3 Ways to Get Ahead of Global Payroll Complexity

As remote work normalises and talent pools widen, more companies are managing multi-country workforces. But that doesn’t mean payroll management is getting easier. Indeed, the complexity of managing payroll has increased in some countries in the last few years, due to shifting tax regulations and new governmental requirements. 

That’s one big takeaway from a new survey-based report detailing the global payroll management landscape. Alight’s 2023 Global Payroll Complexity Index, which ranks 40 countries—25 of them in Europe or the Middle East, including nine of the top 10-—highlights the key forces driving complexity, and sure-fire strategies for managing change. 

And make no mistake, a lot can change quickly. Take Turkey, for instance. The country jumped up 29 spots, from 36th to 7th, as its complexity grew by 29%. Why? More data fields required for payroll processing, and changing social security calculations and time-tracking regulations, among other things. Meanwhile, Switzerland climbed from 8th to 3rd on the index, as manual mandatory reporting and record-keeping requirements added time-consuming layers of complexity in that country.

Located at the intersection of people, processes, and regulations, payroll is a high-pressure activity for companies operating in just one country. Lacklustre management can result in errors that are costly for employers and unsettling for employees. For multinational companies, which must track a greater number of variables impacting payroll processes, the risk of noncompliance and other errors are greater. As requirements evolve, businesses can stay ahead of the curve by focusing their global payroll management strategy on three things: efficiency, automation, and data

The first step toward adaptation is awareness of what has changed. Let’s first take a look at the top three drivers of complexity, and then dig into risk mitigation strategies.

What Drives Complexity?

Two words can answer this crucial question: government regulations. They’re seemingly always changing and they significantly impact complexity, especially in the 10 countries at the top of the complexity index. 

1. Mandatory deductions

National and local tax rates change. Social security and national insurance programs evolve. Every country has different mandatory deductions in the mix, and some may or may not apply to certain employees, such as child support payments and other types of wage garnishments. 

Germany ranked second in this year’s index, up from fourth place in 2021, as its overall complexity increased 2%. A major reason: the country’s high number of mandatory deductions. Similarly, fourth-ranked Italy’s complexity is partly driven by court-ordered deductions.

2. Social security calculations

Each country’s social security program brings with it unique requirements. Switzerland’s system is particularly complex, which is one reason—along with four national languages and varied regulations across 26 cantons—the country ranks third on the index. 

3. Reporting requirements

France—which snagged the top spot in this year’s index, as it did in 2021—illustrates how mandatory reporting can drive complexity. The country has a high number of fields that must be reported, the longest mandated record-keeping time (20+ years), and frequent required legal updates. Also, payroll reporting to the government is a manual process. 

Strategies to Streamline Success

Smart organisations don’t just expect an always-evolving payroll landscape, they build resiliency by investing in payroll management strategies designed to manage risks. As in so many other realms of business today, the right technology can future-proof processes and bolster competitiveness.

Technology alone is no panacea, of course. But in concert with ongoing education and training of payroll professionals and expert knowledge, the following three strategies can create huge value.

“Streamlined integration with core systems can automate processes, improve pay accuracy, data security and compliance.” An important concurrent benefit to such tech investments: an employee-led culture is supported that offers on-demand access to earned wages, transparent calculations, and diverse benefits?

1. Improve payroll efficiency

While payroll requirements vary by country, centralising payroll operations can still deliver big efficiencies. Integrating country-specific activities into one core system can simplify record-keeping and support accurate, timely payroll processing for all employees, wherever they work

And cutting-edge payroll platforms now incorporate analytics and AI capabilities driving efficiency in another way. By flagging payroll anomalies, the latest systems can help teams identify errors faster, which can reduce time and resources required to make corrections. 

2. Automate processes 

There is no good reason to stick with a manual process that can be automated. A centralised payroll system helps automate processes across countries, reducing errors and ensuring compliance with ever-shifting regulations. 

Automation can also support employee-centric HR culture that includes on-demand access to wages earned and transparency around benefits deductions. 

3. Embrace the power of data

A growing number of data fields in some countries and growing demand for insights by both HR and the rest of the business means that, now more than ever, payroll is data-centric. Organisations that invest in systems offering built-in analytics and on-demand, global data access are investing in their ability to manage complexity. Data powers agility, which in turn can power growth. 

Complexity and risks go hand-in-hand. Those risks go beyond just payroll errors and noncompliance. Such errors and oversights can be costly to fix, but they can also lead to other, wider problems—employee disengagement, poor operational performance, even reduced net profits. The way forward for multinational companies is clear: invest in technology that improves payroll processes and prepares them for the inevitable next wave of change.