When a company decides to go global (in its operations or in its hiring pool), it exposes itself to multiple controlling bodies. This necessity to comply seems the most obvious. You may think that it all comes down to filling out reports correctly. However, there are real figures behind payroll compliance — that is, payroll expenses.
Payroll expenses are a lot more than wages or salaries alone. The concept encompasses benefits, deductions, overtime pay, taxes and other various contributions. Who pays what depends on location. Understanding these parts and calculating them correctly allows companies to manage their finances effectively. Processing payroll requires collecting and managing data. Interestingly, payroll expenses tend to change frequently.
A distinction must be made between salary expense and payroll expense. Salary expense is purely the amount of money paid to an employee. Payroll expenses are, basically, some amounts of money that a company withholds from its employee’s salary and hands them over to a third party (the government, that is). While payroll expense is a wider range of costs that goes beyond wages and includes payroll taxes and benefits. Payroll expenses apply to employers, employees, and contractors.
Employers withhold some amounts of money from employee’s paychecks to pay taxes. Namely, they are state income tax, medical insurance and social security. Payroll tax is different across countries. For Europe, it starts at 23%. In the post-Soviet territory, it is on average 15%. In Asia, the gap is huge, from 17% in Hong Kong and Singapore and to 45% in China. As for benefits, it is also region-bound. For employees, it means there is a certain amount of salary that is withheld and counted towards pension, medical insurance and social security. For contractors, benefits may be calculated differently, in the form of reimbursement, for example. With freelancers, income tax management is solely on them. There are, of course, details for how contractors need to prove their legal status.