According to the World Economic Forum, between now and 2020, Africa is set to become the world’s second-fastest growing region after Asia. This growth will primarily be driven by rapid urbanisation, a large working-age population and accelerating technological change. The continent’s economic potential is already attracting increased foreign business interest as multi-nationals compete for new opportunities overseas.
“Managing expats and remote staff in Africa can be challenging, but with the right technology it can be done efficiently”
When a company chooses to expand its operations into Africa, it invariably comes face to face with many new and unfamiliar laws and regulations. To help establish offices in the new markets as quickly and efficiently as possible, existing employees are typically sent across from the head office and local staff are hired. Managing this can present some significant challenges not least of which can impact global payroll processes and affect employees’ salaries.
Here are the main issues global payroll managers have to deal with when managing remote staff across Africa – and how they can overcome them.
Some countries may have similar laws and tax legislative structures but most are vastly different. Africa is, after all, a continent of 54 countries and does not offer a one-size-fits-all rulebook. An Australian company with remote staff in the Democratic Republic of Congo (DRC), for example, will very likely not be familiar with the country’s specific statutory and regulatory requirements. What’s more, the correct local legislative guidance and information may not be readily available or up-to-date which could cause the company some unexpected and costly delays.
Should your company manage to obtain the local guidelines it needs to get up and running in a new country, it has to make sure that it fully understands – and abides by – the letter of the law. Interpretation, due to language or opinion, can be a costly process that may require multiple legislative inputs. When advisory opinions become ambiguous, it’s advisable to adopt a more conservative approach and seek clearer direction. Failing to do so can lead to interpretation issues that could cause payroll calculation errors and in some cases, severe penalties.
Tax equalisation is the most critical consideration for all global payroll managers. Companies have to make sure that their expat employees are grossing up the correct pay in their home country currency once all the host country tax and social security deductions have been made. No employee should ever ‘earn less’ when working abroad and something as simple as a currency exchange rate can short-change an expat employee’s pay package quite significantly.
A ‘mixed bag’ or multi-country salary profile can complicate the matter even further. In this instance, statutory deductions on certain benefits in kind, or allowances, will be for the employee’s account and/or the company’s account as an indirect gross up. The order in which gross ups are calculated in these scenarios, either before or after tax on normal earnings, has a direct influence on the statutory amount that the company is liable for versus the employee.
For example, due to most tax calculations being based on progressive rates based on earnings, if an employee were to obtain a regular host overtime (tax for the employees’ account) and a basic salary that needs to be grossed up (tax paid by company by supplementing extra gross up earnings), by calculating the basic salary first, the company would in certain situations pay less tax. However, if the employer calculates it differently, in effect adding the basic salary to existing overtime the employee could be pushed into a higher tax bracket.
Many organisations are still managing these complex gross up calculations manually. They use excel spreadsheets to input time-consuming iterative calculations that will eventually deliver the required result. An automated global payroll system could work it all out far faster and minimise the potential for human error.
Perks and benefits
Expat salary packages can be used as a talent attraction tool to differentiate your company from your competitors and will often include in country benefits such as housing or travel allowances. These perks will have to be calculated correctly under the local host country laws, so as not to negatively impact an employee’s final net salary. It’s up to your company to decide whether it should ‘pick up the tab’ for these additional benefits and thus process them according to the correct local tax legislation.
Complicated leave requests
An expat employee’s contract usually includes a leave allowance that affords the employee a certain amount of travel back to their home country during the contract period. However, they will receive other time off in addition to this return trip home. Managing all these dates can be a challenge when various geographies are involved.
However, if employees have access to a self-service platform they can manage and book their leave dates directly with their managers who may be based in other countries. The self-sufficient process is much simpler and global payroll managers will no longer have to personally manage this administrative headache, freeing them up to focus on more mission critical tasks.
An expat employee has to be compliant, from both a tax and legislative perspective, in their host country as well as their home country. The challenge becomes even more pronounced when, for example, they move from the Johannesburg office to the Nairobi office in the middle of a financial year. In cases like this, correct personal and company statutory declarations and submissions are compulsory in all locations and can become very complex to get right. Global payroll will need to calculate legislative implications of one home country and two host countries and provide the employee with the relevant tax certificates and payslips in each currency – while still ensuring that the employee’s earnings are unaffected.
Managing expats and remote staff in Africa can be challenging, but with the right technology it can be done efficiently. When sending employees to work in your African offices make sure you know what each country’s legislative and tax requirements are and that you have a system in place to help you ensure compliance. This way your company can expand successfully across the continent, unhindered by HR and payroll complications.