Designation refers to the type of classification used for accounts and transactions, including transaction type, level of risk, and regulatory requirements. In the context of global payroll, it can also be used to classify employees and contractors based on factors like employment status and location. An employee working in a foreign country may be designated ‘expatriate’, for example.
On the payment service side, payment platforms may use designation to classify transactions such as ‘recurring’ or ‘one-time’.
How does designation work?
The process behind designation differs depending on context. Overall, it may involve steps like identifying the nature of the payment, reviewing transaction details, and determining the purpose of the payment.
In terms of global workforce payments, the designation process can get a bit muddier than usual. That’s because a lot of companies with global operations are relying on manual input, outdated tools, or unsophisticated global payment service providers.
Still, the process tends to look something like this:
- Identifying the location and status of the worker who’s being paid and taking into consideration factors like tax status and other things that may impact the payment.
- Determining the right designation, including looking at criteria like local tax laws and employment regulations.
- Classifying what type of payment it is; whether salary, bonus, or relocation allowance.
- Managing the payment in accordance with relevant rules and regulations.
- Reviewing and updating designations constantly to ensure you’re keeping up with regulatory changes that can impact employee payments, like tax laws and employment regulations.
- Reporting the payment to the necessary regulatory bodies is a must to end the process. This can include filing tax forms or other documentation.
Common challenges with designation
- Designation can involve a whole lot of complications if not managed properly. This may include:
- Misclassification: Assigning the wrong designation can result in problems like inaccurate tax reporting and compliance issues.
- Regulatory changes: Improper tracking can make it hard to stay in the know regarding regulatory changes. If these aren’t followed correctly, legal and financial implications can ensue.
- Inflexibility: Designations tend to be based on specific criteria. This can make it hard to adjust designations to changes in circumstances, like industry or employment status.
Designation with the right global payroll provider
Often, some of the biggest designation obstacles in the context of global workforce payments come down to:
- An inability to keep track of data and deadlines
- Lacking regulatory knowledge about the locations your company operates in
- Difficulty keeping this process streamlined
A payment distribution platform can change everything here, with automation, laser-focused algorithms, customizable designation, compliance support, and risk management.