5 Questions to Ask When Paying Employees
Paying employees in local currencies is one of the most expensive yet most overlooked issues for global companies. Without careful planning, you could end up paying thousands of dollars in exchange rates and bank transfer fees while burdening your payroll and treasury departments with manual, tedious processing work.
In our experience, international currency confusion is usually avoidable by simply educating yourself and adopting some best practices. Here are the right questions to ask.
What’s your exposure
First, quantify your exposure by calculating on an aggregated level how much payroll funds are you transferring overseas when the payroll payments are sent? Can you compile, analyse, and forecast your foreign exchange international payments to employees? How well equipped are you to respond to market volatility? The right currency exchange or international expansion services provider can help you ask the right questions, and better understand your next steps.
What are the fees
There can be more to your transaction than just the transfer fee – quite often companies are surprised when they find out about the possible additional charges and exchange rate markups. Additionally, ensure you are ready to scale. The same arrangement that works for six to eight international payments, maybe come prohibitively expensive when your company scales and you have more than 50 international payments.
What is the exchange rate
As a rule of thumb, always negotiate and shop around for the best rate. Most banks and wire services may charge up to, and sometimes over, 3% of the exchange rate. A cheaper alternative is to seek the assistance of a currency exchange specialists who uses proprietary technology that is focused solely on transferring money abroad. Bottom line – do your research and shop around.
How fast is money reaching your employees
Same-day or next-day payments are a global standard. However, delivery times can increase if you are paying to specific markets, for example, China or India. Make yourself aware of the economic status, statutory rules, and general business climate before committing to employees.
Do you have a hedging strategy
Compensations vary widely across geographies and may fluctuate in exchange rates, which makes handling payroll and forecasting payroll costs even more complicated. In cases where the exchange rate fluctuations are in your favor, a specialist can help you lock in these savings for up to a year with a forward exchange contract (FEC). This is an arrangement to secure the current rate and use that rate, up to the quantum value of the contract, for up to a year. A company purchases a fixed amount of currency at the current exchange rate but takes delivery of that currency at a later date.
The information shared in this article is general information only and not professional or legal advice. If you would like more information on global payroll, please connect with us at email@example.com or call +1-408-913-9130 to speak to our experts.