Global Payroll Laws Finance Leaders Should Know About
Global opportunities mean organizations will want to face challenges, such as payroll compliance, head on.
According to EY, almost 75 percent of global business leaders say they need more insight into "understanding and managing global compliance risks." They reported the level of risk around payroll withholding, social security and employment law — all areas that directly impact payroll compliance — as "considerable." With laws and regulations becoming more complex, it's not surprising that global business leaders desire more insight into these laws — not just for effectiveness, but also for compliance.
Not only are the laws complex, but they're in constant flux. Finance leaders, payroll managers and HR must be aware of laws at the national and local level. For example, ADP notes how India is a federal union comprised of 28 states, and each state has its own labor laws for purposes of payroll compliance and adherance to other employment laws. China has 32 provinces and 288 cities, with each city having its own payroll laws and filing requirements. With these global disparities in mind, here are a few notable global laws that could impact your payroll:
General Working Conditions
- Working Time Directive (WTD): In the EU, the WTD protects workers' health and safety by requiring organizations to meet minimum standards, such as limits to hours worked in a week (no more than 48 on average, including overtime), paid annual leave of at least four weeks per year and a minimum break period of 11 consecutive hours in every 24-hour period, according to the European Commission.
- Labor Law of the People's Republic of China: The Labor Law of the People's Republic of China covers employment contracts, wages, hours, labor disputes, working conditions, welfare and overtime, according to the Commission on China.
Payroll Taxes
- Federal Insurance Contributions Act (FICA): In the U.S., FICA is a mandatory taxfor Social Security retirement (12.4 percent of wages) and Medicare (2.9 percent of wages), according to the IRS. These amounts are paid half by workers and half by their employers. Workers who earn more than $200,000 are taxed an additional 0.9 percent Medicare surtax, notes the IRS.
- Federal Unemployment Tax Act (FUTA): In the U.S., FUTA is a federal tax funded by employers. It works in conjunction with state unemployment systems, as noted by the IRS. Employers can claim credits if they paid state unemployment tax (if they meet the requirements of timeliness and before the due date of the FUTA tax return).
Payroll Administration
- Sarbanes-Oxley Act (SOX): In the U.S., SOX establishes financial accounting standards for US-based public organizations to restore investor confidence.
- The United Arab Emirates' Wage Protection System (WPS): The United Arab Emirates' WPS applies to all employers and protects employees' wages by requiring salary payments to be paid via a selected financial institution, according to the International Labour Organization. This allows the Ministry of Labor to monitor salary payments from employers for default.
Mergers and Acquisitions
- Acquired Rights Directive (ARD): In the EU, the ARD protects workers employed by organizations that have a history of participating in mergers and acquisitions. This directive gives these workers the opportunity to change jobs at the same terms, as noted by the International HR Adviser.
Data Protection
- General Data Protection Regulation (GDPR): In the EU, the GDPR was designed to be the most significant change to EU data protection in three decades, becoming effective on May 25, 2018, according to EUGDPR.org.
Global opportunities can present a tremendous chance for your organization to grow. When expanding into other jurisdictions, however, finance leaders should do their best to be keenly aware of the impact of each region's employment and labor laws to both ensure you can manage that growth as smoothly as possible and keep your organization compliant throughout.
