According to the African Development Bank (AfDB), Africa’s middle class sits at 350 million people, over one third of the continent’s population, and is expected to reach 430 million by 2020. This, combined with the rapid rate of urbanisation, is driving economic growth: McKinsey & Company estimates that African consumer spending will hit $1.4 trillion by 2020. And as Africa’s middle class grows, so too do the opportunities for companies looking to do business on the continent.
In addition to a growing economy, technology plays an important part in the continent’s development. Thanks to a lack of legacy infrastructure, many countries are testing and adopting mobile and cloud-based solutions, faster than their European or American counter-parts. African businesses benefit as new apps automate and consolidate important functions like HR and payroll – ensuring that multi-nationals are compliant, and SMEs can focus on their go-to-market strategies.
As a local or international business, managing your payroll can be a challenge, especially in new or unfamiliar markets. Africa, as a continent of 54 countries, does not offer a one-size-fits-all rulebook and your payroll systems will have to comply with the local legislation and tax regulations of each country you operate in. Plus, you have to make sure that your expat employees are ‘grossing up’ the correct pay in their home country currency once all the host country tax deductions have been made. In fact, tax equalisation is a key consideration for all multi-nationals, as no employee should ever be short-changed when working abroad.
Here’s the potential headache: say you want to open a new office in the capital of the Democratic Republic of Congo, Kinshasa. To do this, you need to relocate two employees from your London headquarters to the DRC. The question is, how much do you now need to pay them to ‘gross up’ their earnings to cater for local taxation in the DRC and ensure that their current take-home is correct in British pound sterling? Their expat salary packages may also include benefits such as a housing or travel allowances. Any such perks will also have to be calculated correctly under the local host country laws, so as not to impact their final net salaries.
The challenge becomes even more pronounced when, for example, one of the two employees then moves to the company’s Nairobi office in the middle of the tax year. Now payroll needs to consider the legislative implications of one home country (UK) and two host countries (DRC and Kenya) and provide the employee with the relevant tax certificates and payslips in each currency – while still ensuring that the employee’s earnings are unaffected. Confused yet?!
The solution? System features and country-specific-report automation that integrates seamlessly with your accounting software through cloud technology. Companies operating in multiple locations need to help employees become HR and payroll self-sufficient – they shouldn’t have to request and wait, they should be able to easily find historical information such as old payslips or tax certificates while also managing their expense claims online, and quickly and easily submitting annual leave dates and appraisals – all without having to chase HR or finance departments.
Putting your HR team to better use
An automated, multi-jurisdictional, single-instance payroll and HR solution not only provides a more responsive employee experience, but also frees up important HR time to focus on employee engagement, talent acquisition, training and development, succession planning and employee satisfaction – all the things your HR department does that really add organisational value. Consider that international companies doing business in Africa may be legally required to hire a certain quota of local employees and provide them with skills development and training, this is what your HR department should be working on.
A legacy payroll system that relies on Excel spreadsheets and laborious iterative calculations is vulnerable to human error and slow manual processes. Added to which, local up-to-date knowledge of each host country’s tax and legal requirements can be difficult to interpret and integrate with your existing systems. When your HR department is tied up in transactional processes such as multi-territory payroll, they have little to no time to focus on employee growth or training requirements, which can have far-reaching consequences for your business operations and limit growth in a continent ripe with opportunity.