Thanks to the many different cultures, languages, taxation systems, and employment laws in the APAC region, managing payroll is a guaranteed challenge. It’s easy to think that mistakes are an inevitable part of doing business, but too many businesses underestimate the costs, which can extend far beyond a few disgruntled employees. Payroll errors cost businesses operating in APAC countries millions of dollars in fines and other penalties. In severe or repeated cases, the consequences can include business closure, and even imprisonment. The good news is that payroll errors aren’t inevitable. In fact, correcting just a few of the most common errors can have a huge impact on your bottom line. If payroll mistakes are costing your company money, this is what you should know:
Failing to keep up with changes
With more than 20 sovereign nations in the APAC region, laws are always changing somewhere. In China, for example, social insurance contributions are adjusted annually for each city, based on the city’s average salary. And, since the system is administered on a regional level, there’s no set schedule for when those changes are implemented. In addition, a number of Asian countries have raised their minimum wage over the last few years. Monitoring and implementing these changes is a monumental task, and it’s easy to fall behind – but that doesn’t soften the blow to the bottom line.
Failing to properly report “fringe benefits”
Another common mistake is failing to include fringe benefits – like a company car, a cell phone, or a gym membership – as income. As always, rules vary by country. In Australia, for example, once the value of fringe benefits exceeds a specified dollar amount, that value has to be included in the employee’s income summary. To avoid penalties and underpayment, it’s important to accurately apply each country’s rules on non-cash income.
Improperly applying double taxation agreements
A number of countries have signed double taxation treaties to address situations in which more than one country – both the “home” country and the country where the money is earned, for example – would levy a tax on the same income. The details vary by treaty, but they all specify how to handle double-tax situations that are exceptions to general taxation laws.
Improperly classifying employees
A number of countries tax non-citizens who qualify for residency status differently than they tax those who do not. In Malaysia, for example, the income of non-residents is taxed at a flat rate, while the tax rate of those who do qualify for residency status varies based on income.
Violating work-permit laws
In many APAC countries, obtaining work permits for employees from other countries is the responsibility of the employer. Each country has its own rules for granting work permits, and some of these rules are very specific. In Singapore, for example, the type of work permit that is needed depends on the employee’s salary, while Malaysia requires work permits only for certain industries, such as manufacturing, agriculture, and construction.
Payroll errors can be costly in terms of time, money, and employee satisfaction. That’s why many businesses in the Asia-Pacific region rely on payroll outsourcing, leveraging firms that specialize in managing multi-national payroll challenges, and letting their own employees concentrate on more strategic initiatives.