Society for Worldwide Interbank Financial Telecommunication (SWIFT) for Remote Payroll

Introduction

The growing world of remote work allows companies to hire beyond borders, allowing access to top global talent, reduced costs, and increased flexibility. Remote workers also reap the benefits of abundant opportunities from around the world, making remote work a win-win. However, the advancement of remote work and hiring global teams also come with their difficulties.

Carrying out global payroll for employees in multiple countries, with various laws and taxation requirements, gets complicated fast. So how do companies manage global payroll while complying with international regulations?

The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, is a tool used for managing payroll across international borders. Keep reading to learn more about SWIFT, how it works, who uses it, and how it can help you manage remote, international payroll.  

What is SWIFT?

S.W.I.F.T., or the Society for Worldwide Interbank Financial Telecommunication, is a Belgian organization that provides financial transaction and payment services across international banking systems. SWIFT operates as an encoded messaging network to process international payments between banks.

As every country has its own laws, banking regulations, currencies, and more, exchanging capital across borders can be slow-moving and complicated. In 1973, SWIFT was founded to be the solution to this issue, and it was backed by 239 banks from 15 countries.

Today, SWIFT is the main messaging network for global payments and wire transfers, including payments to global employees and independent contractors.

SWIFT’s technology sends messages with financial instructions between international banks and institutions to carry out these transactions. SWIFT sends over 10 billion messages per year to assist transactions.

SWIFT is a member-owned group that requires membership to participate in. Over 11,000 banks in 200 different countries use SWIFT to facilitate wire transfers and monetary transactions.

Currently, the SWIFT messaging network is run in four operating centers, located in the United States, the Netherlands, Switzerland, and China.

How does SWIFT work?

SWIFT works as a secure messaging platform that members, namely banks, use to send information about financial transactions. Banks then perform the transaction initiated by these messages. SWIFT acts as a third party messaging system, and it does not retain or move capital itself.

Banks have financial relationships with many other banks, but not all of them. Thus, third-party messaging systems like SWIFT are necessary to communicate among them.

SWIFT is now the industry standard for the format of global transaction messages, thus most banks in the world can process its messages, even if they aren’t members of SWIFT themselves. SWIFT is often used to perform international wire transfers, as it’s able to connect foreign banks with its universal language.

Thus, SWIFT is commonly used in global payroll processes to pay employees with foreign bank accounts. When a global payroll transaction is initiated, the message sent between banks is carried out by SWIFT to communicate the process.

A SWIFT payment typically takes 1 to 4 working days. During this time, the transaction undergoes anti-fraud and anti-laundering checks. Each transaction also deducts fees and exchange rates of around 3 to 5%.

The ease and speed we recognize today of sending international wire transfers and bank transactions are made possible by SWIFT. SWIFT continues to cooperate with global organizations to define messaging standards, ensure security, and increase transaction speeds in our rapidly evolving, globalized world.

What is a SWIFT code?

To initiate international wire transfers and payments via SWIFT, you need to input the SWIFT codes of banks and institutions involved in the transaction.

A SWIFT code is the identity of an institution, such as a bank, in the SWIFT network. This code consists of a unique set of characters and numbers that shows information about its owner in a compact form.

SWIFT codes are recognized as the industry standard for identifying banks. Each character in the code gives you information about the bank or institution. SWIFT codes are also often referred to as a Bank Identifier Code (BIC).

A SWIFT code contains 8 to 11 characters in total, which translate to the name, country, city, and branch of the institution it refers to. These characters break down into:

• Characters 1 to 4 – Referring to the institution, bank, etc.
• Characters 5 to 6 – Referring to the country.
• Characters 7 to 8 – Referring to the city
• Characters 9 to 11 (if applicable) – Referring to the branch.

For example, the SWIFT code for the Bank of America is BOFAUS3N. In this SWIFT code, BOFA stands for the Bank of America and US refers to the United States. 3N refers to the local city of the specific bank, which in this case is the New York City headquarters.

SWIFT codes may be confused with routing or account numbers, as they are both sets of characters involved in transactions. However, they are very different sets of information, and it’s essential to distinguish between the two. A SWIFT code refers to a member of the SWIFT network, while a routing number is a 9-digit code that identifies an individual bank account.

In order to complete an international transaction with SWIFT, you need the names and addresses of both the recipient and their bank, the SWIFT code of the bank, and the recipient’s bank account number.

It’s essential to input the correct information and SWIFT codes when carrying out an international transaction. Failing to do so can lead to fines, late payments, late fees, and potential legal issues.

Who uses SWIFT?

Although SWIFT users began as banks, many types of financial institutions now use SWIFT for the majority of their transactions. To use SWIFT, an institution must be a SWIFT member. Those eligible to join SWIFT include:

• Banks
• Payment, securities and treasury market infrastructures
• Broker/dealers
• Custodians
• Investment managers
• Fund participants
• Corporates
• Exchanges
• Matching utilities
• Clearing houses

All of these types of organizations need secure and reliable methods of transferring money between international banks, and SWIFT allows them to do just that. These institutions primarily use SWIFT for payments (48% of transactions), securities (48%), and for trade and treasuries (4%), according to the 2021 SWIFT in Figures report.

Companies with global teams may want to use SWIFT to pay employees and contractors abroad. However, managing SWIFT payments on your own can be difficult or not available to your type of institution. Working with an employer of record like Skuad makes global payroll a breeze while maintaining legal compliance.

How does SWIFT work with remote payroll?

SWIFT is a popular method for paying international employees and contractors, especially if a company does not have a local bank account in their worker’s country. It is fast, reliable, and secure, and it’s one of the few options for communicating with international banks.

Managing global payroll through SWIFT requires owning legal entities in countries where money is exchanged, staying compliant with local laws, and having in-house teams to manage payroll.

Additionally, if your company does not have a legal entity established abroad, you can’t use SWIFT to manage your global payroll. This is why many companies choose to work with an employer of record (EOR) like Skuad to manage global payroll. An EOR acts as the official employer of your employee(s) and initiates SWIFT financial transactions for you.

What is the best way to pay international employees?

There are multiple ways to go about paying international workers, including PayPal, checks, wire transfers, and SWIFT transfers. However, fees, exchange rates, and legal risks make this process a lot more complicated.

To legally manage global payroll on one’s own, a company must have a foreign subsidiary and legal entity established in the country of employee-residency. Establishing a subsidiary, or a foreign subset of one’s company that operates abroad, can take up to a year and cost tens of thousands of dollars.

To maintain legal compliance while saving time and costs, many companies choose to work with an employer of record (EOR) to manage international employees and payroll.

An employer of record provides global HR and payroll services to hire and pay international employees– efficiently and legally. An EOR acts as the on-paper employer of your employees, eliminating the legal complexities of hiring abroad.

Working with the right EOR like Skuad helps your company:

• Easily hire international employees and contractors,
• Manage all international HR services,
• Offer competitive benefits packages,
• Carry out global payroll on-time and legally,
• Access some of the top global talent,
• Secure IP protection,
• Manage employment documents, and more.

Conclusion (and how Skuad can help)

SWIFT is a revolutionary and reliable tool to transfer money across borders, but it’s not the right choice for every business. Without an established legal entity abroad, companies cannot use SWIFT wire-transfers to manage global payroll.

Working with Skuad will help you scale your business globally– the right way. Skuad helps companies manage international payroll for employees and contractors in an easy, all-in-one platform. With Skuad, you can hire and onboard international employees quickly and without having a legal entity abroad.

Skuad is the fast and reliable solution for managing your global team, and it may be more affordable than you think. With Skuad, sending global payments starts at $0 and managing global employment starts at only $199 per month.

Learn more about Skuad and how you can get started today.