Working remotely has become an increasingly popular option for employees across various industries. Even before the pandemic, a study by the Bureau of Labor Statistics found that, in 2015, 24% of employed people did some or all of their work remotely — up from 19% in 2012. Furthermore, research from 2018 found that 70% of the global workforce telecommuted at least once a week. This trend presents opportunities and challenges for businesses, especially in critical areas such as payroll.
While there are many benefits to allowing employees to work remotely — including increased productivity and satisfaction — it can also complicate payroll processes. This occurs since businesses must now account for different variables when calculating employee pay, such as location, hours worked, and tax implications.
Delays, inaccuracies, and other problems with payroll hurt both sides: the workers and their employers. Such could result in inaccurate or untimely pay for workers, leaving employers exposed to risks of noncompliance and litigation. This could also lead to losing workers and a higher turnover rate, increasing recruitment overhead.
As such, it's more important than ever for businesses to have efficient payroll processes in place to avoid any issues in payroll.
What is Payroll?
Payroll is the process by which employees are paid for their work. It involves calculating how much each employee is owed, deducting taxes and other withholdings, and issuing payments. Payroll is essential in running a business as it ensures that employees are compensated fairly and on time. Establishing efficient payroll processes can help to save time and money and keep employees happy.
Know the exchange rates
Managing the exchange rate is one of the biggest challenges of running payroll for remote teams in different countries. You'll need to account for the difference when exchanging money if you're paid in one currency and your employees are paid in another. This can be challenging if you're unfamiliar with how exchange rates work.
Manage payout schedules
Another challenge is managing payouts. If you have employees in different countries, they may need to be paid at various times due to time zone differences. This can make it challenging to keep track of who needs to be paid and when.
Comply with local labor laws
Finally, labor law compliance concerns can be challenging when running payroll for remote teams in different countries. This can be tricky as each country may have its own rules and regulations. You need to understand the compliance requirements in each country and ensure that you, any relevant solutions providers, and your remote employees are following them. If not, you could face hefty penalties.
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How to Set Up Payroll for Remote Teams
There are broadly two types of remote workers: employees and independent contractors (freelancers). Employees are paid through payroll just like on-site workers. Their taxes, social security, and other withholdings are deducted from their paychecks automatically.
To set up payroll for an employee who works remotely, you'll need their banking information to direct deposit their paychecks. You'll also need to know how much to withhold for taxes and other deductions. The best way to get this information is to have the employee fill out the appropriate documentation, such as a W-4 form used by the US Internal Revenue Service (IRS). Once you have all the necessary information, you can add the employee to your payroll system and start paying them regularly.
Independent contractors are not considered employees, so they're not subject to the same tax withholding rules. Instead, they're responsible for paying their taxes directly to the local government (usually quarterly, depending on where they are located). When setting up payment for a freelancer, ensure you include language in your contract specifying that they are responsible for paying their taxes. If not, you may be liable for withholding them yourself.
In either case, a payroll platform or service provider can make it easy for companies to pay remote employees and independent contractors. Good remote payroll software — like the one offered by Skuad — can automate payments so that your team gets paid on time. This means no more chasing down invoices or waiting for checks in the mail. And because everything is digital, workers can access their accounts from anywhere in the world, at any time. That is, of course, contingent on the availability of employee or freelancer self-help portals and the internal access policy.
How to Pay Remote Employees
Companies use a few common methods to pay their employees or contractors who work remotely. The most popular options are direct deposit, wire transfer, and payment processing platforms, such as Paypal, Payoneer, and Wise (the top three).
With direct deposit, the company adds the employee or contractor's name and bank account information to their payroll system. The funds are then transferred from the company's account to the employee's on payday. This method is convenient for both parties since it happens automatically and doesn't require any extra steps. However, it can take a few days for the funds to show up in the employee's account, depending on their bank's processing time.
Wire transfer is similar to direct deposit in that money is transferred electronically from one bank account to another. The main difference is that with a wire transfer, you have to initiate the transaction yourself rather than having it happen automatically through your payroll system. This option is usually faster than direct deposit since you're not waiting for your employer's banks to process the payment before sending it along (which can add a day or two to transit time). Wire transfers can also be more expensive than other options since fees may be associated with initiating and receiving them.
Payment processing platforms
Payment processing platforms present their conveniences but may also contain a few challenges. Depending on where you're sending payments, there could be technical or preferential reasons why a remote workforce might choose one over another (e.g., Payoneer might be preferable over Paypal or vice versa). There are also different fees, exchange rates, and payment delivery times between these platforms. So if you're using more than one, you'll need to keep track of the different moving parts on your own. You'll also need to ensure they're compatible with your accounting system.
Challenges to Running Remote Team Payroll
There are several factors you need to take into account to establish efficient remote payroll on your own, including:
- The country or countries where your remote workers are located and the specific labor laws that apply to payroll there
- The exchange rates and fees of payment processors and additional tools or software
- Choosing the method of payment itself
- You can scale to more remote teams by putting everything together into a business process and payroll workflow.
Compliance concerns are especially thorny.
When paying remote workers in overseas locations, businesses must ensure they are compliant with local labor laws. This is because these laws influence many aspects of payroll, including minimum wage rates, overtime pay, and leave entitlements. Failing to comply with local labor laws can result in significant business penalties, including backpay claims and fines.
Failing to comply with these regulations can damage a business's reputation and employee relationship. Sometimes, it may even lead to criminal charges against business owners or managers. Therefore, companies must take the time to understand the relevant local legislation before paying remote workers overseas.
This is why global payroll providers like Skuad are a big help.
Global payroll service providers or platforms help international businesses in their global payroll strategy by offering several advantages. For example, they can provide a single platform for all your global payroll needs, saving you time and money. They can also provide compliance support and expertise to help you navigate the complexities of international employment law. In addition, they can provide local customer service and support in multiple languages, which can be a valuable resource for businesses with employees worldwide.
In short, remote payroll services handle most or all of the above issues; they provide flexible terms to decrease or increase how much they deliver, allowing you to grow your global teams whenever you need them.
How Leading Remote Payroll Providers Bolster Your Globally Distributed teams
Remote team payroll is challenging. With Skuad, it’s simple, streamlined, and hassle-free.
If you're a business in aggressive growth mode, the last thing you want is to be weighed down by remote payroll and compliance issues every time you expand your team to a new international location. With Skuad's global employment and payroll platform, compliance challenges in every facet of HR and payroll will be hassle-free. This way, you can focus on what matters: growing your business.
With Skuad, complying with payroll legislation is seamless no matter where you want to build a team or pay employees.
Request a demo from Skuad today and see how easy it is to run your team's payroll stress-free.