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  • Writer's pictureAharon Navon

It's Easier than You Think to Hedge Your Currency Risks for International Payroll

Updated: May 26

As companies and employees alike embrace the freedom to hire or work internationally, geographic restrictions in corporate work structure have largely disappeared.

But this presents a huge new challenge - paying salaries to team members located across the globe in multiple currencies. A DevOps engineer who’s based in Mumbai may report to their supervisor in Palo Alto, while a graphic designer in Barcelona coordinates with the Tel Aviv office - that's already four currencies involved.

And this is especially true when you consider that the FX market is constantly fluctuating. This poses a serious risk to SMEs when it comes to financial stability and security. An employee's salary in October could be significantly different in December, depending on currency movements. How can you plan your annual HR expenses under such circumstances? In short, you can’t.

The solution sits with adopting FX hedging strategies. This is nothing new to larger organizations but has been rather complex for SMEs, until now. Welcome to Discrete Hedging.

International Payroll and FX hedging: What are the biggest challenges?

SMEs now need to contend with different currencies while paying their employees, a risky and confusing reality. This is especially true for organizations that are not experienced in the complicated world of foreign currency exchange.

For example, a U.S.-based company with employees in Mexico or India, forward FX hedging can ensure that payroll costs remain stable, enabling easier annual financial planning. Under the principle of positive carry, FX hedging can even add to a company’s cash flow, if you lock in their rate at the right time before a currency’s value fluctuates.

SMEs could be losing money each month based on global trends and the whims of the market if they don’t implement FX hedging strategies. And of course, the more currencies involved, the higher the likelihood of unfavorable market movements. There are many moving parts to keep track of, and in-house HR and Finance teams are likely unequipped to tackle this challenge. When you also consider the record levels of inflation we are seeing, skittish investors are seeking out SMEs that embody stability, and monthly expenditures that are constantly shifting will appear less than reassuring.

Salaries are often the most costly component in company expenditures and therefore can not be left to the force of economic whims. Aspike in monthly payroll costs would cause a ripple effect throughout an organization. In short, there is no stability - and stability is crucial to business planning.

In this environment, every dollar counts. To protect themselves from volatility and loss, it’s critical that SMEs utilize FX hedging.

What the ideal FX payroll hedging solution looks like

In order to build the right FX hedging strategies for payroll, you need to conduct some internal research. The first step is identifying the relevant FX currency pairs (e.g, USD/MXN) and exchanges that are commonly used by your organization. It’s key that you determine which transactions had the greatest impact on your business.

FX hedging | Payrolls

FX hedging can provide valuable insurance for your business - the kind that can’t be guaranteed through traditional banking solutions. You can also micro-hedge expenses as they come in, in order to protect against individual exposures. Even smaller expenses made in foreign currencies can quickly add up.

Business travel, for example, might seem like a small scale expenditure when viewed through the lens of a case-by-case basis. But if 2,000 employees travel annually, each spending $2000 in their local currency, that sum rapidly becomes a significant amount that needs to be considered through the lens of FX rates. Even slight deviations in the value of currency can result in a major loss in this scenario.

The most crucial aspect of your FX hedging strategy specifically for your business is ensuring that it removes the risks associated with currency loss. At the end of the day, you need an FX hedging tool that empowers you with the ability to act fast, lock in rates quickly, and make decisions down to the smallest expenses. Agility and speed are critical in mitigating the risks of FX fluctuations, and you need a program which can help you respond swiftly to changes in the market.

Finally, it’s key that your solution be convenient, automated, and easy to use. The key to actually getting the most value out of your HR FX hedging solution is by making sure that it’s intuitive and user-friendly, and can be seamlessly integrated into your business’ existing Finance and IT infrastructure.

Your FX hedging strategy for payroll: Moving forward

A robust FX hedging strategy, and a tool that helps you implement it, is no longer optional. In today’s volatile markets, FX hedging is critical for protecting your organization from unnecessary revenue loss and ensuring much-needed stability within your company’s monthly expenses. If you don’t face FX fluctuations head-on, you risk putting your organization’s financial wellbeing at the mercy of an unstable and unpredictable market.

Grain provides SMEs an easy-to-use, hassle-free hedging platform that provides an easy way to lock in rates quickly at a fraction of the price of traditional banking solutions. In an unpredictable market, Grain provides security and stability when it comes to FX hedging and managing currency risk.

Get in touch with us. We’d love to tell you more about how we can help.

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