COVID-19 created a significant shift in how businesses operate, mainly how they hire, onboard, and engage their employees. The days at the proverbial “water cooler” have been replaced with a disparate workforce gathering on Zoom to discuss supply chain issues. While some business leaders have advocated for a “return to the office,” most company executives realize that remote work is here to stay. For those organizations that have embraced the “new normal” of a work-from-home environment, the pool of potential new hires has widened. No longer confined to a specific city, state, or region, US companies are hiring employees from all over the globe. And, while there are challenges such as ongoing compliance, technology gaps, and currency volatility, the business impact is positive. Unfortunately, when it comes to currency volatility, companies are overlooking potential risks. Consider earlier this month when a once-in-a-generation moment occurred: the Euro and the US dollar reached parity. The last time the two currencies were of equal value was in 2002, 20 years ago. Or, the Israeli shekel plummeted by nearly 9%, falling from its 20-year high. See a pattern yet? How can companies paying workers overseas ensure they do not lose a significant share of revenue to payroll costs? What Does Currency Volatility Mean for Global Payroll? Foreign exchange volatility is an ongoing challenge for companies with a global presence and an international workforce.  Why? Because while a company might generate revenue in US dollars, their payroll cost, if it’s in Israel, might be in shekels. If your sales are in dollars, you don’t know what that translates into in shekels until you transfer funds from one currency to another or vice versa. Case Study: Layered Hedging 101 Hedging is a financial tool that helps mitigate the monetary extremes caused by market fluctuations. It allows a company to lock in an exchange rate at historically very high levels and secures that for three, six, nine, or 12 months. And once complete, the company knows that the cross-border payroll that comes in for the next 3-12 months to the amounts they have hedged have been locked in, and they will be getting top pounds, euros, or shekels for those dollars. The most basic way to hedge is what’s known as a layered hedging strategy. A layered hedging strategy is like an insurance policy. Imagine living in a flood-prone area. You can’t prevent the flood (i.e., natural volatility), but you can pay a monthly fee to ensure against it. If the flood never comes, the homeowner “loses” because there’s no payout. But by the same token, their “loss” is a “budgeable” manageable expense.     Now, in returning to the euro or the shekel, the analogous risk is that if the euro or shekel continues to depreciate or the dollar continues to appreciate, what ends up happening is you’ve lost out on potentially taking advantage of more favorable market movements. The upside is if you’re able to pick the top of the market, which is very difficult, then you’ve got the top dollar. Layered hedging locks in a price point somewhere between those extremes. Another advantage of layered hedging is that you don’t have to lock in a rate all at once; hedging can be done in tranches. Likewise, hedging is generally helpful when it comes to invoicing […]

The post Paying Workers Globally Doesn’t Have to be Complex appeared first on The Yeshiva World.