How to avoid common mistakes when setting up payroll management in a new country

Introduction

When moving into new legal territory, i.e. into a new country, and a new international payroll is set up, a variety of things can easily go wrong, causing increased costs, delays and missed business opportunities.

Below, our international payroll team at Internago shares some of the most common mistakes in such situations, and provides remedies for how to avoid them.

A contract is a contract, right?

“Our employee has been working for us for years, so he already has a contract. All we’re doing is moving him overseas, so he can stay on the same contract.”

Wrong! We strongly advise not to use your home contract when you move to a new country. This applies even when moving between different EU countries. One would expect employment rules and regulations to be standardised between countries in the EU, but this is unfortunately not the case.

If anything, the opposite is closer to the truth: international payroll is highly affected by each country having its own set of rules and rates, not least with respect to collective bargaining agreements (particularly prevalent in southern Europe) which obliges the employer to create a new contract. As such, an employee with e.g. a Swedish contract cannot simply move to France and continue to work there from one day to another.

In order to ensure correct payroll management, local law must always apply, including all the associated social security fees and income tax provisions that apply in the new country, and it is your responsibility as employer to ensure that the employment contract reflects these. At Internago we always advise to invest in a review from a local labour law expert. This will almost always save you from unexpected problems down the line which could severely hamper your payroll management.

Plan ahead: ideally 2-3 months

Know well in advance what your employment plans are, and whether your organisation intends to relocate employees or start hiring foreign workers.

We understand that business drives all decisions, and that in certain occasions the need is there to move fast. Still, we cannot stress this enough: get going with the paperwork early to ensure you can register as an employer as soon as possible. Whenever you know in advance that a relocation or overseas employment is scheduled, ensure that you file the paperwork two or even three months in advance.

In many markets, a local tax number is needed. In other markets, other local prerequisites are obligatory. Such matters can further increase lead-time before recruitment can take place.

Overall it is important to remember that processing times at local authorities are never guaranteed, and often reliant on original documents sent by mail with an obligatory certification by a notary public.

Rather document too much than too little

Make sure to carefully file and annotate all deals and agreements signed. This includes details such as who signed, and where and when did they sign? What precisely does this employee’s expat package consist of, etc.

Legal frameworks vary from one market to another, and in some countries authorities can suddenly request such detailed information related to your business operations several years in the past.

Nowadays there are online systems which support and facilitate such careful annotation.

Keep track of local procedures and deadlines

When you start payroll management activities in a new country, a whole new set of procedures and deadlines will apply. Overnight you will be expected to keep track of such details, and nothing can be left unresolved. If that happens your organisation could risk sanctions.

It is fundamental to think about it as a whole new calendar: with deadlines throughout the year for submitting tax payments, filing obligatory information, etc.

This also applies to bargaining agreements. A tight process should ideally be run at the outset of recruitment, ensuring that all local employer obligations are met.

Set clear roles and responsibilities in the payroll process

This will make sure that none of the above occurs. Not only are all aspects and tasks covered, but if a group of people collaborate to ensure compliance, the risk for human error is lessened.

Ideally, payroll outsourcing should be used, which would also mean that it is digitised. This not only removes the worry and effort from your organisation, but also lessens risk.

Do you want more information or need help with employment and payroll ?

Internago can assist with cost calculations and full payroll service on most European markets. Please click here to find more information, or if you prefer contact us directly at info@internago.com

Disclaimer

Please note that this blog post only gives an overview and provides some introductory examples to payroll. In practice, there are more detailed aspects to consider, which is why this blog post should only be seen as a general guide. For a more in-depth discussion, do not hesitate to contact us at info@internago.com