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Define and Conquer: Overcoming Payroll Payments Challenges

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Albert Einstein was, among other things, what journalists would call “a good quote.” He had a knack for coming up with witty yet profound one-liners, many still applicable to different fields. In business, Einstein quotes are often brought up in the context of problem-solving. And one of his most repeated lines – “If I were given one hour to save the planet, I would spend 59 minutes defining the problem and one minute resolving it.” – perfectly describes the challenge of making payroll payments to employees in different countries.

A multitude of potential challenges comes into play when companies pay their global workforce. Some prime examples include:

  • Late payments
  • Inaccurate payments
  • Payments not marked as salaries
  • Foreign exchange payroll leakage
  • Working capital under stress

But only when you manage to define these challenges properly can you overcome them. It starts with the fundamental problem of global payroll payments: payroll and payroll payments are not two separate processes; they are a single process that has been split because payroll providers prefer to outsource the payments to all-purpose payment companies rather than develop payment capabilities.

All-purpose payment companies use rails that were not designed for payroll payments, causing a great deal of friction throughout the process. So, as is often the case, defining the problem properly reveals its solution: payroll needs dedicated payments technology. Building on that, we’ve broken down the main challenges of global payroll payments – and how to overcome them.

Late payments

The challenge: currently, payment providers focus on the “send date,” e.g., the date the money is taken out of the account and enters the payment rails. Unfortunately, they don’t account for possible delays en route, which often lead to late payments.

Overcoming this challenge requires a different approach – to payroll payments and technology alike. Papaya Global, the only global payroll platform with embedded payments, shifts the focus from “send date” to “land date,” that is, the date the money must land in the employee’s account. Our advanced technology handles the reverse calculations, considers legal holidays and other possible delays, and ensures that all remittances are delivered on time – every time.

Inaccurate payments

The challenge: all-purpose payment companies typically don’t have a global payment network, relying instead on rails littered with multiple intermediary banks, each of which charges a processing fee. These fees are usually deducted from the employee’s salary, resulting in inaccurate payments.

Using payroll-dedicated rails, like the ones Papaya Global designed and built, solves this problem. Our rails rely on partnerships with Tier 1 banks such as J.P. Morgan Chase and Citibank, ensuring that all fees are known in advance. This allows us to guarantee full value transfer, meaning your employees receive every cent they are entitled to.

Payments not marked as salaries

The challenge: many payment services fail to mark payroll payments as salaries upon delivery. This can significantly slow down the screening and clearing processes and create credit score issues for employees.

When payroll and payroll payments are unified under one operating system like Papaya Global, funds are always accurately marked on arrival, allowing banks to correctly classify them as salaries or tax withholdings. In addition, the compensation will be attributed to the ultimate debtor – the employer. In other words, your employees will see your company as the paying entity, not Papaya, an intermediary bank, or any other third party.

Foreign exchange payroll leakage

The challenge: according to an analysis by Deloitte, the cost of payroll leakage can be as high as 2.5% of labor expenses. For companies with a global workforce, a big chunk of this revenue loss can be attributed to currency fluctuations during the remittances process.

Papaya’s technology addresses this challenge by running constant “dry run” simulations to identify any obstacles that could increase costs. Our transfer processing algorithm accounts for exchange rate fluctuations as late as possible in the payment process, reducing currency conversion costs to a minimum.

Working capital under stress

The challenge: payment companies typically demand deposits as high as 30% of the payroll run to cover all the extra fees the payments gather on their way to your employees’ accounts. Moreover, they require that you reserve your funds early in the payroll cycle, tying up working capital unnecessarily.

With Papaya, the process is designed to maximize your working capital. Since no surprise fees accumulate along the rails, you can fund your payment accounts much later in the payroll cycle – usually 7-10 days later than other payment providers – and put down smaller deposits. That means more money stays in your hands for longer, so you can do more with it.

It’s a different way of doing things, to be sure. Which brings us back to another famous Einstein quote often brought up in business: “We can’t solve problems by using the same kind of thinking we used when we created them.”