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Global Payroll & Tax

Shield GEO: Global Payroll and Tax 

Multinationals that are deploying staff in a new country face the challenge of how to handle payroll, in particular how comply with local employment laws and procedures.  There are a few routes available

  • Run the host country payroll remotely from head office
  • Run payroll through an appropriate entity in the host country
  • Outsource payroll to a third party

Further to this third route, there is an alternative that is both quicker and less costly: using the Shield Global Employment Organization (GEO) to meet payroll and tax requirements.  Companies expanding into foreign markets can use Shield GEO to employ and payroll their staff in a particular country.

Shield GEO assumes the legal responsibility for their employment in the host country, becoming the Employer of Record, sponsoring them on work permits (if required), complying with local employment law and running their monthly payroll.  This includes deducting all tax and social security contributions as required by local law.   This is a preferable alternative for companies who are looking to test a market, or simply want to control costs and have a quick start for expansion efforts.

Because Shield GEO takes responsibility for most administrative and legal functions, there are three main advantages for the client:

  • Reduced cost for expanding into a trial market
  • Increased speed of deployment
  • Avoiding the pitfalls and surprises of a new foreign location

This saves human resources the need to research and source local providers in a country where they may not have prior experience or contacts.  Instead, Shield GEO becomes the ultimate HR resource and can offer ongoing consultation as the business expands its activity or faces changes in local rules and regulations. In addition according to Baker & McKenzie, outsourcing employment and payroll through a third party should reduce Permanent Establishment exposure as long as the employee doesn’t exercise “contract-concluding authority”.

Payroll Options Using Shield GEO 

There are several distinct approaches available when selecting an outsourced method of payroll with Shield GEO.  Often the choice will depend on the level of resources available, preferences of the employee and commitment to the foreign market.  Regardless of the payroll option used, companies should be aware that employee activities may still trigger permanent establishment and potential local tax liability.

Dual Payroll 

In a dual payroll scenario, the employee is employed in both the home country as well as the foreign, host country, offering some advantages for the worker.  The chief benefit for both the employer and employee is the continuity of the employment relationship along with tenure, benefits and maintaining affiliations.  There are two ways to accomplish a dual payroll in a foreign market:  shadow and split payrolls.

Both split and shadow payrolls have tax complications as the employee will be active in two tax jurisdictions and suffer from double taxation if there are no relevant tax treaties to mitigate it. In addition if the payrolls are in different currencies then fluctuations in foreign exchange rates are a problem.

Shadow Payroll 

A classic shadow payroll is a non-cash payroll in the host country. The shadow payroll is established to ensure that the proper tax and social security is paid in the host country. The employee is still paid in the home country through their primary payroll, but additional taxes are withheld and remitted to the host country tax authorities.

The employee does not directly receive any funds through the shadow payroll in the host country, and this option is generally the least disruptive to the employee, allowing them to maintain an uninterrupted relationship with the employer in the home country. Shadow payroll can also be run in reverse where the payroll is active in the host country, the employee is directly paid in the host country payroll, but a shadow payroll is still maintained in the home country.

Split Payroll 

This is where the employee has an active payroll in the host country and home country. This can be useful to maintain pensions or social tax contributions, while ensuring compliance with local employment laws.

Full Local Payroll 

A fully outsourced payroll and employment solution is the simplest solution. A full payroll is run in the host country through Shield GEO.  Shield handles the host country payroll reporting, tax deductions, social security and other contributions, and will invoice the foreign company for those contributions and its service charge. Shield can invoices the foreign company for the Total Cost of Employment (TCE) and processes the net payment direct to the employee.

The Challenges of Running Payroll in the DIY Approach 

If a company decides to run local payroll on their own, then there are a number of risks and challenges that can arise.  Many jurisdictions have strict requirements on how withholdings and taxes need to be deducted, and failure to comply with these rules could place the company’s reputation at risk.  In order to avoid fines and penalties for non-compliance, a company will need to locate:

  • Local partners in countries where co-ownership is required
  • In country human resources, payroll partners and employment professionals
  • Legal or accounting professionals with local knowledge

The time and expense required to set this up can create significant delays in entering the new market, and will place the human resources department in the position of needing to manage all foreign partners and professionals.  Instead, a client can use Shield GEO to handle all employment formalities and requirements, allowing for quick and cost-effective staff deployment.

How the Shield GEO Service Works 

Shield GEO manages all aspects of payroll for workers, including taxes, withholding, social security payments and other statutory requirements. Shield GEO also offers medical insurance and the ability to make pension contributions in most locations.   The basic process looks like this:

  1. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.
  1. Shield GEO will invoice the client monthly in advance of the payroll date.
  1. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Business Tax) and a Management Fee.
  1. Staff are paid monthly with tax and social security deducted at source and paid to local authorities.
  1. Shield GEO provides the employees with pay slips, and reports to client.

Summary

Shield GEO offers a flexible and fully compliant global employment solution. Companies are able to structure employment contracts and payroll according to the employee’s wishes and business objectives.  Payroll may be administered as a full local payroll, shadow payroll or split payroll, each with distinct differences and advantages.  Shield GEO administers the host country employment and handles in-country compliance, saving the client the time and expense of setting up a local entity and establishing relationships with in country payroll and tax specialists.

  • Global Payroll & Tax

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