9 min The majority of issues related to global payroll do not originate from the payment of salaries, but rather from the provision of employee benefits.
One employee may be entitled to mandatory health benefits, while another employee is entitled to statutory pension contributions. Moreover, remote hires are taxed differently from other employees on the same benefits. While these issues may seem small, it is exactly these details that lead to non-compliance and loss of trust among employees.
This is where good global payroll systems come into play. When employee benefits are added to payroll based on the country of employment, payroll can be streamlined rather than managed on a responsive basis.
In this blog, we outline how localised benefits can be designed and implemented without increasing operational complexity.
Why Are Local Benefit Requirements So Varied Around The World?
Each country has laws specifying the employee benefits employers must provide. Most, if not all, of these benefits will include mandatory paid leave, social insurance contributions, health insurance, and pension benefits, among others.
For instance:
- In many European countries, paid leave for new parents is mandatory, as are pensions that employers must provide by law.
- Meanwhile, in the United States, health benefits are provided by employers, but there is no state-driven requirement to do so.
- Employer contributions to social security systems are mandatory in countries like Germany and France.
Company policies do not dictate these requirements, as they are governed by local labour and social security laws. The obligations of benefits differ by location, and thus, localisation is mandatory, as per the U.S. Department of Labour.
Given the global and transnational nature of employer-employee relations and the location of the employees, a global payroll system has to allocate benefits to different employee geographies rather than the employee geography of the employer’s headquarters.
How Do Cultural Expectations Impact The Design of Benefits?
Benefits are only effective if there is some alignment between the legal frameworks and cultural expectations. Benefits compliance goes hand in hand.
In certain regions, transport allowances or subsidised meals are expected, whereas in others, wellness benefits, remote work options, or childcare support are more valued. Although these are not legal requirements, failing to implement such policies negatively impacts employee engagement and retention.
This is especially true for companies that pursue global hiring solutions as a means to attract talent, where the alignment of benefits can influence the decision to accept a position, even when the pay is significantly above market.
Why Does Tax Treatment of Benefits Complicate Payroll Management?
Benefits are rarely tax-neutral. The same benefit is tax-exempt in some countries and becomes taxable in others.
For example:
- Company cars may count as taxable fringe benefits in multiple jurisdictions.
- In some countries, meal vouchers or travel allowances might be received and taxed more beneficially.
- Depending on local tax law, there may be some deductibility of contributions toward health insurance.
The IRS is explicit that tax rules on benefits necessitate local jurisdiction rules, especially in the case of international staff.
A global payroll system is required to determine applicable withholdings on benefit taxation correctly, or there is the risk of under-withholding, and that brings with it an assortment of problems, such as penalties and employee-dispute scenarios.
How Can Companies Balance Global Consistency with Local Compliance?
The most common strategy organisations employ is to establish a uniform benefits philosophy globally, allowing for local adaptations. This typically involves a core benefits package consistent across all areas, supplemented by country-specific benefits.
This equilibrium is especially difficult to achieve in a manual setting. Specifically, HR and payroll teams are at risk of inconsistent application, misclassification, or outdated configurations.
Structured frameworks are what companies using global payroll services tend to rely on. These frameworks allow for local compliance to be enforced at the payroll level while allowing global supervision.
How Do Remote And Distributed Teams Change Benefit Equity?
While remote work does geographically erode boundaries, concerning benefits, their obligations hinge on where employees work legally.
Equity in employee benefits does not imply identical treatment for remote workers in different locations, as benefits must comply with the respective local laws of each employee’s residence.
The complexity has been one of the reasons many companies have been using employer of record services as they enter new markets to ensure benefits are provided from day one in accordance with local employment law.
What Role Does System Configuration Play in Managing Benefits Correctly?
Benefits compliance does not stop at policy; it extends to systems as well. Payroll software has to be set up to cater for:
- Rules on benefits for each country.
- Different treatment of taxation.
- Limits and thresholds to contributions.
- Requirements for reporting.
Effective execution of benefit policies requires proper setup, with secure system architecture being essential due to the sensitivity of personally identifiable and data, making payroll data security foundational rather than superficial.
Why Does Benefits Design Matter for Long-Term Global Expansion?
Benefits are often the first area to cause friction for scaling companies. With benefits as part of an overall global expansion strategy, benefits must be legal, competitive, and operationally manageable.
With a modern global payroll system:
- Companies can enter new countries faster.
- Companies can stay compliant without manual processes.
- Companies can configure benefits that meet legal requirements and align with local expectations.
- Companies can minimise payroll errors associated with incorrectly configured benefits.
Without this framework, benefits will quickly turn from an enabler of growth into an obstacle to expansion.
How Can Procloz Help Companies Design Country-Specific Benefits At Scale?
Benefits design across borders is much more than a spreadsheet undertaking. It requires frameworks which automatically factor in and apply local regulations, taxation, and employment structures.
Procloz assists firms in setting up global payrolls, which automatically support multiple country benefits with compliance and accuracy. From country-mandated benefits to tailored local benefits, Procloz helps organisations manage international growth without compromising payroll and employee experience accuracy.
If global expansion is on your agenda and you require benefits that work seamlessly and legally globally, Procloz assists you in establishing the most suitable payroll foundation.
Frequently Asked Questions (FAQs)
1. What are the country-specific benefits in payroll?
Country-specific benefits are legally required or commonly expected benefits that vary by location, such as statutory leave, pensions, insurance, or allowances. These must be applied based on where the employee works, not the company headquarters.
2. Why can’t companies use the same benefits everywhere?
Because labour laws, tax treatment, and social security systems differ by country. Offering identical benefits across regions can lead to non-compliance or incorrect tax reporting.
3. How does a global payroll system manage local benefits?
A global payroll system applies benefits based on employee location, automatically calculating contributions, taxes, and reporting requirements according to local regulations.
4. How are benefits taxed differently across countries?
Some benefits are taxable in certain countries and tax-exempt in others. Payroll systems must apply country-specific tax rules to avoid under-withholding or penalties.
5. Why is payroll configuration critical for benefits compliance?
Even well-designed benefit policies fail without a correct system setup. Payroll software must support local rules, contribution thresholds, and reporting formats to ensure accuracy and compliance.
