It is becoming more and more popular to hire remote specialists not only for the short-term projects but also on a long-term basis. Once you’ve found the right employees for your company, the next step is to figure out how to pay them. Paying employees based in different countries can be challenging. Afterall, your company can’t simply send them a check or directly deposit the money into their bank accounts, you have to take the country’s tax laws and employment policies into consideration to make sure you are complying to avoid fines and other costly repercussions.
Fortunately, figuring out how to pay international employees isn’t something your business needs to do on its own. You can work with a professional employee organization (PEO) also known as an employer of record (EOR) to hire and onboard team members abroad taking care of all tax, global payroll law compliance and even forex rates.
How Does Global Payroll Work?
Global payroll has many things in common with the payroll in your company’s home country. You need to be sure that your method of paying your team members complies with the laws of the country and that you’re withholding and paying the appropriate amounts of tax. Tax considerations when paying international employees include:
- Income tax: Your business will need to withhold the appropriate amount of federal income tax from employees’ paycheques, based on where they work, and any applicable regional, local or state income tax.
- Social Security: Many countries, not just the U.S., collect some form of social security tax from employees and employers. The amount of your company’s contribution can vary from country to country, as can the amount of the employee contribution.
- Payroll tax: In many countries, an employer needs to contribute to a payroll tax, such as unemployment tax and workers’ compensation, for each employee. The amount of the tax can vary considerably. It’s also worth pointing out that in some places, payroll tax might be regional or local tax as well as a federal tax.
When paying international employees, a business needs to make sure it’s withholding and paying the appropriate types of tax and the right amount of taxes. It also needs to make sure it is paying taxes by the right deadline. Dates, amounts and percentages avry greatly from country to country, the more global your company becomes the more of a full time job carrying out payroll can create, the more repercussions your company will suffer if something is missed, which is why outsourcing your global payroll to a global payroll provider and/or a professional employment organisation (PEO) can be such an important decision to make for your business.
An employer must withhold the appropriate taxes from a foreign employee’s paycheuqe, and the company must pay taxes to the appropriate government by the due date. A company also needs to keep records of taxes paid, as the tax authority in a foreign country may audit the company. That can mean that your business needs to hold on to any tax documents and receipts for years or run the risk of having to pay hefty fines if an audit reveals that you weren’t withholding or paying the right amounts of tax.
There are also legal differences to keep track of when paying a remote, international team. For example, in the UK, employers need to pay employees £94.25 per week as Statutory Sick Pay if an employee is sick and off of work for at least four days. An employer needs to pay sick pay for up to 28 weeks. In the U.S., an employer can offer paid time off for sickness but isn’t legally required to pay employees who are out ill. The Family and Medical Leave Act (FMLA) in the U.S. protects people who need to take time off from work due to sickness or other health concerns, but only for 12 weeks. FMLA leave can be unpaid.
Other legal concerns to keep track of when hiring and paying international employees include the documentation required by each country. In the U.S., for example, employees need to provide proof of citizenship or the right to work in the country, such as a passport, when they are hired. In other countries, an employee might need to present a national insurance number before they are hired.
Timekeeping can be a bigger concern when paying international employees compared to paying those who live and work in the U.S. In the U.S., non-exempt employees receive overtime pay once they’ve worked more than 40 hours in a week, but there’s no upper limit on how many hours per week a person over age 16 can work. That’s not the case in other countries. In many countries in the EU, for instance, the working week is capped at 48 hours. In China, labour law caps the working week at 44 hours. To avoid going over the limit, it’s essential that an global payroll processor includes a method to accurately record and report time.
Employees who live and work in the EU want to be paid in euro, while people living and working in the UK want to be paid in pounds. Paying your international team in the currency of their respective countries is beneficial for them but can be complicated for you. For example, if a foreign currency increases in relation to the dollar, your business can end up paying your international employees considerably more than you initially agreed.
One way to manage the difficulties created by fluctuating currencies is to outsource global payroll to a PEO, which can act as the employer of record for your international team members. Your company can pay the PEO employees in your local currency, and the PEO can issue paycheques in the currency of the employees’ country.
How to transfer salaries to your global employees
Before hiring a remote specialist, you both need to decide which way to pay a salary to your remote team. You should try to identify the best way to transfer funds to them with an attractive exchange rate fee, because in many countries (for example in Russia) it is compulsory to pay salary in the local currency.
A more cost-effective option might be to work with a PEO, which acts as the employer of record for your international employees, for example, TopSource allows you to outsource global payroll. We handle all of the details of making sure your international team gets paid on time and in compliance with the laws of the country where they live and work. We pay your employees on time and in their local currency, making sure that benefits and required taxes get paid, too.
How TopSource can support you
TopSource has set up a fast-track payroll service to make transitioning to using us as your providers easy, guaranteeing a simple on boarding experience to support compliance in as little as four weeks.
Simply contact us to find out more.
If you’re a TopSource customer, we can provide you with a separate payroll for your global payroll needs.
You can email firstname.lastname@example.org or call 0203 6915303.