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Navigating the forex complexities of paying employees abroad

28 January 2020 Sable international

Many South Africans are moving their businesses offshore, expanding into other jurisdictions and having to pay the wages of employees who are working abroad in multiple currencies. With the volatility of the Rand and other currencies, foreign exchange exposure can become an issue when running a payroll internationally.

“South African companies looking to internalise their businesses in Europe often deploy staff to open new offices and then they have to deal with a host of banking and tax issues to pay their staff.

“Generally business owners consult their accountants first to ensure their international tax affairs are in order, and to get professional advice to cover all international legalities, but they don't always consider their foreign exchange exposure and the hidden costs of settling employees in multiple currencies,” says Saskia Johnston, of forex specialists, Sable International.

Primary factors for consideration when dealing with remote teams are foreign exchange exposure and the ability to pay staff in their local currency. Johnston says that there are two ways to address these issue, depending on the size and frequency of your exposure.

“The first method would be to agree to pay your staff abroad in a fixed amount in your local currency and their settlement amount varies depending on the currency fluctuations. This mitigates all of your currency risk and means you are not paying a variable rate. Although this option can be great for your planning purposes, more often than not foreign workers will invoice and expect to be settled in their local currency. This means you may end up with multiple exposures in different judications,” says Johnston.

“Currency brokers can assist businesses in settling foreign invoices quickly and cost effectively, and help you to hedge some of the exposure through foreign exchange hedging tools, like forward contracts.”

Having the online capability to run a multi-currency payroll can be valuable and save the accounts team, or business owner, time and effort when having to make salary payments.

“We use a system that enables businesses to settle directly to their staff, or beneficiaries, without the exorbitant bank charges and fees, and it allows them to settle in multiple local currencies at a far more favourable rate of exchange,” says Johnston.

In practice, either the client settles as an invoice becomes due or they can upload bulk payments directly onto a forex broker’s system for multiple payment runs. There should be no cost or obligation to a broker for a business owner to have this capability.

“Foreign currency will clear into the beneficiaries account free of bank charges or fees so your staff abroad are always paid exactly what they expected to be paid. Using a bank directly for these type of payments can often result in a magnitude of hidden fees and charges, never to mention long payment times, leaving employees abroad disgruntled with the shortfall,” says Johnston.

“By settling payments within 24 hours, you also ensure that your beneficiaries always receive their payments on the date anticipated.”

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