMF Group, most of clients prefer to pay locally, to be invoiced in the local currency, and to deal with local payroll as part of a global provider relationship which we can facilitate thanks to our global reach. This process can bring more certainty when dealing with often-volatile foreign exchange markets.
International bank transfers bring their own risks, too. If money is being transferred from a foreign account into local office accounts, payroll professionals need to not only factor in foreign exchange concerns but also speed of payment. Many banks have reciprocal relationships to help smooth transfers—known as bank-to-bank partnership agreements—or you could make the payment via a globally-accepted standard platform such as SWIFT or Bacs. But wire services, while often essential, can be expensive and long drawn out. Payments can take a number of days because they are often batched together, and the horror stories emerge of what happens when employee pay arrives late.
To add to this, many countries require taxes and even salaries to be paid from a local country account. In Greece, employees need to bank at the same institution as their employer! Sometimes those global banks that say they can process payments everywhere often mean they do this using their own specific file format, and this may not match the local files that payroll systems produce. Some countries also have controls on the amount of money transferred into the country in a single transaction because of money laundering concerns—that alone could be the final nail in the payroll coffin.
When receiving income in the local currency, salaries should be paid from this income first—but this is not always possible and it pays to have a back-up plan. An integrated global payroll system can help to better respond to currency fluctuations and employee needs through better analysis and forecasting, and therefore better responses to market volatility. Then there is the all-important local compliance factor to consider. If a firm is operating a global payroll system from Geneva, who is going to ensure a handful of employees in Venezuela physically sign their pay checks as required by local law?
To find out how to scale a solution based on your needs, visit TMF Group’s website https://www.tmf-group.com/en for more information.
Paul Arkwright
Publisher
