The workplace has evolved, and having a global team is easier and more advantageous than ever before. Hiring the right person for the job no matter where they’re based can be highly beneficial, but you might find yourself scratching your head when it comes to payroll.
International payroll processing can be a significant challenge for businesses, as properly adhering to the payroll processing standards in each country can lead to numerous compliance issues. So before you get started building a global team, let’s take a closer look at what you should know about the global payroll process.
What Is International Payroll Processing?
In HR, international payroll processing refers to adhering to foreign pay and taxation regulations in order to pay staff abroad. International payroll processing also accounts for the act of keeping records for all payable staff, their compensation, and the applicable social costs in a given jurisdiction.
Getting international payroll processing right is of paramount importance, not only for employee retention and satisfaction but also for your company’s image and legal compliance.
How to Do International Payroll Processing
When it comes to doing international payroll, finding the right process and solution is crucial to improving efficiency and staying compliant. Your business can do international payroll processing internally, but you’ll quickly find that adhering to all the relevant local tax codes and employment laws can be incredibly research-intensive and time-consuming.
Therefore, businesses often use an international payroll solution to simplify the process, remain compliant, and mitigate legal risks. Three common payroll solutions businesses use are:
Payroll Software
Automated payroll processing software allows you to easily manage tax withholdings, deductions, benefits, and compensation. Payroll software is a versatile tool that can help all kinds of businesses manage their payroll systems.
However, most payroll software isn’t built for international payroll processing, so it may not be the solution your business needs.
Hire an International Payroll Provider/PEO
Global payroll processing services are companies that specialize in handling international payroll. They take care of paying your employees, keeping and processing payroll records, taxes, and more.
International payroll services, like PEOs, eliminate the need for your business to research the payment regulations and tax situations in order to pay compliantly across the globe. However, it’s important to note that although they simplify global payments, international payroll providers don’t necessarily solve other employment challenges that global teams may face, such as providing benefits or mitigating other employment risks.
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Use an Employer of Record
An employer of record is a company that employs talent on your behalf, eliminating the need for you to establish a local entity. An EOR can manage payroll and taxes for your company, in addition to handling onboarding, employment contracts, benefits, and more.
Because EORs simplify two considerable barriers to global employment, they’re very attractive solutions to businesses who want to hire global talent or expand their business internationally.
How to Manage International Payroll Processing In-house
On the surface, the procedure for international payroll is similar to how companies do payroll traditionally. However, managing international payroll in-house is no simple task. For it to be done accurately and compliantly, the following steps should be taken:
Establish a Local Entity
Businesses need to establish local entities and register with the proper authorities for the countries in which they operate. This is essential for remaining compliant with local tax laws, employment regulations, and more.
Establishing a local entity can be exceedingly complex and opens the door to legal liabilities, which is why so many businesses turn to global employment services like Omnipresent rather than doing it themselves.
Understand Local Payroll Taxes
Employers must submit payroll taxes and essential contributions to pension funds or state health services to the proper authorities or third parties at the right time.
Payroll taxes are often made to different governmental bodies to support various programs in each country, so businesses must do their research to ensure they’re remaining fully compliant and remitting the appropriate local payroll taxes.
Establish a Payroll Process
Each business will need to establish a payroll process. This will look different from business to business and country to country, but generally speaking, a payroll process accounts for:
- How frequently payroll is run: Your business’ payroll schedule determines whether you pay employees weekly, bi-weekly, monthly, etc. Some jurisdictions will require payroll to be run at a specific frequency. In other areas, payroll schedules are determined at the business’s discretion, depending on the types of employees and cash flows.
- Types of employees: Depending on whether a business hires primarily full-time, part-time, or contracted employees, they’ll need to follow different requirements and use different forms to remain compliant.
- Employee benefits: The types of benefits your business offers and those required by local jurisdictions must be accounted for when processing international payroll.
- Employee payment: Your business must determine how it will calculate payroll and compensate its talent. Payments are typically made through direct deposit, but your business could use other options such as checks, pay cards, and more, depending on local laws and regulations.
File the Appropriate Payroll Documents
Every employee must fill out paperwork before receiving compensation. The types of documents will differ from country to country, so it’s critical to use the correct forms when processing international payroll, as using the wrong forms could lead to a series of compliance issues and fines. Once employees are enrolled onto your payroll system, you can assign them a payroll number for easy identification.
Run Payroll and Pay Employees
Finally, your business is ready to run payroll! At the end of each pay period, you’ll record the total hours worked and the necessary deductions for payroll taxes and benefits before paying each employee the appropriate compensation. Alongside payment, you will typically need to distribute compliant pay stubs to your employees containing all the relevant information about their paycheck.
Keep Your Records
Don’t forget to keep detailed records of your business’ payroll process. When it comes to managing international payroll, it’s essential that businesses document their payroll process in case a regulatory body makes an inquiry, an employee disputes their pay, or if you hit any other snares throughout the payroll process.
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