North America’s Cross-Border Payroll Dynamic: Part of Global Payroll’s Growing Trend

The United States and Canada, two economic powerhouses in North America, have become focal points for companies looking to establish a global presence. The cross- border dynamic has long been a factor for both countries.

National Payroll Institute research over time reflects that cross-border payroll between the United States and Canada is the most significant global relationship by a large factor. Therefore, worth exploring is the increasing trend of companies with payrolls in both the United States and Canada while also delving into the considerations and challenges they face as they transition towards a global payroll approach.

The Rise of Cross-Border, Global Operations

As businesses strive to tap into diverse markets and leverage talent worldwide, many are establishing subsidiaries or branches in key international locations. With their robust economies, skilled workforces, and stable business environments, the United States and Canada have become preferred destinations for expansion. The cultural similarities and geographical locations have made this a long-standing reality for decades in both countries. In addition, companies across various sectors, including technology, finance, manufacturing, and retail, are setting up shop in these North American countries to access new markets and benefit from the economic strength. All one has to do is look at the examples of companies that have had that cross-border presence for decades, such as Home Depot, Blackberry, McDonald’s, Lululemon, Shopify, and Uber.

Global Payroll Considerations

Managing global payroll involves navigating a complex regulatory landscape with various tax structures and diverse labor laws. For companies operating in the United States and Canada, understanding and adhering to distinct payroll regulations in each country is crucial. To further add to the complexity of administering payrolls, many U.S. states and Canadian provinces have unique legislation that are specific to those jurisdictions. Compliance with tax codes and legislation, wage laws, and benefit requirements is essential to avoid payroll compliance complications and financial penalties that canbe extremely costly for organizations. Just ask organizations that have operations in the Canadian province of Quebec how additionally challenging it is having a payroll in that jurisdiction.

Furthermore, the adoption of technology plays a pivotal role in streamlining global payroll operations. Integrated payroll systems that can accommodate the intricacies of different regions while maintaining accuracy and compliance have become critical to the successful operation of these organizations. Observing businesses that have not taken an integrated approach to payroll technology used to pay employees has demonstrated inefficiencies,

disconnections, and significantly increased costs in how payroll is delivered. It can also provide a less than ideal customer experience for employees who are trying to understand their paychecks, especially when there are changes. It has become paramount that cloud-based solutions and globally-focused software platforms offer the best options for the flexibility and scalability needed to manage payrolls efficiently across borders.

Another factor to consider is the fluctuation in currency value, which also presents challenges for those organizations paying employees in a particular currency (other than that of their home country). This is particularly true for those employees working remotely, which provides for a whole additional consideration for payroll administration. Companies must factor in exchange rate risks and implement strategies to mitigate any potential financial impacts,

which can involve setting up shadow payrolls, monitoring currency trends, using hedging mechanisms (although this often falls to finance), and adapting payroll processes to minimize exposure on all of these elements. Of course, the most straightforward scenarios are those where payroll is delivered to an employee in the country in which they operate, in that local currency, to a domestic bank account. But if we look to the United States and Canada experience where exchange differential is significant and can fluctuate over time, this needs to be a key consideration in operational and payroll delivery.

Global Payroll Benefits

Despite challenges, there are a significant number of organizations that operate cross border and globally that stand to gain numerous benefits from adopting a global payroll approach. Consolidating payroll operations across different regions can lead to considerable cost savings through efficiency improvements and reduced administrative overhead. Streamlined processes and the employment of best practices also contribute to increased accurate, compliant, and timely payrolls, thereby mitigating risk, reducing errors, and limiting legal issues.

A unified approach to the delivery of payroll through an integrated human capital management (HCM) system enhances reporting capabilities, providing a company with a comprehensive view of labor costs and financial management implications across the entire organization. This approach is invaluable for strategic decision making, resource allocation, and overall financial management.

Preparing Organizations for a Cross-Border, Global Payroll

Given the increased scope and changing nature of the role of payroll with respect to dealing with payrolls in other countries, there are ways that organizations and payroll professionals can prepare themselves for the impacts.

Organizations such as PayrollOrg and NPI have broad resources, tools, and certification programs that can prepare them for these challenges. Obtaining the U.S.-based Certified Payroll Professional (CPP) or Canadian Payroll Compliance Professional (PCP) designation can be a huge benefit to understanding how payroll works in those respective countries. There are many payroll professionals that have both their CPP and PCP, which makes them invaluable to those organizations that have United States and Canadian payrolls.

As the trend of companies establishing payrolls in the United States and Canada continues, along with the expansion towards a global payroll model, it reflects the evolving nature of business and how the post-pandemic world is one that is less about borders and more about how the world is becoming a smaller place. Challenges will continue to present themselves, but the benefits of streamlined operations, cost savings, improved visibility, and the value of payroll education make the transition to a global payroll system a strategic move for companies with cross-border or international aspirations. The navigation of complexities in how payroll is delivered when organizations operate across borders is always going to be a critical consideration, but investing in robust payroll solutions and the people who know the intricacies of delivering payroll by staying abreast of regulatory changes will continue to be pivotal to ensuring success in the global marketplace.

Steven Van Alstine, PLP, CAE, is the Vice-President, Professional Standards and Education at the National Payroll Institute and is considered one of Canada’s foremost subject matter experts in Canadian payroll legislation, education, and training. He currently oversees NPI’s Professional Accreditation and Learning and Professional Development teams, and is also a member of PayrollOrg’s Board of Contributing Writers.

Based in the United States, PayrollOrg (PAYO), www.payroll.org, is the leader in payroll education, publications, and training. This nonprofit association conducts more than 300 payroll training conferences and seminars across the country each year and publishes a complete library of resource texts and newsletters. Representing more than 20,000 members, PAYO is the industry’s highly respected and collective voice in Washington, D.C. Get more1 information at www.payroll.org.

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