Payroll management should be a top priority of any business as they plan to enter a new market like Vietnam. Payroll can be managed either in-house or outsourced. No matter how lucrative it seems, outsourcing right after starting a new business sounds risky. Thus, the decision to choose outsourcing or keeping payroll management in-house when expanding your business to Vietnam is crucial and should be based on a salient analysis of its pros and cons and subsequently its viability.
Vietnam’s high turnover rate, compounded by frequent amendments to taxation regulations for foreign investment, means that a foreign investor has to remain aware of the latest developments in legal compliance rules and provide comprehensive HR management with appropriate payroll policies.
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How does Payroll Outsourcing work?
In order to save time and money, many investors outsource, or hire an international corporate service firm, to deal with payroll functions. Generally, when payroll management is outsourced, an external agency offers a plethora of services like legal, tax, and accounting support, thereby ensuring that employees receive their paychecks without any mistakes or hindrances.
This helps the companies to ease off a large administrative burden by simplifying legislative compliance. After hiring a payroll outsourcing service, the company has to put into place a set of guidelines for the partnership to operate smoothly.
An information transfer system is to be established first. Companies have to share basic background information about their labor force with the third-party service provider ranging from names and pay rates to expense allowances and any other data that is used for calculating payroll. In order to safeguard the confidentiality of sensitive information, data protection policy may also be required.
Furthermore, companies need to understand that they cannot do away with internal payroll professionals who are necessary for relevant assignments such as reviewing financial reports, accounting, and addressing any other accounting issues.
Taking HR Needs into consideration when expanding abroad
Human resources management (HRM) is a key component in the growth of any business. Some criteria of international human resource management to keep in mind while planning your business expansion are:
1. Recruitment Methods:
Having the right set of employees as a part of your new office is a big step towards success. However, international expansion is one of the most daunting HR responsibilities. If an HR team is recruited in-house it might have to consider the following:
- Talent pools: Research needs to be conducted based on a country’s labor force including educational backgrounds and skill sets.
- Legal parameters: Hiring and recruitment must be in compliance with local laws.
- Recruitment methods: The success of a recruitment strategy in your home market might not prove to be effective in a foreign market. While some countries stress personal networking, for instance, others may rely on social media channels.
- Labor markets: You need to familiarize yourself with other countries’ labor participation and unemployment rates.
2. Compliance with Employment regulations:
An employment relationship is governed by many regulations in the form of local laws, industry policies, national legislation, or Collective Bargaining Agreements (CBA). International HR departments have to make sure that employees have access to all their entitled rights.
3. Running payroll:
Handling payroll is the second most outsourced work for HR departments worldwide. In many cases, international employees cannot be hired on your company’s payroll. You need to have a branch in the country from where you intend to hire employees. If this is not possible, you will have to outsource your payroll to an Employer of Record (EOR). Independent contractors are free from such restrictions but may be more difficult to manage in the long run.
4. Managing compensations and benefits
Creating a competitive as well as fair environment for international staff requires background research on the target country:
- Legal requirements: Your compensation offer should meet minimum wage requirements and your benefits packages should be in accordance with other legal requirements for paid time off, pensions, etc.
- Cost of living: When deciding upon the pay structure, you should take into account the cost of living in your employees’ home region.
- Customary benefits: HR personnel should be apprised of demands specific to the country such as perks and incentives based on local festivals and customs, for example, the Tet holiday in Vietnam.
- Industry norms: Sometimes industry norms are worth considering in addition to the country’s laws or customs, such as providing laptops to employees of certain professions.
5. Addressing issues of cultural diversity
HR professionals need to be empathetic towards their transcultural teams as cultural differences can easily lead to misunderstandings. Therefore, extra caution must be exercised to make culturally informed decisions while hiring or addressing disputes in the workplace, especially between employees from vastly diverse cultures.
6. Communicating across language barriers
It is imperative for international expansion HRM strategies to incorporate a plan for communication across global teams. In many cases of international expansion, language differences may always prove to be a barrier, but it is better to be aware of a country’s linguistic make-up if you plan to do business there. As per a survey conducted in 2019, 43% of international HR professionals reported that more than two languages were officially used in their organizations.
Advantages of HR Outsourcing in Vietnam
As the world transforms into a global village many businesses are trying to upscale and expand internationally. Outsourcing HR management ensures the following:
1. Reduced Risk
Partnering with an outsourcing firm having a repository of local knowledge, expertise and presence will give you a solid grasp over the market right from the onset. HR advisors will keep a tab on government regulations as they evolve. Eventually, this will keep your organization away from large fines and other penalties, enabling smooth operations.
By partnering with an HR outsourcing company you will gain access to a pool of proficient HR advisors, well versed in local regulations, administration, employee-related scenarios and tax compliance within the region. They also offer a low cost compared to the significant expenditure of hiring and inducting a whole new HR department in-house. This is especially true for the first year of expansion into a new country.
International mobility flourishes with a great deal of flexibility when working in association with a firm that provides a varied range of services and is valuable for a business in the long run.
Outsourcing HRM entails hiring better-prepared staff. When shifting overseas, it is quite likely that businesses usually struggle to find the time. With the help of an offshore team of HR managers, market research on local employment could become easy. They can lend you insights on payments and perks apart from helping with onboarding and offboarding processes. Having a business partner that has a global presence is especially beneficial as they have specific knowledge and awareness of the challenges to help boost the growth of an international brand.
Disadvantages of Outsourcing
Notwithstanding the innumerable advantages, payroll outsourcing invites a whole flurry of challenges. Here are a few disadvantages of outsourcing your payroll:
1. Uncertain delays in paycheck delivery:
One of the many problems when outsourcing payroll is the ill-timing of paycheck delivery. This concern arises especially when an employer has workers from around the globe. As per a report, just two defaults in the delivery of paychecks forces 49% of employees to start with a fresh job hunt. In addition, many employees are not aware of the ways in which they can process their paychecks. Sometimes holidays, unpredictable weather, and technical problems can aggravate this challenge. The key here is to choose a corporate service provider with a solid reputation in HR delivery.
2. Loss of control:
Physical absence in a workplace combined with a lack of one-on-one correspondence can be a cause of frustration amongst employees. Outsourcing payroll implies a loosening of control as there are no in-house employees immediately present to attend to any urgent needs which in the long run might not be suitable for your business. Moreover, a third party would have access to your team’s private information and on top of that, you are bound to accept their terms and conditions.
Read more about Payroll & HR Outsourcing in Vietnam
Pros vs Cons of In-house payroll
There are a lot of tasks related to a managing payroll internally which leads to the following problems:
- Although Vietnam has made huge strides in recent years, it still has a talent deficit, and finding the right HR team for your new business expansion can be tricky. It usually entails starting with an HR manager that is bilingual, is comfortable with local labor regulations, and has had experience working in a foreign company.
- Core business priorities might get neglected as in-house payroll management is time-consuming. Business owners on average spend 4 hours and 52 minutes on calculating, filing, and paying taxes each pay period as per a report by QuickBooks study.
- An employee will have to be hired to run payroll whose midpoint salary is USD 44,750 plus or you might have to install equally expensive software.
- Maintaining a payroll all by yourself could lead to major inaccuracies and delay eventually having a negative impact on morale and productivity.
- Improper and incorrect calculation of tax obligations and not making timely payments could incur penalties.
- If sensitive data such as this is shared with someone else, salary data could also get leaked leading to fraud, such as creating ghost employees.
On the other hand, having control over all your business operations imbues a sense of autonomy and assurance. Here are some pros of running in-house payroll :
- Confidentiality of sensitive data such as Social Security data and bank account information can be easily established without risking a third-party breach.
- For specific industries, like construction, where you use specific job costing software which is completely integrated with your payroll system, maintaining payroll would be a seamless affair.
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Recruitment challenges to be aware of while doing business in Vietnam
There are several challenges that pose a problem while recruiting in Vietnam. Some of them include:
1. Acquiring and Retaining Talent
There is an ongoing ‘war for talent’ that continues to ensue in Vietnam. Owing to the lack of well-defined recruitment policies, acquiring and retaining the best talent has become one of the major challenges for businesses.
2. Existing Low-skilled Workforce
A large portion of the domestic workforce are suffering from gaping technical barriers in their skill sets. This is a direct result of their lack of exposure to the latest developments made possible by the increasing usage of the internet and digital applications. As more jobs continue to be substituted by artificial intelligence, it is predicted that in the future, 46 million unskilled Vietnamese workers will be dismissed from their jobs.
3. Branding of Employers
In the highly competitive recruiting market of Vietnam, an adequate branding of employers will help businesses fetch and retain great candidates. Almost 84% of job-seekers were of the opinion that the employer brand is very important for them. They believe that a constrictive brand of employer can guarantee that their job experience will be better. On the contrary, 50% of global candidates agreed that they were not willing to work for an employer with a poor reputation.
Testing the market? Use EOR services
Services such as employment laws, HR and legal compliance, risk management, and employee payroll and benefits are offered under an Employer of Record (EOR). Business entrepreneurs that employ EOR providers have the sole right to oversee and manage their employees but they do not have any responsibilities in tasks that are related to employment. It can be of great advantage for businesses that plan to expand into Vietnam:
1. Complying with Immigration Policies
Due to the rise in foreign investments in the country, immigration rules and regulations are frequently changin. In spite of the government’s efforts to make the nation as business-friendly as possible, the constant changes in laws make compliance tedious. As a result, many companies bank upon EOR to mitigate their legal conflicts.
2. Local Company Setup is Not Necessary
To set up a completely new local company for business expansion is a costly and time-consuming option. On top of that, you would still be required to hire a legal team that would further add to the expenses. Therefore, many foreign companies go ahead with an EOR that is already quite well established in the country.
3. Using Local Payroll
As overseas payroll is not allowed in Vietnam in most cases, the Employer of Record simplifies payroll management for foreign business owners. EOR further eliminates the problems of paycheck inaccuracies and delays.
Cekindo is a leading provider of global market entry services in South East Asia. We are part of InCorp group, a regional leader in corporate solutions, that encompasses 7 countries in Asia, headquartered in Singapore. With over 500 legal experts serving over 12,000 Corporate Clients across the region, our expertise speaks for itself. We provide transparent legal consulting, setup and advice based on local requirements to make your business perfectly fit into the market with healthy growth.