Payrolls in the Asia Pacific: Achieving High Performance on an Uneven Playing Field

Achieving a high level of payroll performance in the AsiaPacific region isn't easy - as usual, understanding the unique challenges and complexities of the landscape is key.

The sheer size and diversity of the APAC (Asia-Pacific) region makes payroll a much tougher proposition than Europe or America: differences in economy, ethnicity, language, culture, history, and politics mean much less consistency between countries - and can represent a significant headache for anyone trying to develop an efficient, high performance payroll process.

What Does ‘APAC’ Stand For?

APAC payroll challenges begin with the accepted definition of ‘Asia Pacific’ amongst the global community. The question, “What is the APAC region?” is complicated: while the Americas and Europe are relatively well defined, there is a lack of consensus over what constitutes APAC geographically. Certain countries - like Australia and New Zealand, India and Pakistan - are sometimes included in APAC, and sometimes not (for the purposes of this article, we will include them). Obviously, this territorial complexity affects the way payroll in the APAC region should be implemented - and businesses must factor this into any global payroll solution they develop. However, APAC is more than just its diverse collection of challenges - the region also offers plenty of valuable payroll opportunities, which we will examine below.

Why Expand in the APAC Region?

Home to some of the world’s busiest and most prestigious business destinations, including Beijing, Tokyo, Hong Kong, Singapore, and Shanghai, there are plenty of reasons why entrepreneurs are choosing APAC as an expansion location: 

  • Continental gateway: Most of APAC’s business hubs serve as thriving continental gateways. with connections to lucrative marketplaces and tens of millions of consumers. 
  • Tech hubs: APAC has become one of the world’s most innovative, tech-focused business destinations, a trend driven by mobile devices, e-commerce, and app development. Government support, including tax breaks, have created an extremely favourable environment for tech entrepreneurs across the region.
  • Diversity & opportunity: The business landscape in APAC is incredibly diverse, from cutting-edge tech and financial services, to oil and gas and pharmaceuticals. This diversity has created significant opportunity: start-up growth across APAC in increasing at an impressive rate.
  • Infrastructure: APAC cities are served by improving and extensive infrastructures, including excellent transport connections between cities and countries, reliable telecommunication systems and high levels of internet connectivity. • 
  • Economic potential: Economic growth across APAC remains strong and steady. World Bank figures suggest 6.3% growth in the region for 2018. The region’s developing countries are expected to see a robust 5.4% growth.
  • Global Mobility: Many of APAC’s business hubs are prime locations for international business, and host a range of amenities conducive to global mobility. In payroll terms, businesses will find a variety of skilled APAC payroll providers to serve their administrative needs as they find their feet in the region. 

Understanding Payroll in the APAC Region

APAC's payroll complexities go beyond geography. If you’re expanding in the region you may also have to consider a variety of factors - from time-zones and currency, to religion, politics, and cultural practices. Successful APAC payroll implementation means developing a comprehensive understanding of the issues at play in your chosen business location - with that in mind, let’s look at some of the specific challenges of the region and its territories.

APAC Payroll Challenges  

Language

Like all aspects of business, communication is important to the payroll process. English is the international language of business and, thanks to the legacy of the British Empire, is also used by the governments of Australia, New Zealand, India, Singapore and (to a lesser extent) Hong Kong. In practice, this means payroll-related communication between organisations and relevant authorities takes place smoothly: speakers can interact with each other, conduct research or use government and official websites easily. Even as a second language (in places like Hong Kong and Malaysia), mutual proficiency in English greases the wheels of the payroll process. Unfortunately, English isn't used uniformly by payroll professionals across APAC.

Although on the rise in China and Taiwan, high English proficiency is rare in other Far East Asian countries like Japan, South Korea, Vietnam, Indonesia, and Thailand. The fact that English alphabetic forms aren't used in these territories only adds to the communication challenge. From a payroll perspective, appointing English speakers to relevant positions makes a huge difference. The undesirable alternative is making do with translators from within your company, who don't necessarily possess relevant payroll experience.

Federal and Regional Differences

In Australia, China and India, variation across federal regions have a significant impact on payroll. More specifically, in these instances, procedural requirements and rates may differ across tax and social security agencies - while differences in statutory annual holidays (or bank holidays) and employee starting and leave dates, result in different pay dates or pay cut-off points.

In these instances, to achieve a higher level of payroll performance, it's often necessary to operate separate payroll for each federal region. In China, this practice is actually a legal requirement, and in India, while not a legal obligation, simply makes the whole payroll process easier - and is, therefore, strongly recommended.

The complexity of Payroll Regulations

Of course, every local payroll practitioner thinks their regulations are complex when taken in isolation, but differences between the various sovereign jurisdictions of the APAC region exaggerate those complexities greatly and make consistency all the more difficult.

In Singapore, for example, the ethnicity and religious status of employees need to be collected and recorded in a very specific way in order to access correct payroll funds. In Australia and New Zealand, by contrast, regulations require to leave balances to be managed by payroll itself, rather than HR. Suffice to say, incorporating those unique regional requirements should be a foundational component in any APAC payroll process.

Consistency and Transparency

The consistency of payroll performance across APAC is significantly affected by the frequency with which regulations across its regions change, and the transparency with which they are implemented. APAC economies are growing and, as with all aspects of business, transparency relates not only to the clarity of new regulations, but the notice given before the changes take place. Engaging outsource organisations to provide APAC payroll services may be helpful in this context, since they can provide regulatory compliance quickly and efficiently. Worth bearing in mind: corruption is obviously a major factor when determining transparency and, unfortunately, APAC regions vary greatly in this regard. The greater the transparency, the greater the payroll consistency - and subsequent performance levels.

Aggregating APAC Payroll Performance Levels

Obviously, the nuances of each APAC region make a standardised payroll performance summary difficult - but using the relevant criteria above, a comparative impression is possible.  

Unique Regional Factors

Beyond the broad criteria examined so far, there are plenty of extra regional details, legislation, and practices to consider when working towards APAC payroll performance. We've listed some of those unique factors below:

China

  •  Tax year starts from 01 January and ends on 31 December.
  • Social Security is managed as a location-specific, separate process.
  • Individual Income Tax (IIT) is filed and paid on a monthly basis.
  • A preferential tax on bonuses (called 'Bonus Tax') is lower than usual taxes on salaries. This preferential tax rate can only apply once a year.

Japan

  •  Tax year starts from 01 January and ends on 31 December.
  • Two main payroll taxes: Social Insurance and Labour Insurance.
  • Social Insurance allows employees government-mandated access to medical facilities for only 30% of the standard cost. Japanese employees are usually satisfied with this coverage and require no additional healthcare benefits.
  • Employee National Tax liability is calculated by the company and deducted monthly from salaries.
  • It is a legislative requirement to process bonuses as a separate payroll (on the occasions they are paid). When bonuses are paid more than 4 times a year, those payments should be included in an employee’s Standard Monthly Remuneration (SMR) in order to not affect ‘Santei’ - the social insurance report submitted to the health insurance association each July.

India

  • Tax year starts from 01 April and ends on 31 March.
  • Monthly tax calculation is based on an employee's different tax saving investment declarations, made at the beginning of the financial year.
  • Employees submit investment proofs at the end of the financial year in order for tax to be re-calculated.
  • Quarterly tax returns need to be filed with the tax department.
  • Major social securities in India are: the Provident Fund (PF), Employee State Insurance (ESIC), Labour Welfare Fund (LWF).

Malaysia

  • Tax year starts from 01 January and ends on 31 December.
  • Income Tax is collected through Payroll via Scheduler Tax Deduction (STD)
  • Main social security deductions are: ZAKAT (Muslims only), the Provident Fund, the Social Security Organisation (SOCSO).
  • Tax clearance required for foreign employees.
  • New employees can use their earnings & tax deductions from their previous employment for the current financial year.

Vietnam

  • Tax year starts from 01 January and ends on 31 December.
  • Personal Income Tax (PIT) is collected through Payroll.
  • There are four types of mandatory social security: social insurance (SI), health insurance (HI), unemployment insurance (UI) and the Mandatory Provident Fund (MPF).
  • Many Employers in Vietnam pay an automatic, one month's salary Annual Bonus at Chinese New Year - although a Performance Related Bonus trend is replacing this.

Singapore

  • Tax year starts from 01 January and ends on 31 December.
  • No income tax is withheld via Payroll. Income taxes are assessed by the Inland Revenue Authority of Singapore (IRAS) at the end of the tax year. Employees are responsible for paying their tax obligations directly to IRAS.
  • Tax clearance is required for foreign employees.
  • There are no reporting requirements for a Singapore Citizen or Permanent Resident leaving their company but not leaving Singapore. Their earnings will be reported by their previous employer, to IRAS, at the end of the tax year.
  • Singapore’s Social Security System, the Central Provident Fund (CPF), is a mandatory contribution from both employee and employer. CPF applies to Singapore Citizens and Permanent Residents, but does not apply to foreigners.

Hong Kong

  • Tax year starts from 01 January and ends on 31 December.
  • No income tax is withheld via payroll. Income taxes are assessed by the Hong Kong Inland Revenue Department (IRD) at the end of the tax year. Employees are responsible for paying their tax obligations to IRD.
  • New hires and leavers are reported to the IRD through IR56 forms
  •  Tax clearance is required for foreign employees.
  • Hong Kong’s Social Security System, the Mandatory Provident Fund (MPF) is a mandatory contribution from employee and employer. This applies to all employees including foreigners, unless there is a valid exemption.
  • MPF schemes are administered by various approved MPF Trustees

Philippines

  • Tax year starts from 01 January and ends on 31 December.
  • Salary taxes are withheld via payroll
  • Mandatory social security payments from employees and employers are the Social Security System (SSS), HDMF (known as PAG-IBIG), and Philhealth contributions.

Indonesia

  • Tax year starts from 01 January and ends on 31 December.
  • Salaries taxes are withheld via payroll
  • Mandatory social security payments from employees and employers are the BPJS Manpower, and BPJS Health contributions
  • Employers are required to pay an equivalent of one month’s salary to employees for Tunjangan Hari Raya Keagamaan (THR) Allowance - also known as the Religious Holiday Allowance. THR must be paid before the religious holiday.   

APAC Payroll Solutions

Finding APAC payroll solutions means taking the time to appreciate the significant diversity and variation which characterises the region. Rapid economic growth across APAC continues to create challenges: avoiding non-compliance, and establishing a high level of payroll performance, requires investment, effort and resources. For those ready to engage, there are plenty of payroll solutions, including investment in local skills and knowledge, the incorporation of technological solutions, and, of course, APAC payroll outsourcing. It goes without saying that the foundation of those solutions should always be a deeper level of understanding of the landscape in which your payroll operates.

How activpayroll Helps Organisations in the APAC Region

activpayroll is one of the world’s leading Asia-Pacific payroll providers, and we understand that the unique challenges of the region go hand-in-hand with unique opportunities. Our services are tailored to help you take advantage of those opportunities and include APAC payroll training, global mobility planning, audit and compliance expertise, and specialised technology platforms, such as the innovative activ8 human resources system.

Payroll outsourcing in the Asia Pacific doesn’t have to be painful: however, you’re planning to approach the challenge, our expertise and insight will help you find a system which suits both your business needs, and the requirements of your regulatory environment.