AccountingWeb

Payroll Perspectives: Karen Paterson, Patersons

Karen Paterson, Group CEO and founder of corporate payroll solutions provider, Patersons, discusses international payroll issues and what to look for from a payroll provider.

International payroll

Q: What are the key considerations for setting up a payroll abroad?
A: This can be quite a complex area. Questions that need to be answered are:

• Does the company have or intend to have a permanent establishment (PE) in the country?


• What are the double taxation treaties between the host and home countries ' there may be withholding tax (even if the employer does not have PE they are required to "withhold" payroll taxes from the employees salary and remit to the fiscal authorities).


• Are your employees to be expatriates or locals?


• How are you going to transfer the money to pay employees:
  1. Payment by Swift (automated electronic international bank transfers)
     
  2. Open a local bank account
     
  3. Pay via a payroll bureau or accountant
  
  
• Obtain an overview of the employment laws in that jurisdiction some of which may have an impact on payroll


• Try to get an overview of the payroll taxes and social security rules


• If you are deploying expatriates then look at the residency rules - should the expatriate be still contributing to social security in his or her home country rather than locally?

Q: How do you deal with the currency issues?
A: If you are receiving income in the local currency then salaries should be paid from this income. If however, it is a start up situation you may want to make arrangements with your bank to minimize exchange rates losses. Some expatriates need to be paid in split currencies so that money is remitted to the home country to cover expenses including mortgages.

If you are making a payment direct to an employee's bank account in local currency you can either ask your bank for a forward rate or you will receive a spot rate when making the payment.

Q: What are the key legal considerations for paying employees who work overseas?
A: As said in reply to the first question, it is very important to have an understanding of employment law and tax/social security laws in the destination country. The penalties for non-compliance can be much harsher than in the UK. Some countries have compulsory workers' compensation insurance and other benefits.

Trade Union membership may also be compulsory and you may have to register your company under an 'industry type'. These can govern pay awards and benefits which are centrally negotiated. In contrast employees could always be paid gross and settle their tax at each fiscal year end. Professional advice should be sought.

The issue of a permanent establishment or a branch is very important and this can have an effect on both withholding taxes and corporation tax.

E-filing/Outsourcing

Q: How will the new e-filing legislation change the payroll landscape in the UK?
A: In theory this should improve the way payroll year-end is handled by everyone, cut down on costs at the Inland Revenue and simplify filing. If successful it will certainly save the Inland Revenue significant amounts of money. The Carter Report set out recommendations to the government in this respect.

In practice the Inland Revenue has been having technology problems. This has been widely reported and the Business Application Software Developers Association have strongly criticised the Inland Revenue's development team. I wait with bated breath to see how the year end goes.

Q: Does the burden of red-tape, including the recent e-filing requirements, increase the argument for outsourcing payroll activities?
A: Large businesses that are required to e-file this year could benefit from outsourcing. The costs are quite high and a number of companies have set themselves up as e-filing bureaux. This is possibly the simplest way for companies to comply with the legislation.

However, there are still issues with producing output files which conform to the e-file bureau's requirements. Outsourcing the entire payroll, so that there is no technology cost related to maintenance of payroll software and year end is looked after, must certainly be a sensible consideration for companies.

Q: Where does outsourcing leave HR and payroll managers?
A: Outsourcing means that HR and payroll managers can focus on adding value to their organisation whilst the 'process' is managed by experts. Even if a payroll is outsourced organisations still need someone to be responsible for payroll and a point of contact for both the employees and the bureau. It also takes away the need to support and maintain software. The bigger the organisation the more expensive and complex this can be.

The right choice of bureau is critical. It is not just about producing payslips. A single point of input, comprehensive report capability and customer service are just a few areas that need to be efficient and effective.

Payroll is one of the most important functions in an organisation. Failure to pay staff accurately can have damaging repercussions.

Selecting a payroll provider

Q: What considerations should business take into account when choosing a software supplier?
A:

• Customer service


• Financial stability


• The ability to split the 'insourced' and 'outsourced' process at a point where it is best for the company ' not necessarily around the bureau's standard procedures


• Ability to offer a fully integrated HR/benefit/time and attendance system


• Credible bureaux/software vendors should be able to offer internet technology


• E-filing


• A flexible application that can be moulded around the business needs. There has been a lot of discussion around 'off the shelf' products, to change the business process not the software, to save on cost and poor implementation. Some programs have tool kits that can instantly generate new screens and functionality without the need for programming.
  
• Reporting is critical to getting value from any system. This should preferably be a business intelligence capability also providing ad hoc reporting.

Users need to manage their expectations. Beware of over zealous salesmen. Always write a script for a payroll demonstration so that you can be sure the software does actually do what you want. An evaluation period is also very useful. If the software is up to the job the software vendor should have nothing to hide.

Q: What are the benefits of integrated payroll and HR systems?
A: This is very important. There should always only be one single source of entry. Duplicating data input is time consuming and therefore expensive. If you add internet technology to this equation so that the bureau and the in-house HR/Payroll team are sequenced in real-time, then the benefits to the business are enormous.

Payroll and Technology

Q: How can software providers keep pace with changes in technology?
A: All good software houses should be planning for the future and committing a good percentage of their profits to research and development. This is why the choice of software vendor is very important. Adapting legacy software to the internet simply does not work.

Software needs to be engineered for the internet as does the database design. Software houses can find it very difficult to change the way they engineer their software and if a programmer does not use a modern programming language properly you just get bad code. We have seen this extensively when programmers have moved from a language such as C or C++ to Java.

Q: How will advances in technology change the future of payroll?
A: The internet has enhanced the management of payroll significantly. What does the future hold? Well, the use of peer-to-peer technology and 'on demand services' will greatly enhance both processing capacity and cost. As the power of processors continues to increase and new hardware technology such as Blade Centres is introduced, the cost of running software for large organisations will decrease. Mobile technology can be used for employee self-service, payslips and handling payroll queries. The paper payslip is surely short lived. Our own software company provides all of these bells and whistles already ' but we are always two years ahead of the market.

The number of Application Service Providers (ASP) will increase. Globalisation means that international payroll will become ever more important as will HR information systems. Smart companies need smart information and visibility over their workforce.

Q: What have been the key advances?
A: Key advances in technology have definitely been the internet and ASP. This has opened up a whole new playing field in the market. Smaller companies can now enjoy the benefits of functionally rich enterprise applications as well as options on pricing such as 'pay as you go'.

Companies are seeing the benefit of having a virtual platform to join all of the HR/payroll/benefit functions. Fears around security and reliability are also reducing as this type of application becomes more commonplace. It is also a powerful tool to drive cost reductions through greater efficiency.

Q: What are your final thoughts?
A: Technological advances will keep accelerating. I believe there will be opportunities for smart HR/Payroll software vendors to take market share and globalisation (and with it the need for global software solutions). This is a current hot topic and the demand will increase.

AccountingWEB.co.uk  18-Feb-2005
Categories:  Software, Finance, Opinion
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Steve Greatley, 24 February 2005 @ 13:31 PM

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