International payroll encompasses all the methods utilized in paying foreign employees. It includes international payroll management, international payroll software and other kinds of payroll services for global employment.
This article highlights everything required for managing payroll for global employees.
What Is International Payroll?
International payroll is your company’s method for managing payroll for international employees. You may hire remote employees or independent contractors anywhere in the world, or even in multiple countries at once. Payroll is the process of accurately tracking each employee’s hours worked, taking any deductions out such as social security contributions and taxes. It also involves making accurate and prompt payments to employees.
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Challenges of International Payroll
Some challenges of international payroll include payroll accuracy, payroll timeliness, and payroll compliance. When you have a staff of remote employees who might be spread out across the world, it is important to accurately track the hours your employees work.
Shift hours can be tracked with biometrics, which can be software that can identify an employee and take random snapshots proving the worker is at their workstation and doing the work during hours that add up to payroll, or devices that require fingerprint identification to verify the worker’s identity. When payroll is calculated, timely payments must be sent to employees for good morale and productivity.
International Employment Law Compliance
In any country where you’ll be hiring, a set of laws exist that specifically govern the employment and compensation of employees. If your company is managing in-house hiring and payroll, you will need a team of legal experts to be knowledgeable of the employment laws in each country where you have hired workers.
These laws may change so you would need to be on top of the changes and make any necessary adjustments to remain compliant. Outsourcing the hiring and paying of your employees with international payroll providers is one way to remain compliant.
One of the most important parts of payroll is ensuring all of your employees are treated fairly and paid at least the statutory minimum wage. This minimum wage, which will vary by country, is the minimum amount you can pay employees. It may be a certain amount by the hour, day, or month. The minimum wage is set by the government and will be published publicly. Though the minimum wage is the lowest amount you can pay employees, many employers will offer a higher salary to attract top talent. You may also find a list of average salaries by job title in the country where you’re hiring to offer competitive compensation.
In addition to a minimum wage, there will be a set minimum for benefits that must be provided to employees. The statutory, or mandatory, benefits that must be provided to employees will vary from country to country. For example, employees may be entitled to annual leave. The wording in the law may specify calendar months of leave or the number of working days. This means that at some point in the year, each employee will take a set number of days off with pay. If an employee takes off for an entire month for their annual leave, their payslips and deposits should reflect their full salary payment for that month.
For each employee, there will be deductions and contributions that must be made. again, these will vary from country to country. For example, most nations of the world have some kind of social security or social insurance. Both employers and employees fund these programs based on percentages of earnings. The benefits of these programs may include old age pensions, which are pensions paid to retirees at a certain age, maternity benefits, or injury and illness benefits. Contributions may also be paid at separate rates for each of these benefits.
The personal income taxes of employees comprise the remainder of payroll taxes. These are taxes that are based on the earnings of each employee. Most but not all countries have personal income taxes. In most cases, these income taxes must be withheld from the employees’ pay and remitted to the country’s tax authority in a timely fashion.
Methods of Establishing International Payroll
There are several ways for a business to employ and pay a staff of international workers. Companies can establish a local legal entity in a country where they intend to hire employees. That process can be expensive and time-consuming. The company would need to register the entity with the tax authorities and other legally required government departments. If your company needs to have a legal entity in each country because it is hiring in several countries, then this option might be especially expensive.
Another option is to work with independent contractors. The company needs to beware of the risk of misclassification. Generally, only employees are entitled to protections and statutory benefits including minimum wage, work injury insurance, overtime, and unemployment insurance. Companies may also need to contribute to social security and make other contributions. Working with independent contractors is an option, but a potentially legally hazardous one if you’re not aware of the risk and potential consequences of misclassification.
Employers of Record and Professional Employer Organizations
Another method for international payroll outsourcing is to partner with a global HR outsourcing firm to pay employees. An employer of record (EOR) can hire and legally employ local staff for you. A professional employer organization (PEO) can be your co-employer and handle some human resources tasks such as payroll. With a professional employer organization, you still need to establish an entity in the nation where you are hiring. If you don’t intend to establish an entity, the safest, most cost-effective, and fastest solution is to use an employer of record.
There are a few important differences between employers of record and professional employer organizations.
A professional employer organization:
- Is the co-employer along with the client company
- Shares human resources responsibilities and compliance with the client company
- Ensures accurate payroll processing for your employees
- Processes payroll for foreign employees
- Remits payroll taxes on time
- Does not draft employment contracts
- Requires the company to own a legal entity in the country
An employer of record:
- Is the legal employer for your remote staff
- Handles most human resources duties in addition to payroll such as hiring, tax compliance, onboarding, benefits administration
- Takes more of the risks of employment and ensures full compliance
- Drafts employment contracts
- Does not require an entity for the client company to own
- Help with reducing costs of employment
When partnering with an employer of record, your company can be assured of full compliance with local employment laws. If you work with a professional employer organization, your company remains responsible for compliance and the legal risks that come with hiring and employing international employees. That makes working with an employer of record the safer option. It is also the fastest and cheapest option if you don’t intend to establish a legal entity.
Choosing the Right International Payroll Partner
Partnering with an employer of record is a fast, simple, and cheaper way of recruiting and paying international employees. An employer of record is a smart solution for growth-focused businesses looking for international payroll processing. In addition to managing payroll, an employer of record will administer statutory benefits and handle compliance as well.
Outsourcing your company's international payroll management is a way for your company to be efficient and gives your company the additional time and resources to focus on your company’s core activities without worrying about payroll and compliance.
Making use of Skuad’s independent payroll software is a way to ensure the accurate paying of your workers. With Skuad’s help, you can pay your employees with no long-term commitments and no hidden costs. Skuad can help you hire and pay employees globally, becoming the legal employer on paper for all of your remote staff and taking care of the hiring, onboarding, payroll, benefits, and compliance.
Skuad – Global Payroll Platform
Skuad is a global employment and payroll platform that enables organizations to hire full-time employees and contractors in over 160 countries without setting up a subsidiary or an entity. Skuad’s platform also helps organizations onboard talent, manage payroll and ensure compliance with country-specific employment laws and tax regulations.
While international payroll can be challenging, complex and time-consuming, with Skuad’s platform, you can
- Accurately make prompt payments for your distributed team with no hassles or hidden charges.
- Put payroll on auto-pilot and enable quick payments to employees and contractors wherever they are in the world with a click.
- Make payments in over 100 currencies and your employees' preferred currency.
- Automate and consolidate payroll to a single dashboard.
- Make cross-border payments with a $0 transfer fee and exceptionally low exchange rates.
- Ensure the highest payroll security protects your IP and against any liability.
To know more about Skuad, book a demo today.