What Payroll Looks Like in the ‘Best Countries for Business’
Aug 13, 2019 | Topic: Analytics
Since 2007 the industry-leading business magazine Forbes has ranked the world’s largest economies in order of business friendliness. The annual report draws on data available from multiple renowned sources to evaluate 161 countries according to 15 different factors ranging from taxes and technology to personal freedom.
To create their 2019 list of the Best Countries for Business, the team at Forbes tweaked the methodology for the first time in a decade, removing the category of stock market performance and introducing metrics for workforce, infrastructure, market size, quality of life, and political risk. Because monitoring key metrics to better understand performance is something we’ve invested a lot in at CloudPay, we decided to take a look at what our global payroll metrics (introduced this year in the Payroll Efficiency Index) could add to Forbes’ findings.
The UK tops the Forbes list for the second year in a row, despite continuing uncertainty around Britain’s exit from the European Union. The UK also managed to be the only country to rank in the top 30 for all 15 metrics used for the report. While the jury is out on whether Brexit will ultimately help or hinder the UK economy, the characteristics that landed the union at number one are not up for debate.
“To be open for business, you need a strong legal system, full adoption of property rights, and clear rules and regulations. Low corruption is also vital to a well-functioning economy,” says Mark Zandi, chief economist at Moody’s Analytics, in respect to the Forbes list. “The U.K. has a globalized economy that is more open than most across the world in terms of trade, investments, capital flows and, until recently, immigration.”
When it comes to payroll, the UK has one of Europe’s more straightforward systems for taxation, social insurance, and statutory filings. Payroll is run typically on a monthly basis, and the UK maintains one of the most efficient cycles in the EMEA region, averaging less than five days to run payroll, from data lock to approval. According to Global 2019 PEI data, the rate of first-time approvals is low compared to the regional average — 55.5% versus 72.2% — but the fact that the volume of outstanding issues can be corrected in such a short cycle suggests the UK system is relatively easy to work in.
After ranking fourth in 2018, Sweden came in second place this year, having received high marks for innovation, property rights, risk, and low corruption. The Scandinavian nation boasts a successful export-oriented economy and a reputation for welcoming foreign business investment. The flat corporate tax rate dropped to 21.4% in 2019 and is set to decrease further in 2021. Sweden is widely considered to strike a good balance between fostering business development and supporting workers, and the capital city of Stockholm is a leading European hub for tech startups.
From a payroll perspective, Sweden has a clear-cut, comprehensive approach to tax and reporting that does require specialist knowledge to navigate successfully. However, even with the challenge of collecting accurate, comprehensive payroll data, Sweden has one of the lowest percentages of data input issues in the world, at just 38.9%. The volume of specific detail required for Swedish payroll helps explain the need for more than nine days to complete payroll runs, on average, as well as the high number of issues per 1,000 payslips — the highest count in the world according to the 2019 PEI.
Hong Kong regains its place at number three on the Forbes list, after slipping to sixth last year. The Asia-Pacific nation ranked first overall for taxes and tied Singapore and Switzerland for the top spot for trade freedom. As one of the fastest growing markets in the APAC region, Hong Kong has several unique advantages when it comes to attracting international business, including a highly educated, English-speaking population that is well-versed in Western culture and a corporate tax rate of just 16.5%.
While the payroll system in Hong Kong can seem lax compared to that of other countries, there are several specific data and reporting requirements that can present a challenge. This helps explain the high average rate of data input issues, reported at 82.6% in this year’s PEI. Additionally, strict reporting and payment rules regarding leavers may account at least in part for the country’s 23.8% supplemental impact, the highest average for the APAC region. Because of the volume and variance of payroll and reporting regulations in Hong Kong, it’s advisable for companies expanding into the country to seek out professional payroll advice.
Having ranked in the top 10 Best Countries for Business since 2015, the Netherlands consistently scores well in the areas of personal freedom, technology, innovation, and property rights. The sixth-largest economy in Europe is also one of the continent’s most stable, with persistently low unemployment, a high trade surplus, and good industrial relations. Fully 90% of the Dutch workforce is fluent in English, and the national government places a high value on R&D, with various incentives that benefit innovative businesses.
When it comes to payroll, the Netherlands system is more complex than the other top-ranking European countries, with multiple changeable factors determining an employee’s pay and withholding each payroll cycle. This, along with the cultural expectation for all employees to be paid by the 24th of the month, makes for a challenging payroll process — and explains an average calendar window of more than seven days. A first-time approval rate over 80% and a supplemental impact rate around 7% indicate that that processing time is well spent.
A regular fixture in the Forbes top ten, New Zealand is among the top-ranked nations for investor protection and personal freedom, and placed first this year for lack of both corruption and red tape. The smallest economy of the top 20 countries, New Zealand is credited with transforming its once highly regulated economy into a dynamic free market that welcomes foreign investors and sets an enviable example for smaller countries around the world. The nation weathered the global financial crisis better than most, and its 3% economic growth rate is consistently one of the best in the developed world.
New Zealand payroll is relatively easy to navigate, although employers new to the nation may want an experienced partner to ensure their payroll is set up correctly. When it comes to performance, New Zealand stands alone in the world with the only supplemental impact rate below 1%, as reported in the 2019 PEI. The country also has the third-lowest rate of data input issues at just 34.7%, as well as a long calendar length, averaging nearly eight days to process payroll from data lock to approval.
The Rest of the Best
The top 10 list of the Best Countries for Business is completed, in order, by Canada, Denmark, Singapore, Australia, and Switzerland. Each of these nations have featured previously in the top 10, and the reasons behind their rankings are impressive irrespective of rank. To understand more about how to measure and monitor global payroll in these and more than 120 other countries worldwide, download the 2019 Payroll Efficiency Index.