Today, you can use video conferencing software and project management tools to facilitate coordination and communication in a team that’s spread across multiple locations. Consequently, a global workforce is gradually becoming the norm for companies, irrespective of their size and niche.
This isn’t surprising considering the awesome benefits that global recruitment and remote work offer. To begin with, it introduces cultural diversity and multiple perspectives in your team. This can go a long way to encourage innovative thinking and creative problem-solving among your employees.
It’s crucial when you want to break into new markets and expand your business internationally. Also, when your employees work remotely from the comfort of their homes, it can increase their productivity and efficiency. Recruiting employees in certain countries can even be more economical than hiring from your home country.
Having said that, building a global workforce comes with its own set of obstacles. From managing multiple time zones to ensuring complete transparency - you need to overcome various hurdles.
However, the biggest challenge of recruiting employees across the globe is managing payroll. From compliance issues to payment delays - you’re likely going to face various problems while paying international employees.
In this article, we’ll discuss some of the most common challenges you’ll have to overcome to pay employees overseas. But let’s first take a closer look at the different employment models you can use to build a global workforce.
How to Build a Global Workforce
Typically, if you’re looking to recruit international employees, you’ll likely use one of the following employment models:
Independent Contractors
This is a common choice for small and mid-sized businesses. Instead of recruiting full-time employees, you hire freelancers on a contractual basis. It saves you the trouble of providing any benefits, bonuses, and other incentives. When hiring contractors though it’s important that they are contractors to avoid the risk of misclassification.
From compliance issues to payment delays - you’re likely going to face various problems while paying international employees.
Direct Hires
In this model, you recruit part-time or full-time employees from a foreign country and make them a part of your global payroll. This requires you to keep a tab on the taxes and labor laws in their host country. You will also have to establish a legal entity in the host country before you can directly recruit international employees. This is known as the global payroll model, to distinguish it from the contractor and global PEO models even though all 3 global workforce models require paying and a ‘payroll’ to your overseas hires.
Global PEO
The global PEO or professional employer organisation model allows a company to use a professional services company to hire and become the employer of record for the employee in the overseas country. The global PEO is responsible for handling all employee-related responsibilities, including payroll processing, tax management, benefits management, etc. Recruiting through a global PEO simplifies the overseas talent acquisition and onboarding process enabling you to hire overseas without having to first open a local entity.
Challenges of Paying International Employees
Unless you have partnered with a global PEO who will undertake the payroll and ensure that your employees’ salaries are in accordance with local payroll taxes, you’ll have to manage payroll for your international employees. Even if you have recruited freelancers, you will still need to ensure that they’re paid the right amount at the right time.
Here are a few common challenges you’ll encounter when paying employees overseas:
1. Compliance Across Multiple Jurisdictions
Every company has its own set of labour laws and tax legislation. Even if you’re establishing a legal entity in a foreign country, you’ll need an expert to guide you through the local laws.
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If you fail to adhere to these regulations, your company might be liable for financial penalties. That’s why compliance is the most common problem you’ll experience when paying international employees. This can become particularly challenging when you need to keep a track of multiple laws across various jurisdictions.
Hiring independent contractors doesn’t exempt you from the purview of compliance. This is because if you exclusively work with a freelancer for a long period, it could potentially make them look like full-time employees in the eyes of the local jurisdiction.
2. Manual Processing Across Multiple Payroll Calendars
If you’re working with many contractual employees across the globe, they’re likely going to follow diverse payroll calendars. Monitoring these calendars and making manual payments in a timely manner can be excruciatingly difficult.
Also, when you’re paying employees in different countries, you need to account for various processing delays. While in some countries, the bank processing time is only a few hours, others can take days or weeks to complete a transaction.
You need to factor in these delays in your payroll calendar to ensure that your employees get paid on time, irrespective of where they’re located.
3. Moving Money Across Borders
Wiring money to different countries isn’t the same as making a bank transfer in your home country. You need to consider various factors, including the currency exchange rate and processing fees.
Manually tracking these details on a regular basis is going to be challenging. Also, depending on the number of overseas employees, you might end up spending a lot of money on processing fees.
Wiring money to different countries isn’t the same as making a bank transfer in your home country.
Global Payroll is the Solution
If you’ve had any experience in hiring and paying overseas employees, you’re likely be already familiar with the concepts explained here. For those taking their first steps in hiring abroad, this post should give you an idea about some of the complexities involved.
What steps is your company taking to simplify the process of paying overseas employees? Share your tips in the comments section below.
According to Ken Charman, CEO of uFlexReward, this appears to show that the private sector, despite their concerns about how the reforms played out in the public sector, are ready to embrace the new measures when engaging limited company contractors.
Kate Cottrell, one of the UK’s foremost IR35 experts has slammed these organisations for their blanket approach stating: “It is a real shame that these organisations have not waited a little while longer when we should have the final legislation and updated guidance from HMRC on a host of issues…” but their decision to comply ahead of the deadline, clearly demonstrates the mounting regulatory pressure on organisations today.
For companies like Barclays and Lloyds with potentially lots of contractors, complying with the new IR35 rules will be a huge amount of work. However, it also provides an opportunity to assess whether the current systems they have in place enable them to accurately report on their human capital assets, including the contractor workforce.
Accounting for Total Labour Costs
It is becoming increasingly important that organisations understand and report on their human capital assets in a transparent way to existing and prospective employees, shareholders, regulators and other interested parties. Yet, to date, external contractors, consultants and contingent workers are usually excluded from the employee payroll and the organisation’s total labour cost remains unknown.
When an organisation wants to analyse its business, it needs to see the whole labour cost, not just what the payroll systems can show up. In omitting the total data pertinent to contingent workers, organisations fail to understand labour productivity and end up with a skewed analysis that only takes into account employees. Deloitte found last year that only 42% of organisations were primarily made up of salaried employees.
With the IR35 forcing the costs of limited company contractors to be accounted for within the employee payroll, we’re some way along the road in organisations understanding the value of its human capital. This is despite there being no guidance yet on who will pay the tax, NI and the levy.
With the IR35 forcing the costs of limited company contractors to be accounted for within the employee payroll, we’re some way along the road in organisations understanding the value of its human capital.
For right now though, there is no universally accepted way to track the management of human capital. The economy has grown in ways that leave the current rules behind. For several decades an organisations’ market value has been far higher than the value of their tangible assets (for example land, buildings, fixtures and fittings), leading for calls for labour assets (i.e. human capital) to be included on balance sheets to give a more accurate impression of organisation value.
Reporting on Labour
Whilst companies must report detailed information about their capital investments, they have almost no reporting requirements related to human capital. This is a problem for two reasons.
The lines between contingent workers and employees are becoming increasingly blurred. This cannot be more clearly illustrated than with the recent troubles of Uber in the UK, whose drivers – traditionally thought to be self-employed – were, in fact employees of the company. Uber now has statutory obligations to give drivers holiday and sick pay (and thus, they are entitled to a minimum wage and paid leave). Prior to this, these were costs that were not broken down and could be a way of hiding a very bad gender pay gap, underrepresented minorities and more - regulators are catching up with that.
Additionally, not having to report on human capital discourages effective investment in workers - which can have an impact on your bottom line. Research shows organisations with specific employee experience programs and strategies report up to three times higher profit growth. Part of this growth is due to lower operating margins stemming from employees being more innovative in how they work, but lower employee turnover also contributes measurable savings.
Although the private sector may be lagging in preparation for the IR35 changes that take effect in little over 150 days’ time, they could bring about a seismic change in how organisations start to report on their human capital costs to the wider market.
After weeks of debate and delay, the British parliament has finally agreed there will be a general election on 12th December. The election was widely anticipated and sterling did not move after the announcement. The biggest reaction was concerning that many School Nativity plays will need to be reorganised. Markets are forward-looking as they had already anticipated a general election.
Since the bill to hold a general election was passed on the 31st October, the pound has fallen 0.84% against the US Dollar, whilst the FTSE All share has risen 1.39%. Neither moves are particularly significant and such movements could be down to a number of factors, including changes in the global outlook.
This lack of reaction is not uncommon. Investors dislike uncertainty or a lack of information and they adopt a wait-and-see approach. It is impossible to make any sensible investment decisions at this early stage so they don’t take the risk.
Markets are likely to become more focused on the result of the election the closer we get to the 12th December. How they behave will depend a lot on whether or not a clear winner is anticipated. However, given that in recent years the polls haven’t been very accurate, combined with the lines being drawn regarding Brexit and parties encouraging tactical voting, it is likely this election’s result will be hard to forecast, no matter what the polls suggest.
How domestic markets react to the election result is likely to be closely linked to what the expectation is.
The typical view is that the Conservatives, with a focus on business and capitalism, are good for the stock markets and Labour, who focus on investing in services, are not. However, analysis of market performance post-election shows this is not necessarily the case.
In 1992, John Major won a small majority, but a large proportion of the vote. The FTSE 100 rose 12% the month afterwards on the back of the result largely because a hung parliament had been anticipated.
How domestic markets react to the election result is likely to be closely linked to what the expectation is. This probably matters more in this general election than many others. A clear majority for either the Conservative Party or the Labour Party will give them control of parliament and the ability to make and pass laws. The greatest concern markets are likely to have is another Hung Parliament with a minority government of any colour. This risks returning the UK to the position it has been in for 2019, where it cannot make a decision over Brexit and the lack of direction weighs on the economy and the UK stock market. So a majority government is likely to be positively received by markets in the short term, at least, as it means we have avoided a stalemate situation.
If we look at the longer-term impact on markets, over one year, Tony Blair’s first election win in 1997 and third victory in 2005 were both followed by strong performance in the FTSE 100 with returns of 37% and 28% respectively. Major’s 1992 victory saw a 21% rise putting it in third place since the 1987 election.
It is difficult to attribute too much to the Party or indeed the individual in these situations. Both Major and Blair’s first victory occurred during a strong period for stock markets. Although there is some relief in the short term, the likelihood is that once the election is over, the market will shift its focus onto economics and company fundamentals.
How might markets perform after 12th November 2019?
Any views here are a bit of speculation as markets rarely perform based on one thing in isolation for very long.
The Brexit issue is going to be the major factor, primarily because the issue has been weighing on both the UK economy and stock market for over three years and particularly so in 2019.
Boris Johnson has led with a ‘get Brexit done’ motto and if he is reelected with a working majority, this should give markets confidence and certainty that the first phase of Brexit will be completed. The removal of such uncertainty should prove positive for the pound and the UK market which has been lagging previously – so can regain lost ground.
A Corbyn win is not as clear cut when it comes to Brexit. Jeremy Corbyn has indicated that he would renegotiate the deal and then put it to a second referendum. So this suggests that Brexit uncertainty will continue to feature throughout much of 2020 with an extension beyond the 31st of January deadline likely. Given this, there is little reason to think the outlook for the UK will materially change until we have an idea what type of Brexit will happen.
Party policies
Spending
Both parties have committed to spending more in the next term, the devil is in the detail but the age of austerity appears to have come to an end.
As things stand, Labour appears to have committed to spending more than the Conservatives. Whilst this is likely to be well-received in some areas there is the question of affordability. With interest rates at such low levels now is a good time to borrow, however, international markets will want to know the UK can afford any borrowing. Fiscal stimulus should be supportive of the UK economy and help drive growth, although large infrastructure projects take time to feed through.
Tax
On tax, there are some key differences.
Boris Johnson has already promised in his leadership to raise the income tax threshold for higher-rate payers to £80,000 (from £50,000). Take-home pay for those in this band would increase – for example, someone who currently earns £60,000 per year would keep an extra £2,000. John McDonnell has proposed to bring the 45% additional income tax rate from £150,000 to £80,000, plus introduce a new 50% rate on income of more than £123,000.
Sajid Javid suggested at the Conservative party conference that he was considering scrapping inheritance tax, whilst Labour would look to change the allowance to a lifetime cap of £125,000 on the amount you can inherit tax-free.
Higher taxes take money away from households and into the government, so they could have an effect on consumer spending in the short term but help support government projects over the longer term and help grow the economy if well invested. The Conservative policy could give more back to middle England and boost demand.
It is important to remember that whilst the Manifestos set out party policies, these are often reviewed, tweaked or even abandoned once the party is elected. Investors should not spend too much time trying to back one result or another and it is better to be prepared on a number of potential outcomes.
Below Rebecca O’Keeffe, Head of Investment at interactive investor, comments on the latest global market updates offering insight into the recent Ryanair strike debacle and Brexit progress.
Global markets continue their malaise, as trade tensions weigh on sentiment amid fears that global growth will slow. With no major catalysts to drive the market higher, the risks are on the downside and the danger is that equity markets will drift lower. Earnings will allow individual stocks or even sectors to out or underperform, but the broader indices are likely to find it more difficult to gain traction.
What a difference a week makes. Just last week, Theresa May appeared to have come up with a revised vision of Brexit that offered a middle ground and might have delivered a softer Brexit. However, resignations, rebellions, concessions and amendments now mean that it is difficult to be sure what the UK’s position actually is. With May’s government somewhere between a hard Brexit and no deal, it will be very difficult for Europe to sign off on any deal based on the current UK confusion. The summer recess may provide some respite, but as the weeks ticks by the prospect of no deal is rising rapidly and the impact on sterling could become more severe than it already is, and international companies may once again begin to rachet up the rhetoric regarding the very real risks of a bad deal.
Ryanair are suffering multiple threats, all of which are weighing on the bottom line. Sustained higher oil prices, air traffic control strikes in Europe, bigger wage costs and increased competition are all problems for the low-cost airline. Ryanair has historically been reasonably good at hedging their oil exposure, but prolonged higher prices have increased their costs. Strikes by European air traffic controllers, in particular in Marseilles, have wreaked havoc for many European airlines, causing significant cancellations and disruption. Further strikes by Ryanair pilots are adding to their woes, alongside additional staff wage costs for pilots. The prospect of further competition in the low-cost sector from IAG is another headache that Ryanair could do without. Some of these headwinds are generic and some are self-made, but it is difficult to see much upside for Ryanair in the short term.
Ryanair Holdings Plc Chief Financial Officer Neil Sorahan discusses the company's earnings and performance and the possible implications of a "hard" Brexit. He speaks on "Bloomberg Daybreak: Europe" as the discount airline posted a 20 percent drop in first-quarter profit and warned that sporadic walkouts by trade unions, along with regional traffic-control strikes, are starting to make customers hesitant to book flights.
Following the Panama Papers leak of files from last year, earlier this month, the Paradise Papers leak once again threw light on the world elite’s hidden wealth. 3.4 million confidential documents relating to offshore investments were leaked to Suddeutsche Zeitung, the same German newspaper that took hold of the Panama Papers in April, 2016, which then shared them with the International Consortium of Investigative Journalists (ICIJ) and a network of more than 380 journalists. The files reveal that large corporations, heads of state, politicians, celebrities and High-Net-Worth individuals are investing huge amounts of money in offshore tax havens. Surprise, surprise. And whilst about 100 media outlets worldwide are pouring over the findings, that include the Queen’s private estate allegedly being invested in a Cayman Islands fund, as well as offshore dealings by Donald Trump’s cabinet members, advisers and donors, a lot of people have asked the question: “What exactly is the problem considering that tax avoidance is legal?”
Panama Papers vs. Paradise Papers
Of course, as with everything, opinions are divided with many ordinary people finding tax avoidance to be offensive and unfair, while others feel that it is a perfectly fine way to save some of their hard-earned money. However, does the muted response to the Paradise Papers scandal show that we don’t care as much anymore?
Following the leak’s predecessor, the Panama Papers, thousands of people gathered to protest, which immediately resulted in politicians stepping aside and losing their jobs. Iceland’s ex-Prime Minister, Sigmundur Davíð Gunnlaugsson, resigned amid widespread protests and outrage over allegations that his family had sheltered money offshore. In contrast, it seems like this time around, the public anger has been on a much smaller scale. Last year, US President Barack Obama called for international tax reform in the wake of the Panama Papers, whilst admitting that “The problem is that a lot of this stuff is legal, not illegal.” However, whilst some wealthy public figures suffered personally and governments and organizations have put out a handful of fixes in recent years, the system remains perfectly intact.
So, are we all silently waiting for that potential reform, or have we simply come to terms with the fact that tax avoidance is fine and the rich and powerful will continue dodging tax?
The morality of offshore tax havens
It is a fundamental principle of democracy that everyone obeys the law. The law applies to everyone. The law states that we have to pay taxes. Whilst in most cases, putting your money outside of your financial regulations is legal, many argue that dodging taxes is morally wrong. In addition, according to a letter to world leaders from May 2016, more than 300 economists argue that: “The existence of tax havens does not add to overall global wealth or wellbeing; they serve no useful economic purpose.”
By sheltering trillions of dollars offshore ($10 trillion according to Boston Consulting Group), the world’s top end make their money untaxable, depriving governments of hundreds of billions of dollars of tax revenues each year. Niels Johannesen, an Economics professor at the University of Copenhagen discusses the consequences of this behaviour: “Either a lot of people pay more taxes [to compensate], or there’ll be less public goods - schools, hospitals, and so on.” He also adds: “Given that this offshore wealth is to a large extent owned by the very wealthiest… it is people who should be paying the highest taxes who are evading the most.”
Thus, not only do offshore tax havens not serve any economic purpose, but they’re also immoral and deprive economies of funds that could be used on improving public services. Some politicians are recognising the issue, such as the Leader of UK’s Labour Party Jeremy Corbyn, who promised that if his party wins the next General election, it would clamp down on tax havens and end loopholes. The Paradise Papers have once again highlighted the need for this to happen. Yet, the notion that the majority of those involved are ‘getting away’ with tax avoidance, paired with the seeming apathetic response from the public appear to be rather worrying.
Following the shock Genereal election result from this morning, Finance Monthly reached out to Mark Dampier, Head of Investment Research at Hargreaves Lansdown, who discusses the impact that the election result will have on the UK investment market.
The current siuation is very different to the Brexit vote of last year. While the result is a surprise and may lead to another election later this year – market reaction has generally been subdued so far because the Tory government will remain in power, but a hard Brexit now looks less likely.
There will be no dramatic changes in domestic policy immediately, as there would have been under Labour, had they got in. Therefore, I see no need to make any rash investment decisions, given the range of possible outcomes over the next few weeks. Investors should sit tight or even buy, if the opportunity arises.
Overseas investment is unaltered by the election apart from changes to sterling, which should act positively as we have seen over the last 12 months. That said - remember a softer Brexit could see sterling recover.
We have always advocated a level-headed, long-term approach to investing, and I would urge investors to resist the temptation to make short-term, knee-jerk reactions. We could see some volatility over the coming days as more details emerge about the new government.
Once a government is in place, I expect the dust to settle fairly quickly. There will be a dawning realisation that everything has changed and nothing has changed. For the vast majority of UK companies, it will be a case of “business as usual” on Monday. Many companies have been around for decades and seen governments of both colours come and go.
In our view, investors should continue to pursue their long-term strategy. The international nature of the UK market means that in reality, the election result matters little for many UK-listed companies.
Chris Saint, Currency Analyst added: “Uncertainty over the formation of the next government means sterling exchange rates will inevitably remain volatile in the days ahead, as markets try to fathom how this could impact upcoming Brexit negotiations. However, the pound’s initial declines may have been tempered by hopes that any eventual deal which requires cross-party support might actually imply a ‘softer Brexit’ approach which could see the UK keep trade access to the EU single market for trade.”
