As distributed work becomes common, it’s changing the way HR teams perform different functions like hiring, compensation, training and development.
Within these functions, compensation is proving to be a particularly precarious issue as employers try to find a solution for transfer fees, currency conversion fluctuations, and compliance.
Amongst the biggest challenges facing the modern compensation function is the alignment of payroll with a globalized, distributed workforce.
Consider an organization that wants to hire cross-border; varying labor and tax laws across the different parts of the world translate into a flurry of compliance complexities. This also raises integral questions about pay parity.
Decoding pay scales, encoding pay rolls
When hiring cross-border, HR teams face a plethora of unique challenges that did not exist in the traditional workplace.
Devising a pay scale structure alone is a mix of budgetary as well as cultural considerations.
Organizations have to choose between location-agnostic pay versus location-adjusted pay scales. This raises questions about fairness and pay parity.
Many companies are looking at salary calculators to help democratize and equalize the computation of salaries and compensation.
Its salary formula takes into account two major factors: a) the role compensation benchmarked for position and experience level and b) the ‘cost of living’ multiplier.
GitLab has a compensation calculator, too. This calculator allows both current & potential employees to see their total rewards (cash, equity and benefits), and how the rewards vary across departments, levels, or locations.
Earlier this year, Google also introduced its Work Location Tool that serves a similar purpose.
These formulaic approaches, companies claim, help minimize subjectivity & bias around compensation. On the other hand, there are organizations pushing for location-agnostic compensation as digital nomads feature in the workforce.
Resource scheduling software company Float, which boasts of a fully remote team of more than folks working across over 20 cities globally, announced that they’ve removed all location-based adjustments to team compensation.
There are platforms dedicated to answering these questions about transparency and parity in compensation, like the employee compensation benchmarking tool Pave.
However they choose to compensate, the bottom line is simple: businesses want to hire internationally.
Compliance: The backbone of payroll management
“Hiring cross-border can be a painstaking task. First I have to learn from scratch about the employment laws in different countries, familiarize myself with corresponding HR practices, and align the cultural differences between hiring locally and overseas,” shares Bhavya Arora, talent management and culture partner at Outplay.
“As HR, I need to have all the answers, and in order to have the answers, we need support with the compliance formalities, terminologies, and practices.”
Theoretically, cross-border hiring is very tempting in that it gives access to a vast network of candidates that can truly bring a global outlook, skills, and diversity to the team.
However, in practice, hiring internationally isn’t as simple as posting a job advert, interviewing international applicants, and shooting them an offer letter.
“Hiring people in other countries by yourself is very difficult. You not only have to consider payroll and benefits rules, but you also have to think about compliance.
“Are you legally allowed to hire that person? If you don’t own an entity in that country, the answer is probably no. Hiring people as contractors can open you up to all sorts of legal problems as well.”
For the payroll function, specifically, the ramifications are direct.
Payment processes have to be compliant without becoming a regular red tape navigation sport. This is where specialist HR platforms are helpful.
“This begins with payroll, where companies have to consider compliance and taxation requirements in each country where team members are based.”
Payroll solutions & technology
Allied Market Research shares that the global cloud-based payroll software market is estimated to reach $10.33 billion by 2023.
Platforms like Oyster, Remote, Boundless, Papaya Global, Globalization Partners are taking care of payroll management so companies of all sizes can employ and pay people in other countries legally and easily.
The other solution is in the form of a professional employer organization (PEO) that works in a co-employment model. In such arrangements, organizations can lease the employees to the PEO.
PEOs also take away the compliance, payroll tax, reporting, and other burdens from companies. The choice between these two broad alternatives depends on the scale and size of the employer organization and their needs.
In Remote, for instance, there are customizable built-in incentives and reimbursements options, options for recurring invoices for contractors within the software and customized services for large teams.
Oyster offers contract templates that are fully customizable, allowing companies to adapt them to suit the needs of their business, in addition to time-off management for both full-time employees and contractors.
Introducing pay parity
How long before pay parity becomes an integrated part of the technology that’s aiming to provide payroll solutions for a distributed workforce?
Remote’s public handbook has extensively detailed how they arrive at compensation figures and how they handle the payments.
The same philosophy extends to its platform, while at the same time giving its users the opportunity to customize features, with the intention “to democratize access to opportunity for employees and access to talent for companies, and the belief that doing so means paying people fair wages for their work.”
This takes us back to the initial discussion about salary calculators: is location-dependent pay good for employee morale? Can location-agnostic pay be sustainable for the hiring organization?
Black shares about Oyster: “Our platform gives companies the freedom to implement pay policies such as location-agnostic pay, if that is their preference.”
Since hybrid and remote workplaces are still finding their ground, it remains to be seen what gets accepted as a fair practice.
“As our customer base continues to grow and our platform expands, we’re excited to learn more about trends, both positive and negative with regards to equality of pay. In time we’d like to share that data with the world in service with our mission to create a more equal world by making it possible for companies everywhere to hire people anywhere,” shares Black.
An integrated HR tech future
Outplay’s Bhavya Arora uses Employer Advantage to help her with the payroll management for cross-border employees, but an integration of the various HR tools would help make the process more seamless.
“A simple HR tool that complies with regulations, but one that can be integrated with my HRIS (Human Resources Information System) and ATS (Applicant Tracking System)…so I can move an applicant from the interviewing stage to the onboarding and payroll easily,” she says.
Leveraging the right mix of technology solutions and local expertise together can help HR teams stay on track with their compliance needs as businesses scale up.
Remote already has an answer in the making in the form of their Global Employee API, which, according to van der Voort, “will allow providers of HR solutions to add Remote’s employer of record and other global employment services to their platforms. That will be a huge help for companies looking to employ people in other countries without adding more tools.”