As an HR leader, there are a lot of things to like about your organization’s long term prospects with remote work.
For instance, you don’t have to worry about geographical locations and you can hire a talented workforce to help build the company’s vision with you.
As good as that sounds however, there’s one complicated stumbling block: paying your remote workers.
While you can theoretically hire people from anywhere, managing payroll for a remote team is more challenging than a traditional in-house team. This is because you must account for local labor laws and employee deductions when creating your payroll strategy.
This article will show you why it is important to have a remote work payroll strategy and provide you with tips on how to set your remote team’s payroll up for success.
What is the cost of poor remote work payroll strategy?
In the Mercer Global Talent Trends report which surveyed nearly 11000 HR leaders globally, workforce planning and rethinking compensation practices were the second and fourth priorities for HR leaders.
Being an HR leader yourself, you must surely appreciate why this is the case. In a world where remote work is becoming more commonplace, organizations that want to embrace this new wave must go back to the drawing board and review how their team is built and compensated.
What happens if they don’t?
- They lose control of their salary budget
When you run a remote team without a clear remote work pay policy, you run the risk of seeing your cost of employment get out of control.
A well thought out remote work strategy provides you with benchmarking direction. You know what to compare your current salary spend against to keep track of your budget. Without this strategy, you can never really be sure if your employment costs are a good investment.
- They face rising resentment within their workforce
Employees talk to one another, it doesn’t matter if they are remote or in-house. If your work pay policy favours a specific group of employees because of where they work from and word of that gets out, it is likely that resentment will grow among staff.
But it won’t just stop at resentment. You might also see a drop in productivity, due to some employees feeling cheated on. Some of them might even be forced to walk out the door which means that you must funnel all that money you “saved” from cutting salaries into finding new employees.
And as you must already know, hiring new people is more expensive than it looks.
- They open themselves up to legal risks
It is impossible to create a comprehensive compensation plan without considering the legal implications of your payroll processes.
A poor payroll policy might see you neglect local labor laws and tax obligations which will make your organization vulnerable to legal disputes and financial obligations.
Creating a remote work payroll strategy
Unsure about how to create a remote work pay strategy that benefits your People and the organization? There are two main remote work compensation strategies used by organizations around the world that you can model.
- Tie employee compensation to their remote location, or
- Compensate employees based on their credentials
Tie employee compensation to their remote location
This is the most popular strategy–tying your compensation packages to your employees' geographic locations.
One reason why this is popular is because it takes into account the cost of living differential in various locations. Let’s say you have two employees that work the same role but from different places, you offer them different compensation packages that reflect the cost of living of where they choose to work from.
Facebook uses this model to pay its employees. As reported in this article, Facebook employees can request permanent full time remote work, regardless of their level. But they should also expect adjusted salaries based on the market rates in their remote location.
Compensate employees based on their credentials
Your compensation strategy could also be location-agnostic. In this case, you reward your employees based on their experience, skills, and value they contribute to your organization.
This means that employees working the same role will be compensated with the same rate, regardless of where they work from.
These two compensation structures come with their downsides. If your strategy is location-based, then you’ll miss out on talent that are willing to work with companies that pay a higher salary for remote workers.
And if you go the location-agnostic route without any consideration for the living costs of some of your employees, you will most likely witness rising resentment among your People. That’s why the best bet is often to figure out a hybrid model.
It starts by having a serious discussion with relevant organization executives to answer the question, “How can we ensure equitable pay and promotions if our workers do not all work from the same place?”
Ensuring payroll compliance and legal obligations
Compliance is difficult enough when running payroll for a traditional in-house team. But when you run a remote team, the challenges are more.
Employees are liable to pay taxes to the countries in which they work. Now, the rules that state how these taxes are remitted may differ, depending on the country or state, which can open you up to legal penalties.
Here are some best practices for shielding your organization and employees from these penalties.
Classify your remote workers properly
There are two distinct classes of workers: Independent contractors and employees. It is important that you properly classify your workers as one of these two when you enter a contract with them.
An independent contractor is a self-worker that serves you through their own business. This person is different from an employee that serves you as part of your own business. The difference between these two classes usually depend on the level of control wielded over the worker and a contractual agreement.
Penalties for misclassification of remote workers can come in the form of:
- Penalties for failing to withhold and deduct taxes for misclassified employees
- Collection of unpaid wages for hours worked
- Having to deal with back taxes
- Punitive damages from potential lawsuits
Pen down important deadlines for payroll process for the entire year
As tricky as payroll compliance is, you have at least one saving grace: all the necessary dates and deadlines are known.
This makes it possible for you to plan your payroll schedule ahead of time and stay clear of FRIS penalties.
Some important dates for you to take note of:
- Payday: Depends on your organization
- PAYE Returns: 10th of every month
- Withholding Task Report: 21st of every month
- Value Added Tax Report: 21st of every month
Be clear on your payroll policies and procedures
The backbone of your payroll process should be built on proper policies. Your policy should cover:
- Payment schedule
- Payroll deductions
Apart from policies, you should also let everyone know what payroll processes are to be followed at every stage of your payroll process.
This should include:
- Pre-payroll preparation
- Payroll computing
- Post-payroll preparation
You can automate your payroll policies and procedures with Pade. This helps your team stay put away repetitive tasks and calculations, and focus on more impactful initiatives.
2 ways to pay your remote team
Here are two ways with which you can pay your remote team:
- Outsource your organization’s payroll to a payroll agency
- Use a payroll processing platform
Outsource your organization’s payroll to a payroll agency
A major attraction of outsourcing your organization’s payroll to a third party service is that it takes a huge risk off your plate.
A payroll agency will help you run your payroll, compute your taxes, and ensure that you stay compliant as your team grows.
Outsourcing your payroll makes a lot of sense if you do not have the in-house expertise needed to ensure complete payroll compliance.
But it comes with its downsides. Apart from high costs, you also cede control of your payroll processes to a third part. This means an increased threat to your confidentiality.
Use a payroll processing platform
If you can’t handle the confidentiality risks associated with outsourcing your payroll services–and you have a capable in-house payroll team–you should consider investing in a payroll processing software.
An efficient payroll platform should allow you to create custom payroll workflows that takes into account taxes and payroll laws of your remote employees location. You will be able to run payroll, manage benefits, and support your remote team from anywhere they are.
Implementing a remote work policy might be your company’s newest competitive advantage in the talent market. If that’s the case, payroll–as complicated as it is–shouldn’t be holding you back.
Pade’s payroll engine is trusted by organizations such as Flutterwave, TSL, and Dantata. So if you’d like to see how we can help you streamline your payroll operations, book a consultation with one of our payroll experts today.