The Ins and Outs of Expatriate Payroll

The Ins and Outs of Expatriate Payroll

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Introduction

Traveling and staying abroad is part of international business. Depending on your size, operations, and expansion plans, you as an employer ⁠— whether a small, medium or big enterprise ⁠— often need to send one or more of your employees on international stints for different purposes, such as:

  • Closing out a deal initiated at home
  • Probing a global market for a near-market entry
  • Negotiating the terms and conditions of a product or service rollout plan in your chosen global market
  • Relocating one or more of your employees to work from abroad on a permanent or long-period basis

Whatever your purposes are, having expatriate employees abroad has many consequences for you as a business. One of the primary considerations is expatriate payroll.

Unlike your "local" employees, your expatriates are subject to a wide range of employment laws that may be similar to applicable laws in your home base of operations, including concerning payroll. As a foreign employee subject to Personal Income Tax (PIT) and more in a foreign jurisdiction (and also possibly at home, depending on mutually applicable laws and treaties between both countries), the organization should manage your ex-pat payroll differently compared to how you manage payroll for your at-home employees.

To put your expat payroll into context, you need to understand what is involved in expat payroll management:

  • What an expatriate is
  • Advantages of expatriate payroll
  • Complexities in expat payroll management
  • Tax liabilities, payroll compliance, and immigration issues

Read on to get insights into your expatriate payroll management.

What is an expatriate?

An expatriate is an employee who is on an international assignment but is not a citizen or a permanent resident in a given jurisdiction. This broad definition of international employees may leave much room for interpretation, particularly under more recent visa-granting arrangements for remote workers.  

To avoid any definition confusion and for more specificity, an expatriate in our context refers to an employee whose employment status is established (by clear and specific contractual arrangements), who is sent directly by an employer to perform a particular activity (as in international sales,) or who is to be instated in a given jurisdiction for a stated, contractual period.  

The expatriate, in our case, also refers to an employee who is, by definition, under the control of an employer to perform specific roles in certain ways specified by such an employer. This narrows down what an expatriate means to understand better how you, as an international employer, manage your expat payroll.

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Advantages of expatriate payroll arrangements

Expatriation — a practice where employees are sent on international assignments — comes with prestige. In addition to business and social halos, expatriates (and employers in many cases) enjoy a wide range of benefits in international payroll arrangements, including:

  • Maintaining home country compensation and benefits while working abroad
  • Getting all host country expenses covered
  • Gaining different work-related and managerial skills often transferable to home operations (which equals added value for employers)
  • Developing a wide network of local business partners and acquaintances — a major asset for companies operating in jurisdictions where in-person relations matter

However, these benefits apply only to some expatriate categories but only to one most common expatriation category: secondment.

In secondment arrangements, an international assignee is assigned to do services abroad in a host country while maintaining their home country's compensation and benefits. Their home and host country may pay employees on secondments depending on contractual arrangements. In the case of being paid by their host country, a "shadow payroll" is issued where the expatriate is paid by the host country (only to comply with local laws) and is paid back by the home country according to agreed-on reconciliation, or settlement, arrangements.

Secondment aside, organizations may send employees on international assignments according to different arrangements (each of which has its benefits and risks), including:

  • Foreign correspondent. This arrangement means an expatriate is stationed abroad and paid for by their home country. On the benefits side, such an arrangement is cost-effective but has a high risk of violating immigration laws and residency rules in many jurisdictions.
  • The temporary transferee or localized expatriate. This arrangement means an expatriate resigns (hence losing their home country compensation and benefits) and joins an international entity (usually a local subsidiary or an affiliate partner of their home company). On the benefits side, such an arrangement is a choice some expatriates make when they wish to continue to work and live in their new host countries as permanent residents or citizens after meeting additional immigration criteria. This arrangement is also beneficial for international employees whose spouses or any close family members are permanent residents or citizens of the new host country and with whom they wish to live regularly.
  • This arrangement means an expatriate is employed by their home and host countries. Depending on which contractual arrangements are in place, they may be paid by their home country or both. The host country usually sponsors a visa for their assigned expatriates.

The complex factors of expat payroll

International expatriate assignments are an exercise in managing complex payroll factors at home and abroad. Employment and payroll laws and regulations constitute a major component in expat payroll management. It is not surprising that much is involved in expat payroll.

To get a sense of how complex expat payroll is, an extensive study exploring payroll among Finnish expats (alone) finds that compensation packages are decided based on many, and often unclear, variables, including gender, age, area of operation, organizational hierarchy, employer nationality, nature of the assignment, family status, and more.

No matter where you employ, the complexities of expat payroll will remain the same. You may need to be fully aware of how much to pay an expat or what kind of benefits you must order (as mandated by the host country). It is more complex than paying your worker in your home currency and encouraging the worker to visit a currency exchange kiosk.

Tax liabilities, payroll compliance, and immigration

Global mobility comes at a price. For expats, you need to handle a wide range of tax liabilities, payroll compliance, and immigration issues.

Tax liabilities and payroll compliance

Tax liabilities and payroll compliance include risks and requirements such as:

  • Keeping up to date on international, regional, and local tax laws and regulations
  • Controlling risk at international, national, local, and organizational levels
  • Streamlining expat taxes to ensure you don't miss any requirements (or to avoid multiple bouts of taxation)
  • Using current software to manage your global payroll tax requirements and also to comply with local payroll reporting requirements if using certain software is required

Immigration

Immigration considerations that you need to be aware of include the following:

  • Securing all required work visas and residency permits
  • Coordinating travel arrangements so your expats don't miss critical international meetings or orientations
  • Lobbying for certain immigration law changes, if and when necessary
  • Using an established legal service provider to get the best advice on immigration issues related to your expats

In addition, you need to consider social security obligations at home and abroad so your expats can avoid situations where they have to choose between keeping their jobs (and losing critical social benefits) or moving elsewhere.

There is always a social dimension to doing business at home or abroad. Ensure you mind your expats so you balance complying with requirements for international assignments and keeping your expats happy and productive anywhere.

Get your expat payroll right with Skuad

International assignments have always been challenging. Many big and small businesses need help to comply with minimum payroll laws and regulations at home and abroad when sending and managing expats on international assignments.

Sending your employees on international assignments involves risks but also has advantages. To make sense of expatriation, you need to understand global, national, and local payroll regulations and constantly watch many expatriation-related issues, particularly immigration.

Having an established legal service provider such as Skuad at your back is a wise move to avoid any unexpected and unpleasant regulatory surprises along your expatriation journey.

At Skuad, we understand international payroll inside and out. With our unmatched in-house legal expertise and cutting-edge payroll software, we are best positioned to answer your international payroll questions and more.

At Skuad, we help you manage your expat payroll and more by:

  • Managing payroll risks at home and abroad
  • Securing all your required work visas and permits so your expats start their international assignments as scheduled.
  • Providing you with expert and up-to-date legal advice on payroll practices, immigration law changes, and more
  • Managing your expat relocation process so you are clear-minded about logistics.
  • Keeping abreast of every change or update to each expatriate's status, so your business is always compliant

Partnering with Skuad is your gateway to a successful and enduring expatriation experience for your expats and you. Reach out to get unmatched insights about your expatriation journey in your chosen jurisdictions of operation. Talk to Skuad today, and we'll be happy to help guide your expatriation journey anywhere.

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