How to pay remote workers compliantly
To stay ahead of your competition, you need to hire the best talent, regardless of location. This often means recruiting remote workers across the globe, but paying remote workers can be tricky, especially when they’re internationally distributed.
Getting international payroll right requires time, resources, and local expertise. You need to set up a compliant payroll system for each country or region your remote workers are based in, taking local paydays, contributions, taxes, and regulations into account. Getting it wrong can put your business at risk of fines or legal action.
But this doesn’t mean you should avoid hiring globally or accept the heavy administrative burden when you do. This guide will not only explain how to pay remote teams, but also how you can use an effective global payroll solution to reduce compliance risk, save time, and increase employee engagement. We’ll cover the most important elements of international payroll, including:
- When to pay remote employees
- Which employee and employer contributions are necessary
- How to determine a remote employee’s tax residency
- Which currency to pay international workers in
- How to save time and reduce risk by using a global payroll solution
How to Pay Remote Employees Locally Vs. Internationally
If your remote employees are based in the same country or region as your company, paying them is pretty simple. Generally, you should use the same process as you would to pay office-based employees: add the employee to your payroll system, pay local contributions, and deduct relevant taxes from their income.
However, paying remote staff based abroad (or in some cases, in another state) is more complicated. Usually, you’ll need to set up a local entity in that location to pay staff compliantly. This can be very time-consuming, especially if you hire remote workers from multiple jurisdictions.
Because of this complexity, some companies assume that contracting will solve their remote payroll issues. But misclassifying an employee as a contractor is regarded as non-compliance and severely penalized by local authorities.
Luckily, there’s an easier solution that’ll keep you out of trouble; you can use an Employer of Record (EOR) service like Omnipresent. EORs employ staff in their respective locations on your behalf, so you don’t need to set up a permanent entity abroad. While the EOR is technically the employer for your chosen talent, the remote worker is assigned to your company and will carry out the tasks you set them. In addition to employing your remote workers, an EOR will also be able to pay them and do so following local regulations and customs, allowing you to focus on growing your business.
The information below is essential reading for those who want to learn more about paying their remote teams, but if you’d like a global payroll solution to take care of that for you, feel free to skip ahead and we’ll show you how to get started.
When Should You Pay Remote Workers?
Each country or region has different regulations and customs that determine when employees should be paid. To understand when to pay your remote workers, you need to research their particular region’s payday and pay cycle regulations, as well as the customs for the type of work they’re doing.
Pay cycles indicate how often and when employees are to be paid. Depending on the nature of work, pay cycles can be daily, weekly, bi-weekly, twice a month, lunar, or monthly. An employee’s pay cycle should be specified in their employment contract.
Payday generally falls towards the last day of the pay cycle if it’s not a monthly cycle, or towards the end of the month if it is monthly. However, international payday rules differ from country to country and even region to region, so you need to be aware of local regulations when hiring remote workers. For example, in Canada payday and pay cycles vary by province.
It’s also important to remember that many countries have a mandatory or customary 13th or 14th month pay. This is a form of compensation paid in addition to an employee’s annual salary, and payment dates are tied to local regulations and customs. Ignoring mandatory 13th-month pay could lead to non-compliance fines or legal action against your business. While not required, customary 13th-month pay should be honored as it can impact employee retention and acquisition.
In summary, it’s crucial that you’re aware of local pay cycles to keep your business moving forward.
How to Calculate Employer And Employee Contributions for Remote Workers
Employer and employee contributions are mandatory payments that contribute to a deferred benefit, like a pension or healthcare. They have to be paid in accordance with the law of the country or region where the employee is resident, so it’s important to confirm your remote worker’s tax residency when you hire them.
Common types of employee and employer contributions are:
- Payroll tax
- Unemployment insurance
- Pension or superannuation funds
Each jurisdiction will calculate payroll taxes and mandatory contributions for remote employees according to local regulations. In some cases, employers will match employee contributions; in other cases, they don’t have to. Certain jurisdictions, like South Korea, have relatively high contribution requirements, whereas others, like South Africa, have much lower stipulations.
To give you an idea of how much these contributions vary from country to country, here’s a brief example:
|Country||Employer contributions||Employee contributions|
|South Africa (companies with a payroll over ZAR500,000 (approximately $33,000) per annum||
In addition, some countries, like Australia, will set specific national standards, while regions or provinces can stipulate the percentages of employer and employee contributions locally.
There are also intra-national regulations to ensure that contributions are being paid properly. For example, the EU provides clear guidelines about contributions and entitlements that apply to cross-border workers.
To calculate employer and employee contributions for your remote employees, you will need country or region-specific knowledge to stay compliant. But contributions are continually subject to change, so we recommend partnering with a global payroll provider to help you stay on top of regulations and pay your remote staff compliantly.
What Is Income Tax for Remote Workers?
Income tax is a mandatory tax on earnings paid by an employee to their local tax authority. When it comes to remote workers, working out where and how income taxes are paid can be confusing.
Where Do Remote Employees Pay Tax?
Employee income tax is paid in the country where employees are tax residents - not where the company is based. A remote worker’s tax residency is determined according to their citizenship, right to work, and how long they have, and will continue, to live and work in a country.
It’s worth noting that some workers are subject to more than one form of income tax. The United States, for example, has a federal income tax, while some states and cities have an additional income tax, too. Where applicable, remote employees pay income tax in the state and city in which they reside, but you need to be aware that there are exceptions to this rule.
How Do You Calculate Income Tax for Remote Workers?
In some countries, like Bangladesh, employees can file income tax themselves before an annual deadline. More commonly, income tax is withheld from an employees’ monthly pay and paid to the respective tax authority by the employer.
To calculate employee income tax for your remote workers, you need to know the applicable tax codes, brackets, or rates for each employee to ensure their income is taxed correctly. If your payroll process doesn’t withhold and pay the appropriate tax, your business may risk non-compliance fines or legal action.
Most jurisdictions have progressive income taxes based on how much an employee earns - the higher the income, the higher the tax percentage they pay. However, some countries like Romania, Ukraine, and Bulgaria have a flat-rate tax percentage for all employees, regardless of their income.
Do Remote Workers Get Tax-free Pay?
Remote workers generally do need to pay income tax, but in some jurisdictions, they may get tax relief or deductions on specific items, such as home office equipment. This is called a remote work allowance, and it’s become more widely available to employees since the COVID-19 pandemic started.
If you want to learn more, read our article on remote work allowance.
Which Currency Should You Use to Pay Remote Employees?
Many jurisdictions require you to pay your remote workers in the local currency. For example, an employee based in Brazil must receive their salary in Brazilian Reais (BRL), even if your company’s primary operations are based elsewhere.
In some countries and regions, currency regulations are less stringent, so the pay currency is agreed upon within the employment contract. In this case, employers may specify non-local base currencies or allow a fixed exchange rate to ensure stability in payments for both the remote employee and the employer. This helps to mitigate exchange rate fluctuation and issues with high inflation.
Where the employer can’t specify alternative base currencies within the employment contract, Omnipresent can help you mitigate currency fluctuation risks by drafting a separate legal agreement. Feel free to book a free consultation to find out more.
Partner with a Global Payroll Provider to Pay Remote Workers with Ease
A smooth-running international payroll system managed by a trusted global payroll provider allows you to focus on high ROI activities instead of administration. Outsourcing HR functions like international payroll significantly reduces compliance risk and enhances employee engagement and productivity, too.
But not all global payroll services are the same, so you need to find one that works best for your unique business needs. Omnipresent offers a holistic global payroll solution in over 150 countries to make paying remote teams simple, cost-effective, and compliant. Our EOR service allows you to hire and pay the best talent, irrespective of location and without setting up local entities.
Our customer-focused, technology-enabled remote payroll solution also offers:
- One consolidated invoice to pay all remote staff
- A secure and user-friendly digital platform
- Improved employee experience
- Tailored benefits packages
- Advice on salary benchmarking
- Local expertise to mitigate risks
If we’ve piqued your interest, get in touch for a free consultation today.
*Local tax and contribution percentages are subject to regular change. All data presented here is accurate at the time of publication.