When you’ve decided to expand internationally and found a few star candidates in other countries, the next hurdle becomes clear: How are you going to pay them?
Paying global employees involves more than simply adding them to your company’s existing payroll. It requires in-depth knowledge of local regulations, plus the infrastructure to handle and document all the nuances of paying a global team.
Creating a thorough global compensation strategy protects you from potential tax or compliance issues and builds positive morale in your team through timely, consistent, accurate payments. Here’s how to get started.
How to Pay Employees Internationally
When paying and hiring international employees, you have a few different options with varying levels of complexity. If you’re looking to hire someone for a short-term project on a part-time basis, you’ll require vastly different global payroll services than if you’re planning to onboard a full team of local employees in a new country.
Here are the main options to consider:
1. Establish an Entity
If you’re planning to grow your operations in a specific country and hire a large number of employees, you may want to establish an official business entity in that country. This allows you to set up a legal business presence in a new country, set up a local payroll, and process all payments through your international entity.
Setting up an official entity allows you to create a strong presence in your new market and establish a consistent subsidiary that can manage payroll for all employees in that country. However, it does require significant research, planning, costs, and potentially take months to set up. Here are just a few steps you may have to complete to start paying global employees under your legal entity:
- Establish an official address in your new market
- Register your business with the local government
- Pay any business setup fees
- Open a business account with a local bank
- Appoint a local registered agent who can oversee legal documents for your entity
Payroll requirements can vary greatly based on where you want to operate. When setting up your entity, be sure you understand your tax obligations, overtime requirements, and relevant financial deadlines.
2. Hire Contractors
When working with international contractors, you may be able to process their pay through your company’s existing payroll. Because contractors typically pay for their own taxes and don’t qualify for benefits like time off and health insurance, this option can be cost-effective. If you’re taking this route, however, it’s important to have a crystal clear understanding of who qualifies as a contractor versus an employee—both in your country and the country in which you’re hiring.
Correctly classifying employees and contractors ensures that you’re fulfilling your obligation as an employer for key regulatory issues such as taxes, benefits, health insurance, and overtime. Some areas, such as the United Kingdom, have several different employment categories—each with its own legal entitlements to pay, benefits, and a certain scope of work.
To pay your international contractors, look for a reliable, secure payment platform that aligns with regulations in their home country. You’ll also want to set up a system for processing their invoices. Carefully keep track of your contractor relationships to ensure that their role doesn’t change over time and result in future employee misclassification.
3. Partner with an Employer of Record (EOR)
If you plan on hiring individuals that are legally classified as employees but don’t want to launch a new international business entity, you can partner with a trusted EOR. An EOR acts as the official, legal employer for the international workers you hire, allowing you to seamlessly welcome people from all across the globe onto your team.
Partnering with an EOR outsources several aspects of hiring and managing a global team, including payroll. You pay the EOR for their services, typically including the cost of global employee benefits packages and salaries, and they then handle all payments for your international employees. EORs use their own local contacts and in-depth knowledge of employment law to ensure that your company experiences no global payroll compliance issues and adheres to all legal and tax requirements.
EORs are especially useful if you want to hire in several different countries. Instead of going through the tedious process of setting up a new business entity every time you want to hire in a new country, you can leverage assistance from one single EOR partner. An EOR can also help you ensure that you’re classifying contractors correctly, and even transition contractors into full-time roles.
The Challenges and Risks of International Payroll
Managing payroll across borders involves plenty of legal and administrative red tape, so the process naturally comes with a few risks. Even if you’re partnering with an EOR that can shoulder the responsibility of international payroll processing, it’s helpful to be aware of the main global payroll challenges before you start hiring any overseas employee.
Labor Law Requirements
Complying with local labor laws is one of the top concerns for employers with international workers. Misunderstanding how employees are classified, providing the wrong employee benefits, or disregarding termination guidelines can have both legal and financial consequences. Working with a market expert can help you avoid fees related to labor law violations and ensure that you maintain a positive reputation with your international team.
If you’re working with an employee in a different country, you likely have some sort of tax obligation. This involves submitting payments by specific deadlines and keeping track of your tax records in the event of an audit. Your EOR helps you withhold the correct amount for taxes, make payments on time, and manage your documents.
Fluctuating Exchange Rates
Paying your employees in the right currency involves contending with currency exchange rates. Banks often add fees to currency exchange transactions, inflating your payroll costs. Currency values shifting with the economy can also impact your overall payroll expenses. Building some extra space into your budget when sending a job offer can help offset these potential costs.
Key Tips for Managing an International Payroll
As you prepare to onboard an international team and send out your first pay slips, consider how your payroll systems will function long-term. Pay attention to these considerations when ironing out the details for your international payroll:
Tip #1: Review Partner Qualifications that Match Your Needs
If you’re planning to partner with an EOR to assist with your payroll management, you want to make sure that they can support your team. Start by looking for EORs that already have entities in the countries where you potentially want to hire. This lets you hit the ground running when you find the perfect hire and indicates that the employer of record (EoR) already has in-depth experience with that country’s laws, regulations, employment practices, and labor market.
Tip #2: Timely Payments Increase Employee Satisfaction
Payroll can have a significant impact on your employee relationships—setting up a consistent, reliable pay cycle can help you establish a positive, trusting rapport. Ensure that you choose a trustworthy payment platform to provide timely payments, whether you’re working with an EOR or paying contractors through your own internal payroll.
Research labor laws in each country to determine any requirements for pay frequency, such as monthly or biweekly payments. This helps you meet your international employees’ expectations and avoid any confusion over their pay schedule. When operating in multiple countries, you may end up needing to pay certain employees on different pay schedules, so keep careful track of your pay cycles to provide a consistent experience for everyone on your team.
Tip #3: Know What Constitutes Fair Compensation
Different countries and regions have their own standards for fair compensation. Creating a policy to guide your international compensation strategies can help you determine a fair market pay rate for employees in different countries. When considering compensation, consider the candidate’s employment classification, benefits, and other standard perks they may expect.
Tip #4: Align Your Partners With Your Future Goals
Your international payroll may not always look the same. Even if you’re starting out with a few overseas contractors, you may one day hope to have full-scale operations in different countries. Develop a payroll plan that can grow with you, such as partnering with a prolific EOR that has the resources to scale your global team.
Master Global Payroll With Omnipresent
Whether you already have a global team or are just dipping your toes into the international talent pool, picking the right payroll partner can set your global team up for success.
Omnipresent’s comprehensive global payroll services provide you access to end-to-end payroll support in over 160 countries, giving you free rein to grow internationally. Our team of payroll experts understands local tax laws, regulations, and cultural expectations to help you enjoy the benefits of an international team with none of the stress.
With Omnipresent, your company can be just that: anywhere and everywhere.