Businesses increasingly utilize split payments to give themselves extra flexibility when completing transactions. For international organizations, split payments can also add transparency, mitigate compliance risks, increase employee retention, and fortify organizational growth across borders.
So it’s unsurprising that payout flexibility is quickly gaining popularity within the global workforce. We’ll introduce the concept of split payments, how they work, their advantages, and what we’ll possibly see in the years ahead.
What is a split payment?
A split payment is when businesses use several sources to pay for a transaction or expense. For example, enterprises may use two credit cards to pay a supplier if one card has a lower limit than the total cost of the product. Split payments can also occur in payroll if employers divide an employee’s paycheck into multiple parts and then deposit their earnings into different accounts or pay the employee in different currencies.
Advanced global payment solutions are the backbone of split payments due to their complexity and tax requirements.
Why workers prefer split payments
Employees favor split payments mainly because they give them peace of mind over their finances. Workers can use payments in the local currency for rent, food, transportation, and their home country’s currency for savings. In this scenario, split payments can offset high living costs, protect employees from currency fluctuations, and give them a savings safety net.
Split payments also ensure employees follow the host country’s labor laws and regulations and legally contribute to retirement funds from abroad. Employees avoid penalties while working towards financial security.
How do split payments work?
Finance or treasury teams usually split payments in several steps. Here’s a general view of how this plays out during payroll with an international employee:
1. Determine the salary split:
First, you’ll need to know how to divide the salary between the employee’s home currency and the host country’s currency. The split depends on factors like the cost of living, the employee’s financial obligations in both countries and the currency’s stability.
For instance, if the cost of living is higher in the host country, a larger portion of the salary will be in their host country’s currency.
2. Consider different types of compensation
Split payroll can be applied to the employee’s entire compensation package, from benefits and allowances to airfare. Each compensation type could have a different split ratio depending on the employee’s needs.
3. Make adjustments
If you run payroll and the economy fluctuates or the employee’s financial situation changes in their home or host country, make adjustments. Split payments aren’t a fixed approach but a solution to stay flexible to meet changing circumstances.
4. Apply changes
On your payroll platform, you’ll calculate the correct salary amount, apply the appropriate tax deductions, and set automatic payments in both currencies.
Choosing the right payment platform to handle multiple currencies is a must here. First, you’ll need a solution that easily integrates with your existing software for automated data exchanges and smooth communication or synchronization between all platforms.
You’ll also want to ensure the platform offers several options for mass payments, such as the ability to split salaries into several currencies, digital wallets, card payments, set up recurring payments, and other flexible options you may want and need.
Finally, making cross-border payments in multiple currencies is challenging. Look for a payroll and payments provider that can help you pay your workers compliantly and reduce unnecessary risks.
The growing demand for split payment solutions
80% of organizations now offer flexible compensation to their employees, according to a Society for Human Resource Management study.
This statistic speaks to the growing demand for split payment solutions. Here are a few reasons why split payments have become increasingly popular:
- Reduced exchange risks: Split payroll protects international employees from exchange rate fluctuations, ensuring their income stays stable.
- Easier tax compliance: Split payroll makes it easier to follow each country’s tax regulations by diverting figures to relevant tax jurisdictions.
- Better budgeting: Split payroll allows employees to plan their finances and clearly understand savings and spending in both countries.
- Caters to employee needs: Split payroll makes it easier to cover the employee’s needs, changes in living costs, or personal circumstances.
It’s not just employees who gain from these transactions; split payments also benefit the company.
How split payments support global workforce preferences
One simple reason global entities use split payments is that it enables employees to receive their pay in multiple currencies or accounts. This flexibility empowers workers to budget, save, and avoid foreign exchange fees and delays. On the employer’s side, happier, financially secure employees can be a powerful retention and recruitment tool.
Split payments also support alternative payment methods like digital wallets or prepaid cards, which are popular in regions with low banking penetration. The company can enter new markets without formal banking infrastructures and still pay employees on time and according to local regulations.
Let’s examine other reasons why split payments are a top payment method for employers.
Advantages of split payments for employers
Split payments can offer employers reduced payroll risks, cost savings, higher loyalty rates, and more. Here’s a short list of advantages:
- Reduced risk of errors: Split Pay can reduce payroll errors by automating the process of splitting an employee’s paycheck into multiple accounts. This ensures the correct amount is deposited into the employee’s accounts every time.
- Increased employee loyalty: When employees get the correct amounts when and where they need them, they can better plan their finances. This can make workers feel more loyal to their employers.
- Cost savings: Split pay can reduce administrative costs by reducing time spent on manual payroll processing, like writing paper checks, and hours spent managing employee financial emergencies.
- Reduced administrative burden: Automating split payments to different accounts can streamline payroll for companies working across several locations.
Helping you stand apart from competitors: Employers are increasingly valued by payment flexibility. Giving workers more options for how they’re paid can help you retain and attract talent.
Split payments are only one of several trends we predict for the coming years. Knowing what’s around the corner can help you better prepare to meet your employees’ needs.
Future trends in worker payout preferences
As technologies evolve, we’re predicting the following payment trends:
- Digital wallets are becoming a preferred method: Digital wallets have exploded in popularity and may become workers’ preferred payout solution in the next few years.
- More diverse payment options: Businesses will likely need to continue providing diverse payment options, especially in international markets.
- An increase in split payments: Workers may increasingly wish to split payments across accounts.
- The growth of financial wellness tools: Global cross-border payment tools and ethical, AI-driven payout systems will be essential for meeting worker expectations.
The leader of split payments
Split payments aren’t just good for employees, they’re a convenient and safe way to pay employees while ensuring stable finances. As the demand for split payments grows, businesses should prepare to meet employees where they are. Papaya Global is a world expert in workforce payments customization, with flexible funding, setups, and payouts. You can execute mass payments of up to 10k beneficiaries at a time, automate recurring payments, schedule payments according to your timeline, and split payments in multiple currencies.
Papaya Global’s payment services are offered through Azimo, our licensed payments arm. Azimo is a globally licensed payment services provider. For further information on Azimo’s licenses worldwide, check our licensing page.
Learn how you can pay your workers in the way that works best for you by booking a time with one of our payments experts.
This blog post was written for HRTech247 by Papaya Global, you can find them in the software suppliers section of our website here.
