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Forex Market is also known as Foreign Exchange Market or Currency Trading Market.
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The Nuances Of Local Payroll That Your Corporate HQ Won’t Think About
Think you can use your global banking relationship for global payroll? Think again. Local payroll needs won’t always align with your corporate HQ’s wishes, says our Head of Global Business Services.
Let me share a story with you. I was working with a client recently who had dotted every I and crossed every T. A global player, the company was moving in to Italy and we were helping to get them set up. And as a global player, they had global processes and directives that HQ insisted on – including the bank used for accounting and payroll.
But we encountered a problem early on: Italy only allows third legislated party payments from a specified list of local Italian banks. And the client’s bank – the one they had patiently and steadfastly negotiated a global relationship with – was not on that list.
What were we to do? Needless to say, our experts’ 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’s not an uncommon scenario, 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’s 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
- Consolidation and cost of accounts and reporting, and so on.
Paying from a foreign account exposes your payroll to risk; foreign exchange is not an immovable object, and it can be tricky to consolidate, forecast and execute payroll when dealing in foreign currencies. Are you willing and able to price this risk into your salary packages? We find that most of our 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 unique 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 you’re transferring money from a foreign account into your local office accounts, you need to not only factor in foreign exchange concerns but also speed of payment. Many banks have reciprocal relationships to help smooth the 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 fulfilling an essential need – can be expensive and lengthy. Payments can take a number of days because they are often batched together, and we’ve all heard the horror stories of what happens when employee pay arrives late.
You want more? 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! And 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. Don’t forget, too, that some countries 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 your payroll coffin.
If you are receiving income in the local currency, then salaries should be paid from this income first. But that’s not always possible – and it pays to have a back-up plan. An integrated global payroll system can help you to better respond to currency fluctuations and employee needs through better analysis and forecasting, and therefore better responses to market volatility. And that’s all well and good, but it forgets the all-important local compliance factor. If you’re operating a global payroll system from Geneva, who is going to ensure your handful of employees in Venezuela physically sign their pay checks as required by local law?
The best bet is to find a partner who can scale a solution based on your needs. Find out more about how TMF Group can help with this.