Hero Overseas Payroll Article

In A Global Marketplace, How Will You Pay Your International Workforce?

Mon 15 Jul 2019

UK-based companies paying employees in other countries must navigate a complicated web of banking procedures, compliance processes and tax systems. There is no one-size-fits-all approach, warns EQGlobal’s Faaria Choudhary.

As British companies expand their operations overseas, many are hiring additional workers in countries around the world. Such staff expect (and deserve) to be paid in the same timely fashion as their UK-based counterparts – but British companies regularly run into difficulties when trying to pay international employees. With banking systems, financial regulation and tax rules all varying widely from one jurisdiction to the next, staying on top of salary payments – and keeping staff happy – can prove much more complicated than anticipated.

No single approach to paying your international staff will work in all marketplaces. In fact, the best approach in one country may cause significant problems elsewhere. It is therefore important to take a country-by-country approach to salary payments.

Take three jurisdictions of growing importance and significance to UK based businesses. In India, UK companies now employ almost 350,000 workers, more than in any other country than the US. In South Africa, the figure is above 220,000, while in Brazil it is closing in on 150,000. Each of these countries represents an increasingly important marketplace for UK companies operating internationally – but paying staff in each of them requires a different approach.

In India, for example, regulatory issues can cause British companies real headaches. The country maintains strict rules on intra-company loans, which can catch out UK-based companies transferring money to their Indian subsidiaries in order to pay local workers’ salaries. Such transfers may be considered loans under certain circumstances; that may result in the transfer being blocked or even in the company incurring a fine.

For this reason, it makes more sense for British companies employing staff in India to pay them directly, through a transfer into their bank accounts, rather than via a local business. But this will bring issues of its own: for example, payments must be scheduled sufficiently in advance for salaries to be paid on the right day.

There may also be lifting fees to pay for the transfer. These are typically deducted by the intermediary bank from the payment before it reaches the recipient’s account, which isn’t appropriate for salary payments. Making the payment via an automatic clearing house (ACH) rather than through wire transfer would resolve this problem.

What works in one country may be the wrong approach for another. In South Africa, for example, UK companies don’t have the option of using an automated clearing house, since these will only process pension payments – not salaries. And while wiring the money through a bank transfer is an option, local regulation requires “uplifting”; this is a process through which the bank will contact and communicate with the account holder to ensure all regulatory requirements for incoming funds have been met before the credit is applied to the recipient’s account– which isn’t ideal for regular salary payments.

In South Africa, then, many British companies could be better off managing their salary payments in a different way. Here, it makes more sense to transfer the funds to a local subsidiary or an In-Country Provider, which can then manage the payments process locally. This works well, since there is no equivalent regulation of such payments that causes such problems in India.

In Brazil, meanwhile, the picture changes once again. It applies a similar uplifting regime to South Africa, but its requirements are more demanding. Employees must be registered with their banks to receive payments from overseas and will need to provide documentation each time money is transferred to them, as well as to show they have paid the right tax.

This might lead employers to think that paying through a local subsidiary is a more straightforward approach, but this has its own problems. The rules on cross-border money transfers into Brazil are time-consuming and burdensome to comply with. Even given the restrictions of uplifting, direct transfers will work better for many employers – their challenge will therefore be to ensure Brazilian staff are given all the support they need with the bureaucracy of receiving their salary in this way.

In practice, taking expert advice on how to pay workers in any given country will pay dividends. Many companies will need external support to confront these issues. EQGlobal’s payments specialists can help employers organise their salary payments to staff in countries all around the world, maximising efficiency and minimising the potential for a compliance failure or, possibly even worse, disgruntled staff. Make sure you pay the right people the right amounts at the right time.

Faaria Choudhary, Senior Relationship Manager at EQGlobal.