A critical human resources and finance function, payroll processing is the step-by-step method employers use to calculate, distribute, and record employee compensation for each pay period. It includes wages, salaries, bonuses, deductions, and taxes. In a global setting, payroll processing also means managing different currencies, tax systems, and labor rules with smooth, automated precision.
Payroll processing is a fundamental employer responsibility that affects compliance, employee satisfaction, and business reputation.
Payroll processing steps
Payroll processing follows a set of steps that help you get payday right and stay compliant from start to finish. Each step plays a key role in ensuring every employee, contractor, regulatory agency, or other recipient receives what they’re owed—on time, every time.
Here’s what a typical payroll process looks like for global employers who want to keep things accurate, efficient, and legally sound.
- Collect data. Gather employee time records, hours worked, overtime, leave, and bonuses.
- Calculate gross pay. Compute earnings based on salary, hourly rates, or commission.
- Subtract deductions. Subtract mandatory deductions (such as taxes, social security, and local levies) and any voluntary deductions (like retirement savings).
- Calculate net pay. Determine the employee’s take-home pay after deductions.
- Distribute payroll. Deliver pay via direct deposit, check, or payroll cards.
- Keep records and report out. Document payroll transactions for audits, compliance, and year-end tax reporting. Prepare statutory filings.
How you execute each step depends on your organization. Sometimes the work is done in-house, sometimes it’s outsourced. Some orgs still use manual spreadsheet-based processes, while others opt for automated payroll software.
Why payroll processing matters for employers
Accuracy builds trust
Incorrect pay, the wrong hourly rate, miscalculated deductions, and missing overtime - payroll problems can erode your employees’ positive feelings toward you, their employer. According to a 2025 survey, 21% of employees begin to lose trust in their employer after a payroll-related mistake.
Despite its essential importance to business functions, payroll problems still happen. Why? According to HRMorning, it’s because “payroll software remains one of the most outdated, error-prone systems in the HR tech stack.”
Compliance requirements
Payroll processing isn’t just about keeping your team happy. It’s about staying on the right side of the law. Mistakes like missed deductions, late filings, or inaccurate payslips can lead to legal penalties, tax fines, or even lawsuits.
For example, in the U.K., if you fail to deduct and remit the correct amounts for National Insurance or Pay As You Earn (PAYE) income tax, you incur escalating penalties from HM Revenue & Customs (HMRC).
Reputation management
Payroll mistakes can quickly undermine your credibility, both within your team and out in the world. When employees and partners start doubting your reliability, trust fades, and your reputation takes a hit.
Consider the public backlash Kroger faced for its payroll mistakes. The supermarket chain was the target of four class-action lawsuits and widespread negative press in 2023 due to incorrect payroll calculations and missed paydays. To make matters worse, the affected workers felt that Kroger didn’t move fast enough to remedy its mistakes. “Although Kroger is aware of these issues, it has failed to take prompt action to rectify these problems, instead forcing employees to scramble when their proper wages do not arrive,” the plaintiffs wrote in their suit.
Financial planning purposes
Last but not least: Payroll is usually the largest line item on your company’s budget, so getting it correct is necessary for prudent financial planning. Precise calculations help you better forecast labor costs, control cash flow, and make smart investments in your people and business growth.
Compliance challenges
If only payday were as easy as Venmoing a friend for covering dinner the other night. But there are a host of regulations surrounding payroll that are not optional. To make matters more complex, these rules differ per country, state, and locality.
Calculating severance pay correctly
Although there is no universal formula for calculating severance pay, employment length and job role are the most common factors taken into consideration. Common methods include salary-based calculations (like offering three months of pay), tenure-based formulas (such as two weeks’ pay per year of service), or mixed approaches that factor in position, seniority, and local legal minimums. Other factors that may come into play are company policy and precedent and collective bargaining agreements (CBAs) that outline severance pay terms.
Is severance pay required? It depends; each country has its own rules. In some locations (Brazil, for one), severance pay is required by law. In others, like the U.S., it’s not mandatory.
Adhering to tax and labor laws
When you’re managing payroll across borders, tax compliance becomes a layered challenge that spans federal, state, and local rules in every country where you operate. Each jurisdiction has its own rates, deductions, reporting deadlines, and filing formats, and these regulations shift constantly, making it tough to stay current without dedicated resources or technology.
Not to mention, deductions differ in each country. Income and social security taxes are ubiquitous, but some countries have other mandatory deductions beyond these, like India’s Professional Tax for salaried employees.
Don’t forget to also adhere to labor laws, like meeting or exceeding local minimum wage and overtime standards, as well as complying with pay equity laws, like the EU’s Pay Transparency Directive.
Recordkeeping
Payroll recordkeeping is a critical compliance obligation for global employers, with laws differing by country and region. Most governments require payroll records, such as pay stubs, timesheets, tax filings, and deduction calculations, to be securely retained for several years: typically three to six years in the U.K., Canada, and many EU countries, but up to ten years in Japan and Germany.
What does secure recordkeeping look like? It depends on where your employees live. In the EU, for example, the storage of employees’ personal information is strictly governed by the General Data Protection Regulation (GDPR).
Cross-border complexity
Managing payroll across multiple states or countries is dizzyingly complex. Each jurisdiction brings its own tax codes, social insurance programs, benefits laws, reporting deadlines, and so on. This means that you need to adapt your processes frequently to stay compliant and avoid penalties.
Without centralized systems and local expertise in place, coordinating payroll across borders can lead to errors, delays, and a fragmented view of your workforce data.
Best practices for employers
Getting payroll right across borders means building strong processes, using innovative tools, and staying ahead of the rules. Here are a few best practices that help you maintain accuracy, ensure compliance, and keep teams paid on time—no matter where they work.
- Automate. Manual errors are common if you rely on outdated systems or spreadsheets. A better choice is to automate payroll processing with reliable software.
- Audit. Conduct regular audits to catch miscalculations or compliance gaps. By checking payroll records frequently (monthly or quarterly), you can spot errors in tax withholdings, overtime calculations, or pay rates early.
- Train. Keep your HR and payroll staff up to date on the latest laws and regulatory changes through ongoing training and professional development programs. As rules shift, regular education sessions can help your payroll team stay compliant.
- Communicate. Clear communication means explaining pay calculations and deductions in simple language that everyone can understand. Provide employees with easy access to their digital pay stubs and benefit summaries, so they always know where their money is going and why.
For more, check out our deep dive on payroll best practices for employers.
Don’t let processing payroll slow you down
Processing payroll across borders, especially the complex calculations around severance pay, doesn’t have to slow you down.
Pebl’s global EOR service handles payroll in 185+ countries, ensuring every deduction, contribution, and severance calculation is accurate, compliant, and paid on time. With local experts, automated workflows, and a unified dashboard, you can scale confidently, knowing your team is paid right—no matter where they work.
Ready to take the complexity out of global payroll processing? Contact us and let us show you how simple it can be.
This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided “as is,” and no representations are made that the content is error-free.
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