Navigating EU and UK forex payroll complexities for offshore offices in SA

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Having the online capability to run an international payroll can be valuable and save the accounts team, or business owner, time and effort when making salary payments. (Image: Supplied)
Having the online capability to run an international payroll can be valuable and save the accounts team, or business owner, time and effort when making salary payments. (Image: Supplied)

by Gemma Blommaert, Forex Operations Manager – Global, Sable International

If there’s one thing Covid has taught us it’s that you don’t have to be in office, or even be in same the country as your office to get your job done. Remote working has become commonplace globally. As a result, more and more businesses are offshoring their back offices to make them more cost effective. Many European and UK based businesses with links to South African, have chosen to base their operations in South Africa, where they can enjoy the benefits of reduced overheads and cheaper labour by virtue of a weaker currency.

However, if the businesses are primarily generating income in Euros or Pounds, and they need to pay their South African staff in Rands, it can become complicated and expensive.

Generally, business owners consult their accountants to ensure their international tax affairs are in order, and to get professional advice to cover all international legalities. However, they don't always consider their foreign exchange exposure and the hidden costs of settling employees in foreign currency, especially when it comes to volatile currencies like the Rand.

Most International businesses just process their payrolls through the banks, which seems the obvious choice but it’s also the most expensive one. Forex businesses on the other hand, make it their business to undercut the banks. They offer far more competitive and personalised foreign exchange solutions and, in most cases, they have sophisticated systems that cater for the running of international payrolls.

Primary factors for consideration when operating between international offices are foreign exchange exposure and the ability to pay staff in their local currency. There are several ways to address these issues and save costs, depending on the size and frequency of your payments.

Confirm a currency for your salary payments

One option would be to agree to pay your staff a fixed amount in your currency. However, this would mean their salary will be converted at the rate of the day each month, with their final pay cheque being unstable due to exchange rate fluctuations. While this mitigates your currency risk and makes budgeting easier, most South African workers will expect to be paid in their local currency, particularly if that is where they’re employed to work.

Secure international payrolls with forward contracts 

Currency brokers such as Sable International assist businesses in settling foreign payrolls quickly and cost effectively. They can help you to mitigate your exposure through foreign exchange hedging tools, like forward contracts.

A currency forward contract is a non-standardised contract set up between two parties to buy or to sell a currency at a specified future time, at a price agreed upon at the time of contract initiation.

Most organisations’ operating costs are fixed and salaries are often the biggest overhead. If you’re aware of your salary costs, you can reduce your exposure to the exchange rate by planning ahead. When you secure a rate for a forward contract, it is locked in for the duration of the contract which means the cost of your salaries is secured into the future. What’s more, you can decide when you secure your rate. A forex broker can monitor the markets and notify you when they're favourable. Forward contracts are preferred by accountants as they allow for accurate budgeting, without the worry of unpredictable, fluctuating costs.

Streamline payroll payments

Having the online capability to run an international payroll can be valuable and save the accounts team, or business owner, time and effort when making salary payments. 

Sable International has an online portal 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.

Use hedging tools

In addition to forward contracts, there are also currency tools such as stop loss orders, limit orders and OCO orders that can help you to protect your profits, reduce your costs and simplify your international payments. They effectively help you to spread the risk to your budget. A good forex provide should take an interest in your business and recommend tools to suit your business’s needs, with a common goal of bolstering your bottom line.

Consider your options

If you are currently using a bank to process your forex payments, we advise you to at least look at your options and get a comparative quote from a forex specialist.

Working with a specialised forex business such as Sable International ensures that you have a dedicated broker in your corner, reviewing your costs and reducing your exposure to increase your bottom line. From a payroll perspective, you can rest assured that foreign currency will clear into the beneficiaries’ accounts free of bank charges or fees, so your staff are always paid exactly what they expected to be paid. Using a bank directly for such payments can often result in a magnitude of hidden fees and charges, not to mention long payment times, leaving employees disgruntled with the shortfall.

For more information

Contact Gemma Blommaert, Sable International’s Forex Operations Manager - Global. Email:  Tel: UK: +44 (0) 20 7759 7554 SA: +27 (0) 21 657 2160

About Sable International
Sable International is expert in helping small to medium-sized businesses, private individuals and clients with international interests. Their clients are often global citizens with family, offices, suppliers, clients, property or wealth overseas.

Sable International offers holistic, full-service solutions through their citizenship, residency, wealth, tax and forex divisions for those looking to internationalise themselves, their wealth or their business.

They’ve built a business out of specialising in cross-border financial and immigration advice and solutions. They tailor solutions that help their clients maximise outcomes in the shortest time possible.

This post and content is sponsored, written and provided by Sable International.

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