Pandemic. The market is volatile. Inflation is on the rise. The leap of artificial intelligence across the workplace. While it's still in the first half of the 2020s, we've seen how people have changed over the decades in terms of where and how people work.
With so much instability, it's no surprise that many companies are still using traditional payment methods such as interbank transfers to pay their global workforce. They may be slow and extremely risk-averse, but they offer secure, regulated payment channels.
Bank transfers will ensure that funds are safe, visible, and easy to use. But the process is fragmented in nature. To achieve cost-effective and compliant labor payments, you'll typically need to have a bank account in each country where your team is located. All of these accounts have their own processes, timelines, and document structures, not to mention their own KYC requirements.
The reconciliation process performed manually alone may require hiring an entire team to complete.
Let's take a closer look at what it really means to manage labor payment funds on multiple bank accounts in different locations with three steps in the process.
Monitoring bank accounts that pay employees in multiple countries involves a set of specific considerations (tailored to each country's specific banking and regulatory environment) to ensure timely and accurate payments.
KYC for each bank
Each bank requires its own "Know Your Customer" procedure to process payments and has its own requirements for completing the process.
Fund the account in a timely manner on payday.
Ensure that all bank accounts designated for payroll financing have sufficient funds to pay wages. Some countries and regions can be scheduled on a monthly basis, but on a different day of the month. Some can be on the 15th and 30th of the month, some on a bi-weekly basis, and some on a weekly basis.
Trade**. Banks use specific ** to identify and classify different types of transactions. Managing multiple banks requires mapping and adjusting transactions from different banks** in order to properly classify labor payments.
Bank cut-off time.
Ensuring that payments arrive accurately on payday means staying on top of each bank's transaction cutoff times, in addition to keeping an eye on local closures. Different banks may have specific deadlines for processing transactions, and it is crucial to meet these deadlines.
Your global employees expect to be paid in their local currency. This means managing multiple currencies, reducing the risks associated with foreign exchange fluctuations, and ensuring accurate and compliant international payroll processing.
Currency conversion. Determine the applicable exchange rate for converting funds from the company's base currency to the local currency of the employee's home country. Look for a reliable financial** or currency exchange platform to get the most up-to-date exchange rates.
Manage foreign exchange fluctuations.
Understand and manage exchange rate risk. The value of money can fluctuate, affecting the overall cost of wages.
Banking partners.
Build relationships with banks to facilitate efficient and cost-effective currency exchange for international payroll transactions. Different banks may have different fee structures, and these costs can affect the overall cost of international payroll processing.
Legal and tax implications.
Consider the legal and tax implications of currency exchange in each jurisdiction. Some countries may have specific tax rules related to foreign currency transactions, and compliance is essential to avoid legal issues.
When dealing with multiple banks that may have different reporting formats, transactions**, and account structures, reconciling data involves reconciling these disparate elements to create a unified and standardized view of financial information.
Report format. Different banks may present financial information in different formats. Reconciling involves manually adjusting these formats to create a consistent representation of financial data. This may include coordinating the layout of financial statements, account summaries, and transaction details.
Account structure. Banks may have different account structures. Ensuring that the accounts used by banks are classified and structured in a consistent manner is critical to aggregating financial data and generating consolidated reports.
Accuracy of transaction details.
Verify the accuracy of transaction details, including confirming that the amount, date and description of the transaction match the business records and bank records. Identifying and resolving discrepancies ensures that financial records are accurate and consistent.
Comply with local regulations.
Stay up-to-date on local payroll processing regulations, including withholding tax requirements, social security contributions, and other statutory deductions. Ensure that the payroll process complies with these regulations.