5 Countries with The Most Complex Payroll Requirements
Europe tends to take the top spot when it comes to “regions” or “continents” with the most complex payrolls. Thanks to the complexities of navigating multiple layers of European Union regulations and financial landscape, several European countries tend to be where it is most difficult to run a payroll, especially for a foreign business expanding to those countries.
It’s important to appreciate these complexities and account for them when you are planning to expand into another country. It will help you run a more comprehensive cost-benefit analysis of establishing an international entity and give you a more realistic idea of your entity setup timeline.
5 Countries with Some of The Most Complex Payroll Requirements
Several different factors can make navigating payroll in different countries complex and challenging, including cultural differences, local labor laws, unions, union-driven contracts, shared benefit responsibilities of corporate entity and government, employee taxation, etc.
However, not all countries necessarily have all the challenges. In fact, each country has its own set of challenges. So even if you have experience running an international payroll, you might not be able to translate that knowledge and expertise accurately for another country. This is where professional global expansion services can help you out.
Let’s take a look at five countries with unusually complex payroll requirements.
Belgium is considered one of the most complex countries for running a global payroll, thanks to its unique payroll and HR requirements. Some complexities include:
- The country is one of the few (eight, if you consider the EMEA ones with that rule) where employees receive mandatory pay raises.
- Even temporary employees or contractors receive a 13-month salary (one month’s additional salary as a bonus) in a year.
- A holiday bonus on top of holiday pay, which is equal to 92% of an employee’s monthly salary.
- Payroll needs to be submitted in multiple countries.
While heavily in favor of employees and people working in Belgium, these stipulations can be a bit challenging for the employers expanding there. Another secondary complexity that might arise from this payroll structure is compensation disparity for your employees in Belgium and other countries. And if you try and lower the base pay in Belgium to cover the additional perks the government is getting for them, you might have trouble attracting and retaining the top talent.
France, the third-largest economy in Europe (After Germany and the UK), is quite near the top when it comes to payroll complexity. France takes data protection very seriously, and it even affects payroll processing legislation. But that’s not the entirety of the problem. The main challenge is that France’s payroll rules and regulations change quite abruptly, and employers need to keep up.
Some of the challenges include:
- A complex pay-slip with around 40 lines and it’s accompanied by several other documents
- Gross compensation, which is a crucial variable in compensation management and calculation, is open for interpretation.
- The labor code (even if you discount the language difference and subtleties of legal language) can be difficult to navigate.
Another factor that makes payrolls in France unusually difficult to process and navigate is that labor laws allow unions to negotiate with employers. This doesn’t just make it extremely difficult for employers to fire anyone; it also means that employers have to take into account the compensations and benefits that they are supposed to offer to their employees, in addition to what they must pay under local laws.
In South America, Brazil used to have one of the most complex payroll requirements and regulations about two or three years ago, when the country was transitioning to eSocial. Now the shift is complete, but the complexity still exists, thanks to two main factors:
- Involvement of labor unions which are present in each and every industry and are regulated by the ministry of labor (at least for taxation)
- Frequent changes to the labor laws
Unions make things a bit costlier and more complex for foreign employers as they need to pay union dues tax, even if they are not in the union. Another challenge is the social security contributions, which are not uniform and determined by the pay scale but by the industry and risk. However, the ministry of labor provides proper guidance. One thing to note about Brazil’s eSocial is that any change you make in your payroll must be reported to the government right away (through the eSocial portal).
Despite a laser focus on commerce and business, China is a difficult country to expand to and run payroll in. Some payroll challenges in China include:
- The different minimum wages for permanent (monthly) and temporary employees(hourly)
- Minimum wage changes every year and can also change on a semi-annual basis
- Local governments can impose specific income and social taxes on payroll based on local requirements (like heating, cooling, cleaning requirements, etc.)
- Overtime is different for weekdays and holidays.
- Some weekends can be converted to working weekdays if employees take additional days off during two designated holiday periods.
In China, any policies (including payroll) are changed and enforced swiftly, and as an employer, your duty is to stay on top of such changes.
Despite the fact that over 2.5 million tourists visit Japan each year, attracted by its natural beauty and unique culture, it’s a difficult country to navigate both socially and from a business perspective. It also offers numerous payroll challenges. It has a complex year-end tax adjustment system that can be challenging for a foreign company. Benefit taxation is also relatively difficult. The payroll slip also contains over 70 different categories, making it very difficult for foreign entities not familiar with local compensation practices and intricacies of the labor laws.
It’s important to note that most challenges are challenges only because you don’t have the right information and assistance to surmount them. The seemingly complex payroll requirements of certain countries will become a breeze if you expand with the right professionals and leverage the corporate maintenance services of a business that has experience and resources in navigating payrolls in over a hundred countries.