How to Pay International Employees. Comparison of the Best Cross-Border Payroll Services
Growth-oriented businesses with a global outlook hire a diverse workforce comprising local and international professionals. While you might be impressed by their successes, you may not know the challenges they have to handle to keep their workers satisfied and motivated across borders.
Are you an aspiring entrepreneur, freelancer, manager, or business owner? Is hiring someone from another country or finding a legally affordable and efficient way to compensate your foreign-based team running through your mind? This article will show you everything you need to know about paying international employees without getting outlawed.
What is the Right Way to Pay International Employees?
The right way to pay your international employees depends on several factors, and you will have to think about the situation and options available to make the most suitable choices. Here is how to go about it:
Properly classify your global workforce
The first step to paying your international workers is to make a proper classification of them. Are they freelancers (short-term external skilled service providers working on temporary and flexible tasks), independent contractors (mid- to long-term external experts on significant projects), or permanent employees (internally working part-time or full-time on strategic goals)? It is important to know the difference between these categories of workers and how they are treated according to the labour laws in their various countries of residence. This will help you avoid international hiring mistakes.
Choose between establishing a local entity, hiring a contractor, and using an employer of record
When you have clearly defined by law who your foreign-based employees are, you need to decide on the manager of your international payroll. Popular options to consider include opening a local legal entity, obtaining the services of an employer of record (EOR), and hiring a trusted contractor or third party.
Legal local entity
Registering a local entity in the foreign countries where your employees work is one of the best ways to legally hire and pay them. It is a traditional approach that requires establishing a branch, subsidiary, or representative office in a foreign country. This option also involves opening a business account abroad. You can use your local legal entity to pay your international employees and manage all taxes. However, this option is ideal only if you have many foreign-based workers. It is not worth the stress if you have only a few employees in another country. Instead, use another cost-effective method.
Contractor or third party
You can use a trusted third party or contractor overseas to pay your international employees. This party will act as the home-based employer of your employee, managing payroll, social security obligations, and taxes. Your role in this arrangement will be to wire the money that they will use to pay the salaries and wages of your overseas employees. Try to find the best payment services for sending money to certain countries—we have some top picks for Ukraine, Spain, Germany, France, and China. But you must ensure that the contractor or third party is trustworthy to avoid becoming a victim of wire fraud.
Employer of record
Some businesses prefer to use a specialised third-party organisation known as an "employer of record" (EOR), which can hire local employees on behalf of its principals and pay them by the foreign country's legal requirements. EORs perform all day-to-day human resource functions for global companies and those that have an international workforce. They are a more affordable option than opening local subsidiaries.
Create a budget for international payroll
It is said that "failing to plan is planning to fail." Similarly, the success of your international payroll management is determined by your financial plan, which is your budget. Therefore, you need to create a corporate budget (not a personal budget) to ensure that you have a clear forecast of your weekly or monthly income and expenses for paying your foreign-based workers. Choosing a local entity, contractor, or EOR will require having a good knowledge of the total costs, which your budget should show.
Get legal advice
Overall, you should consult a reputable legal adviser to ensure that you are paying your international employees correctly. If you already have one in your team, say in the legal department, consult him or her to know the best way to go about paying their colleagues in foreign countries. But if you lack such an in-house professional, try to get external help. You need a legal practitioner who is an expert in international employment law to guide you in making the right choices. While this might not be a cheap move initially, it will save you from the huge expenses involved in settling international employment disputes, especially those relating to hiring, paying, and firing employees.
Use a reliable international online payment service
Growth-oriented businesses embrace modern technologies, global systems, and best practices that enable them to reduce operating costs and dominate their markets. They know how to take advantage of industry trends, including those about banking, digital payments, and financial technology.
Today, there are many online money transfer services that have emerged due to the digital transformation of the global banking industry. Small and medium-sized businesses can use some of them to conveniently pay their international employees. We will tell you more about them in the next section. Take advantage of this opportunity.
Comparison of the Best International Payroll Service Providers
Not every money transfer service has the capability to enable you to pay your global workforce. That is because some of them are specialised in providing certain kinds of services. What you need is a global payroll service that is affordable, secure, safe, reliable, and fast.
Below is our comparison of the best online money transfer options for global businesses. They provide batch (or bulk) payment services that enable business owners to pay many employees in different countries. You can use them to make single clicks on your smartphone after uploading the bank or card details of your workers, and they will get their money in their preferred currencies. Choose from among them and get your global workforce smiling every payday.
Note: Before opening an account with a global payroll service provider, please read the terms and conditions of their service or contact their support team for answers to any questions you may have.
Challenges Businesses Face When Paying Foreign-based Employees
Paying your international employees comes with some challenges that you will need to plan to overcome. They are as follows:
Understanding different local employment laws
Apart from recruiting the right overseas worker for the job, you will also need to comply with the laws of the country concerning the employment of the resident. The stress involved in this task is not only in obeying the current law but also in staying up-to-date with regulatory changes. Also, you need to remember the benefits that your foreign employees are entitled to.
Understanding and following different local labour laws can be overwhelming if you do not have local partners or experienced advisors in the host countries of your employees. Failure to stay legally compliant can lead to financial penalties, restricted access to the market, or even operational bans.
Managing accurate and timely tax filings
One of the biggest challenges with having international employees is managing taxes and declarations. Some countries fine companies that fail to present regular employment records, keep unpaid balances, or fail to file their tax reports on time. Moreover, the deadlines for tax submission are not the same as you expand your workforce from one country to another.
Reducing international payroll costs
Paying international employees can be costly if you do not know affordable ways to go about it. Many experienced companies use money transfer services that offer bulk cross-border payments while charging low fees. You should consider doing something similar because you need to save enough money to keep your business running while compensating your global team for their services.
Becoming a permanent establishment abroad
The risk of becoming a foreign permanent resident is also worth preparing for if you want to maintain your team of international workers. Why is this necessary? As you continue to carry out commercial activities abroad through your local subsidiaries, depending on the legislation, the tax authorities of the foreign country might later consider your business a “permanent establishment” and charge you corporate tax. So, you need to be clear about how you want to run your international payroll and get as much information as possible about doing your kind of business in an offshore jurisdiction.
Maintaining international payroll processes
As your company gets more international, the financial compliance and reporting process becomes more complicated and challenging. It can get to the point where you will need to hire an EOR to help you manage your global workforce. You will need both professional assistance and computer-aided solutions for cross-border administrative functions relating to payroll, such as salary calculations, accounting for overtime, social contributions, and tax deductions.
Getting the best systems for foreign payroll
Other significant issues with paying international employees include human errors caused by manual data entry, time wasted from payroll calculation, data loss due to cyber insecurity, and the difficulty of managing complex processes. To tackle these challenges, you will need to get the most reliable and affordable payroll software and remote HR tools.
Benefits of Using Global Payroll Solutions for International Employees
Using global payroll solutions, such as an EOR, Square, or Payoneer, can help your business enjoy several advantages while ensuring that international employees are well compensated. They include the following:
Payroll cost reduction through efficient compliance
Allowing a global payroll solutions provider to take care of all your international payroll needs will enable your HR team to focus on other important responsibilities. In that way, they will not get overworked with complex salary payments, tax calculations, and the administration of employee benefits. Furthermore, you will be able to save money that would have otherwise been spent on hiring more in-house staff or, in the worst-case scenario, paying penalties for making employment mistakes overseas or failing to comply with international regulations.
Stronger data security
Using a global payroll service provider will help you build stronger data security and a more reliable payroll fraud reduction system. With fewer people having access to payment data and more automated processes involved, the chance of money laundering and other types of fraud in the workplace will reduce.
Increase employee satisfaction
Employees like to receive their payments in an accurate and timely manner. In other words, they want to trust you to always pay them the correct amount agreed upon during the most recent negotiation and to do it at the right time (payday). Without the help of an EOR or a global digital payroll service, there is a high chance of making mistakes that will hurt the confidence your international teams have in you. It will also decrease their levels of satisfaction and motivation, which can further lead to a loss of revenue. Therefore, you should use a global payroll solution provider to keep things running smoothly.
Yes, it is legal for a US company to recruit an employee in another country. However, the company must be prepared to face the challenges that come with having an international employee, such as unfamiliar labour laws and the risk of having to pay taxes in other countries.
Your employer can send your payment to your account through an employer of records, a local representative, a payroll contractor, or by means of a suitable global online money transfer service.
Yes, you can hire someone outside the USA to work for your company. There is no law against it. The role could be full-time, part-time, freelance, or any other work format.
Whether international employees are required to pay taxes depends on their citizenships, resident statuses, and countries of employment. For example, international employees working from outside the United States for a US-based company are not liable to pay income taxes to the US. He or she is a tax resident of the country in which they work, or as the local laws require.
Paying international employees is often a complex process that gets even more difficult as your business expands to other countries. However, with the help of the global payroll solutions that we have discussed and compared in this article, you should be able to overcome the challenges involved.
Do not lose your opportunity to hire and retain highly skilled workers because you cannot get them accurately and timely onboarded and compensated. With services such as Square, Intergiro, Wise, TransferGo, Payoneer, Paysend, and Revolut offering payroll management solutions and bulk payment tools, you should be able to keep the trust that your global teams have in you.