The tariffs imposed by the U.S. government vary depending on the product, country of origin, and current trade policies. Governments respond to those imposed (new or updated) tariffs by imposing economic sanctions including counter-tariffs. This creates a ripple effect, leading to significant fluctuations in exchange rates, market volatility, and overall economic uncertainty. For example, the Euro has risen to a three-year high against the U.S. dollar.
In response, organisations may be reevaluating key aspects of their operating models, including their cost structures, location strategies, and workforce planning. While tariffs' headline impacts are primarily macroeconomic, geo-political, and commercial, there are also downstream consequences for HR policies, global mobility, and global payroll operations.
Global Mobility and Workforce Allocation
Tariff shifts often necessitate operational changes, including the relocation of manufacturing sites, distribution centres, or entire business functions. These changes can result in the redeployment of employees across borders or the expansion of regional teams. Even when physical relocation does not take place, globally mobile employees (especially expats) may be impacted by currency fluctuations and variations in the cost of living.
Key considerations for HR and global payroll leaders include:
- Currency Conversion and Net Pay Impact. Expats may be paid through shadow payrolls, split payrolls, or home-based remuneration structures denominated in a central currency. In volatile markets, exchange rate movements can devalue an employee’s net pay in their (home) currency, requiring careful review and, where appropriate, adjustment.
- Cost-of-Living Allowance (COLA). Most expat packages include a COLA to compensate for differences in living costs between home and host locations. Given rising inflation and shifting price levels, organisations should, more than usual, regularly reassess their COLA policies to ensure continued equity and adequacy.
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Location Strategy and Permanent Establishment Risk. For example, a U.S.-based company that moves part of its production from China to Vietnam may trigger cross-border workforce planning requirements. Transferring certain functions or business activities to new jurisdictions may create a Permanent Establishment (PE) for tax purposes, requiring changes to entity structures, statutory payroll registrations, and reporting obligations.
More than ever, establishing and growing strong communication and partnerships with various business units and leaders assists with payroll operations, keeping them at the leading edge of possible changes while being a valuable asset in providing potential payroll, tax, and visa issues.
In addition, global payroll should work closely with HR and global mobility teams to support the effort above and ensure a clear response regarding expats’ remuneration packages. It should also evaluate its service delivery models to be ready to expand, reduce, or establish new payroll operations in various locations.
Data-Driven Analysis to Assess Impact
In line with a wider increase in the need for quality and rich data, global payroll data supports evaluating the impact of the current volatile economic environment on the cost of labour and treasury currency in strategic planning. Often, organisations have a central reporting currency in line with their financial reporting requirements. Global payroll should evaluate its global reporting:
- Centralised Currency Reporting. Payroll costs from various countries are typically consolidated into a central reporting currency (e.g., USD or EUR) in alignment with financial reporting standards. Due to extreme currency volatility, it is advisable to review exchange rates regularly and ensure consistency in how conversions are applied across periods.
- Unlocking the Power of Global Payroll Data. Payroll results should generate detailed, location-level data that can inform decisions on workforce deployment, compensation strategy, and cost optimisation. To enable this, organisations should invest in harmonising local payroll data with global data models and ensuring real-time availability of key metrics, often through integration with data warehouses or analytics platforms.
By aligning payroll insights with finance, HR, and the business, global payroll can play a proactive role in navigating these turbulent economic times.
Closing Thoughts
Rapid changes in global trade and regulations are making adaptive HR and global payroll strategies critical. Payroll professionals must closely monitor the shifting landscape and its impact on workforce planning, compensation, and compliance. Strong cross-functional collaboration between HR, finance, legal, and payroll is key to ensuring a unified response. In this environment of uncertainty, global payroll has a strategic opportunity to influence business decisions, provide critical insights, and enhance organisational resilience.
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Max van der Klis-Busink, MCIPP, RPP, is the Owner of Passion For Payroll and Vice President of Global Strategy on PayrollOrg’s Board of Directors.
