THOUGHT LEADERSHIP REPORT

Transcription

1 THOUGHT LEADERSHIP REPORT PAYROLL IN ASIA 2015

2 INTRODUCTION Payroll covers all aspects of paying a company s employees. This includes making sure that salaries are paid in the correct amount and on time, that income tax is withheld, and that social security contributions are made. Underpaying a valued team member by accident can impact staff retention. Paying salary to an employee that has already left is equally problematic, though for different reasons. One would be surprised to learn how often these issues occur, or more shockingly, how often employees are involved in defrauding these funds. With a region as fast-paced and dynamic as emerging Asia, regulations affecting payroll change quickly. If one does not closely follow these developments, it s easy to miss an update and suddenly fall out of compliance. In this way, a minor oversight can have major ramifications. Depending on the jurisdiction, strict fines may be imposed for incorrect or late payments of individual income tax withholdings, or social security contributions. At the same time, payroll is a tedious task that can distract from the organization s main purpose. Especially when a company is quickly expanding its operations across different countries, it may not be the best use of time to have the local manager personally handle payroll transactions. Outsourcing payroll then offers a solution. It takes valuable time off the hands of local managers to have these processes automated. Entrusting the matter to an experienced payroll outsourcer also reduces the risk of error and non-compliance. Additionally, when payroll is handled externally, reports can be sent directly to HQ, ensuring confidentiality of sensitive information. This is where a pan- Asian vendor becomes interesting as well. Instead of having separate reports from a host of different jurisdictions, these can be collated into a single report, making it easier for HQ to keep the overview. ALBERTO VETTORETTI Partner Dezan Shira & Associates

3 LABOR COSTS ACROSS ASIA The below graphs provide a quick impression of labor costs across Asia. The first shows the breakdown of the various aspects that make up the cost of one employee, as well as how much net salary an employee gets to take home. The second compares wages in several emerging Asia localities. TOTAL LABOR COSTS TO EMPLOYER GROSS SALARY Minimum IIT Maximum IIT Net salary Social security contribution (Employee) Social security contribution (Employer) Shanghai, China* 3% 45% 17.5% 42% Tianjin, China* 3% 45% 22-26% % Dongguan, China* 3% 45% 14-29% 19-35% India 0% 30% % % Vietnam 5% 35% 10.5% 22% Singapore 0% 20% 5-20% % Hong Kong 2% 17% 5% 5% * In China, social security contribution rates are set at the local level. Unit: US Dollar 4000 WAGES & GDP PER CAPITA ACROSS EMERGING ASIA Minimum wage per month Average wage per month GDP per capita per month $ $3455 $ Source: CapitalVue $1310 $880 $325 Shanghai, China* $1340 $950 $755 $405 $300 Tianjin, China* $245 Dongguan, China* $287 $262 $141 (unskilled) $156 (semi-skilled) $1000 $172 (skilled) $211 $428 $172 $142 $142 Delhi, India Ho Chi Minh City, Vietnam Hai Phong, Vietnam Long An, Vietnam $170 $168 $126 N/A Singapore Hong Kong $ THOUGHT LEADERSHIP REPORT ON PAYROLL IN ASIA

4 DEVELOPMENT OF A FOREIGN COMPANY S ASIAN OPERATIONS STAGE 1 1 COUNTRY, 10 EMPLOYEES: CONFIDENTIALITY IS CRITICAL Rapidly developing rules and regulations Overseas HQ China No internal HR: not feasible at this stage HQ unfamiliar with local regulations Subsidiary Language and cultural differences; time zone differences SOLUTIONS Early into a company s expansion into Asia, the usually small team won t have a dedicated internal HR manager. At the same time, the foreign parent will be unfamiliar with fast-changing local labor regulations. Payroll services can assist the company with most HR and payroll functions, reporting back to HQ in English. Some work however will still need to be done manually. THOUGHT LEADERSHIP REPORT ON PAYROLL IN ASIA

5 DEVELOPMENT OF A FOREIGN COMPANY S ASIAN OPERATIONS STAGE 2 2 COUNTRIES, 3 OFFICES, 80 EMPLOYEES: COORDINATION BETWEEN OFFICES IS KEY China Impractical and dangerous to rely on 1 person Overseas HQ Regional HR Manager Regional HQ As Asia operations expand, efficiency and coordination between offices become key. SOLUTIONS Laws and regulations differ per country. Chinese HR manager will be unfamiliar with these. Language and cultural differences While the organization will often have a regional HR manager, the company s HR and payroll situation will have increased in complexity, especially when new countries are added to the Asia operations. At this stage, companies will often have a payroll outsourcer assist the regional HR manager with administration, as well as a broader range of services for other countries they have expanded into. Having one payroll provider for all of Asia greatly simplifies and streamlines payroll processing and compliance. THOUGHT LEADERSHIP REPORT ON PAYROLL IN ASIA

6 DEVELOPMENT OF A FOREIGN COMPANY S ASIAN OPERATIONS STAGE 3 5 COUNTRIES, 10 OFFICES, 1,000 EMPLOYEES: AS HEAD COUNT STABILIZES, EFFICIENCY CONCERNS BEGIN TO PLAY A LARGER ROLE China Payroll outsourcing used for efficiency, data security and compliance Overseas HQ Regional HR Team Regional HQ Local HR manager India Specialist local HR teams: manage peripheral payroll functions Thailand The Philippines Malaysia Local HR manager SOLUTIONS As the company's Asia presence matures, staff grows less rapidly and head count stabilizes. Payroll outsourcing at this stage of a company s lifecycle in Asia is used more for efficiencies, data security and compliance; less so for the previous reasons. A specialized local HR manager may take care of the more peripheral HR functions. Payroll processing tends to be handled through the company s ERP, with almost no manual intervention. THOUGHT LEADERSHIP REPORT ON PAYROLL IN ASIA

7 OUTSOURCING PAYROLL AND HR MANAGEMENT: Q&A WITH ADAM LIVERMORE WHAT INFORMATION WOULD I HAVE TO PROVIDE TO A PAYROLL OUTSOURCER? This depends on what information one expects from the payroll provider. A key maxim in payroll (which is mainly IT) is garbage in, garbage out. Providing only the most basic data will only enable your payroll provider to make payroll calculations for you, such as salary, leave and bonuses. The more detailed HR information you can provide, the more sophisticated analysis your payroll provider can provide. SUCH AS WHAT? CAN A PAYROLL PROVIDER TELL ME HOW MUCH A NEW HIRE IS GOING TO COST, OR HOW MUCH I NEED TO PAY WHEN TERMINATING AN EMPLOYEE? OR TRACKING EMPLOYEES LEAVE? Mostly, yes. A payroll outsourcer can provide you with estimates of how much a new hire would cost in total. A payroll provider with a presence in multiple countries can for example assist you with determining where actual labor costs would be the most favorable, and provide the information necessary for decision-making. However, costs like terminating an employee, maternity leave or a work-related injury often highly depend on the situation or profile. Some of these considerations fall in the legal realm. Assessing these, and negotiating with employees is a highly specialized task. Leave management is notoriously difficult to control, as there are so many subjective elements involved, making it hard to automate. HOW ABOUT KEEPING TRACK OF CONTRACTS SIGNED WITH NEW HIRES, EXPATS VISA STATUS OR PROBATION PERIODS? These would fall into the area of HR management, a supplementary service to pure payroll outsourcing. HR management also includes staff-related registration with government agencies and other compliance matters. The difficulty here is that the payroll should ideally be processed at a facility quite remote from the office of the client, to maximize confidentiality. Yet, by its very nature HR management is usually managed locally. Signatures of individuals, company chops or visits to government bureaus are often required. Therefore, ideally your payroll provider should have local people on the ground to handle the administration work, while having the more confidential payroll information processed separately elsewhere. WOULD I HAVE TO MANUALLY SUBMIT STAFF CHANGES AND THE LIKE TO THE PAYROLL PROVIDER? For things like staff changes, the payroll outsourcer needs have some way to know you have employees joining or leaving. If you have an internal system that tracks this, it should be able to generate a change information file to upload into the payroll system. Often, the payroll provider will also have such a system for its clients to use. The same goes for expat s visa status. The client has to store visa renewal dates somewhere, and agree with the outsourcer on a way to track this information. One way or another someone inside your organization should be submitting these kinds of details into some platform, ideally subject to an approval process. CAN A PAYROLL PROVIDER ASSIST WITH DOCUMENT RETENTION OR THE HANDLING OF STAFF ACCESS TO DOCUMENTS? For original documents normally the ideal method is to use a specialist storage company. However, the payroll outsourcer s system should have the option of uploading various documents, and install access and security controls for these. Typically, HQ will want to have as much access to information as possible, while restricting certain information to the local team. CAN A PAYROLL PROVIDER ASSIST WITH AUTOMATING SALARY PAYMENTS WITH MY BANK? The more developed countries will allow you to wire a lump sum to the payroll outsourcer and let them handle everything else. However, local laws in less developed countries often don t allow this. A workaround would be to allow your payroll outsourcer to access your online banking platform for certain functions, e.g. uploading a bank transfer file for the payment of staff salary. Then all you ll need to do is approve the payment online. Fewer people within the organization will then be able to see the details in the file. Confidentiality is maintained, and the figures in the file are guaranteed to be correct. ADAM LIVERMORE Partner Dezan Shira & Associates THOUGHT LEADERSHIP REPORT ON PAYROLL IN ASIA

8 GROWING THE ORGANIZATION, EXPANDING ACROSS ASIA As a company s size and operations expand, so does often the complexity of its payroll processes. A foreign company s move to Asia is often coupled with sending one or more expatriate staff to fulfill key roles in the new subsidiary. It is not uncommon for expats to be paid in multiple countries or currencies, such as bonus payments into a separate account in Hong Kong, or social security in the expat s home country. Some of these payments may have to be done manually. They complicate the individual s tax situation as well, as the expat would still be liable to tax over the entire salary amount, often including the part paid abroad. Evidence that payment has been made in the country the expat is placed will also need to be provided to the tax bureau in the country of origin. Both the remuneration payment itself and the tax declaration will require some manual work. Payroll and Human Resource Services Outsourcing of a company s payroll processing ensures accurate, efficient, reliable and continuous service and improves salary confidentiality within the company. By handing this responsibility over to us, our clients streamline their internal HR department workflow and concentrate resources into the core HR roles such as strategy formulation, hiring employees, monitoring employee performance and maintaining successful internal communication. Some of our services include: Payroll Calculation and Processing Labor Contract Draft Staff Manual Draft Social Welfare and Housing Fund Registration Training and Technical Interview for Financial Team Visa Services Please payroll@dezshira.com and hradmin@dezshira.com to schedule a free consultation on. Other Services from Dezan Shira & Associates Pre-Investment, Market Entry Strategy Advisory Asia Business Model Comparisons Business Advisory Corporate Establishment Accounting and Reporting International Tax Planning Treasury Administration Legal & Financial Due Diligence Audit and Financial Review Information Technology-based Solutions Dezan Shira & Associates can help foreign companies in Asia with all aspects of the payroll process. Please visit for a comprehensive list of our professional services. THOUGHT LEADERSHIP REPORT ON PAYROLL IN ASIA

9 CORPORATE ESTABLISHMENT. DUE DILIGENCE. BUSINESS ADVISORY. TAX. ACCOUNTING. PAYROLL. AUDIT. COMPLIANCE