Global payroll push picks up steam as accounting complexity grows
The remote work transformation has added greater complexity to payroll as accountants are asked to manage unprecedented regulatory and technical challenges.
Payroll accounting has only gotten costlier and more complex since the remote work revolution – a challenge that global payroll is tackling head-on.
Despite the proliferation of new accounting software, AI automation, and increased firm interconnectivity, the challenges facing payroll accounting are outpacing organisational preparedness, according to a recent study commissioned by global payroll provider Deel.
The report found that local variations in payroll accounting in the absence of a global, unified solution can result in higher costs, greater operational complexity, decreased operational agility, payroll inaccuracies, and a frustrated workforce.
“The way most organisations operate global payroll today is anything but global,” the report found, adding that the average respondent to a 2024 survey of international payroll leaders employed six payroll tools concurrently.
Shannon Karaka, Deel country leader for ANZ, told Accounting Times that companies with international operations often lack transparency when it comes to their global payroll costs due to their use of multiple local payroll systems.
Karaka gave an example of a company with a presence across eight countries, with six different payroll solutions that “do not speak to each other.”
Apart from having no big-picture transparency, the company has to manage regulatory compliance, different commercial models, and operational overheads.
The vast majority (86 per cent) of respondents also said their firm’s payroll uses a hybrid management approach, where some payroll management is handled internally and other aspects are outsourced to external payroll vendors.
It is unsurprising then that 85 per cent of respondents expected their payroll cost to increase over the coming year on a per-employee basis, while the research suggests most actually underestimated the true cost increases.
A range of costs, including impacts on employee experience and retention, on-demand service costs, and opportunity costs are often overlooked when quantifying payroll management expenses, according to Deel.
The most common unexpected costs associated with implementing payroll solutions were exchange rate fluctuations (52 per cent), ongoing maintenance and support (47 per cent), compliance costs (45 per cent), data management costs (45 per cent), and training and support costs (45 per cent).
“Most organisations aren’t realising the full picture of total global payroll costs, many of which stem from an overly complex ecosystem with disparate systems in place per region,” wrote Deel.
A recent study from Rippling found that the majority of Australian businesses had committed a payroll error in the last 12 months, while wage theft costs Australian employees an estimated $850 million each year.
Fifty-eight per cent of respondents expected the complexity and stress of compliance with Australia’s Closing Loopholes industrial reforms. Local regulatory compliance is another issue altogether for international businesses.
Karaka suggested that the complexity of maintaining a range of different payroll systems could prevent businesses from expanding their operations overseas.
“Many customers out there would consider expansion into certain countries if they had a flexible, dynamic solution that you could switch on and switch off, which would enable you to go into markets and test them with less risk and less friction,” he said.
“Payroll is a big problem to solve and if you’re unfamiliar with [how payroll works] in a particular country, you either need to outsource or you need to hire a specialist internally.”
The COVID-19 pandemic was transformational for global payroll, in that many organisations were forced to reconcile their traditional accounting frameworks with a more geographically diverse workforce.
Compatible digital communications technologies facilitated the spread, while payroll technologies for the most part lagged, said Karaka.
Employee of record is not new, but the pace and scale of the remote working shift have caused many businesses to rethink traditional cross-border payroll accounting.
“The opportunity for a global payroll solution is to provide a stack that is consistent regardless of location around the world, and that’s what we’re betting on.”
