Founder and CEO of Global Squirrels, a complete SaaS platform for international remote hiring and payroll management.
As companies look to establish a more agile, diverse and global work culture, I’ve seen a growing demand for cross-border payments.
A recent survey indicates that about 64% of employers based out of Europe are keen on hiring international employees. Yet, three out of four employers reported that they are facing issues while hiring people from other countries—with 47% of issues linked to payroll processing and salary disbursal.
As someone who works with building and managing payrolls for overseas teams, I hope to shed light on the various modus operandi for making cross-border payments and some of the complexities involved in doing so.
The Options Available For Cross-Border Payments
A cross-border payment is a financial transaction that has happened between two different parties (payer and receiver) that are situated in two different countries. Such parties can be anyone: individual to individual, company to company, company to individual, etc.
Out of all the direct/indirect channels available to make cross-border payments, here are the most popular options available in the current market.
International Wire Transfer
International wire transfers are generally powered by a financial institution called the SWIFT network. This is the most popular medium of cross-border payments as this network creates a unique identifier code for every recipient and shares the same with the banks that support international payments.
Prepaid Payroll Cards
Some companies offer certain value-loaded cards to their employees, which can be used like debit cards to make purchases or withdraw cash from ATMs. Though they are not accepted in all countries, these prepaid payroll cards are an alternative option for cross-border payments.
Paper Checks
Even with their decline and the rise of digital banking, many think paper checks are the most economical mode of international money transfers. With this mode, you simply write the recipient’s name, address and the amount to be withdrawn on a paper check and send it via mail. Though the process looks cheaper, it is prone to many delays and subsequent fraudulent activities.
Digital Wallets
Known for their speed, convenience and cost-effectiveness, digital wallets are among the widely used solutions for cross-border payments. PayPal, Apple Pay and Google Pay are a few of the examples of international digital wallets. As they are comparatively new to the market, some recipients may find it difficult to redeem or withdraw the amount loaded in their wallets.
PEO/EOR Platforms
Professional employer organizations (PEOs) and employer-of-record platforms (EORs) can help ensure fast, secure and affordable cross-border payments, and they are considered to be more reliable than other payment methods since they can mitigate the risks surrounding currency conversions, taxes and deductions.
A reputable PEO/EOR platform should also take care of all the compliance documents, employment laws and statutory regulations of the countries you are dealing with.
Challenges While Making Cross-Border Payments
All above discussed transborder payment methods create problems in one way or another due to the complexities that global payments expose you to. Let’s discuss the most common challenges that I think you should be aware of when making cross-border payments.
Chain Of Intermediaries And Associated Costs
Cross-border payments have to pass through many intermediaries in order to reach the recipient. Every intermediary service provider will charge a certain transaction fee for lending support and ensuring a smooth transaction. Most of the time, these charges range from $50 to $500, which proves costly for the employers on top of the actual payroll cost.
Currency Conversions
Most employers aspire to pay their international employees in their local currencies. As these currency exchange rates are ever-changing and incur additional charges, it can become a pain point for companies who are dealing with cross-border payments.
Laws, Taxes And Mandatory Payments
Taxation rules, employment laws and government regulations may vary from country to country. In my experience, it can be very difficult for employers to carefully study and address all such rules and regulations.
Employers must know how much tax to be deducted from the employee salary, how much to pay the government and how much to credit to mandatory savings/pension scheme accounts. Failing to abide by these rules, taxation systems and other regulations might cost employers huge penalties.
Slower Payments And Security Threats
Another problem while making transborder payments is the speed of the transaction. Due to several issues such as time zone differences, document verifications and payment authentications, international payments tend to take more time than local transactions. As these transactions travel across many intermediaries, they are prone to several security threats.
Best Practices For Making Cross-Border Payments
First, I recommend you look for whichever setup includes faster payments. When you make cross-border payments, you cannot afford any delays in account setup and payment processing. I recommend shooting for less than 48 hours to set up and initiate cross-border payments.
Also, look to the security and transparency of your payment process. Do not enter into any agreements if the payment option is not transparent enough or lacking in any details.
Amid various international payment methods available in the current market, all with their own advantages and disadvantages, it is crucial for companies to carefully evaluate and choose the one that can make their job easier and help them continue to expand their global workforce.
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