International payroll is a complex process that includes distribution of payment to your employees working around the globe while staying compliant with local payroll laws
A greater emphasis on payroll compliance is one of the emerging global payroll trends for 2022, along with the use of unified platforms and the implementation of artificial intelligence, according to the Global Payroll Management Institute.
The ability to hire employees from any corner of the world leads to new challenges, including the need to juggle different currencies, languages and time zones, and comply with workforce legislation for different countries.
The good news is, there’s an easy way to navigate all of the different aspects of global payroll.
We’ll share everything you need to know about global payroll, from the challenges of managing it in-house to how external vendors can ease the process.
Plus, our experts at DesignRush will share their top pick for one of the best companies that offer global payroll services.
Table of Contents
- What Is International Payroll?
- In-House vs. External Global Payroll
- How To Manage International Payroll
- The Challenges Of In-House International Payroll
- What Do External International Payroll Services Include?
- DesignRush Recommends: Flexible International Payroll Solutions
- Wrapping Up On International Payroll
What Is International Payroll?
International payroll or global payroll is the process of paying foreign employees working in different locations around the globe for the work they do for your organization.
Working with employees from other countries does not mean you can simply add them to your payroll processing.
Global payroll involves managing salaries and calculating the correct deductions in each respective country.
This can be a time- and effort-consuming task, requiring thorough knowledge of the tax and employment laws in the countries where your staff is located.
Using international payroll services allows you to:
- Organize all of your payroll data in one place
- Standardize the data
- Calculate and deliver payments in local currencies
- Remain in compliance with local hiring and tax laws
Typically, global payroll does not cover independent contractors who are responsible for submitting their own payroll taxes and making mandatory contributions themselves.
Processing payments to contractors in the general payroll can involve operational and compliance risks, if contractors are perceived as employees by regulators and tax authorities. This misclassification can lead to penalties and back-taxes.
In-House vs. External Global Payroll
Managing international payroll can be done either in-house or through an external vendor.
If you decide to handle payroll on your own, you will have complete control over the process while creating a custom payroll experience for your staff.
Not relying on third parties will make you more flexible, allowing you to make last-minute changes, for example, due to sick leave or vacation time. You will be able to access payroll data and history at all times, in-house.
Outsourcing your global payroll, on the other hand, will allow you to reap the benefits of an existing streamlined process. This will save you time to focus on other important tasks and give you peace of mind knowing that all the legalities of payroll are being properly handled.
How To Manage International Payroll
From specialized payroll software to hiring an external service provider, here are your options when it comes to managing international payroll:
1. Use Specialized Payroll Software
To manage your global payroll, you can opt for a cloud-based payroll platform or application. Using it will help you collect, organize and monitor data from all locations where you have employees. It will also automatically distribute payments when they’re due.
Typically, such an app uses a single dashboard to provide a unified view. This ensures data consolidation, transparency and flexibility.
Payroll software options are scalable, which means they can distribute payments to both small and large teams quickly and easily.
The advantages of payroll software include:
- Saved time due to automated features
- Reduced risk of manual error
- The downside of payroll software extends to:
- In-house payroll experts who need to operate the tool
- Paid license to use the software
2. Use Money Transfer Companies
From PayPal and Revolut to Western Union and Payoneer, you can use money transfer companies to transfer your employees’ salaries internationally in different currencies, while paying affordable transfer fees.
However, these companies cannot cover the actual payroll process of handling employee benefits and taxes and ensuring compliance with local regulations.
The advantages of money transfer companies include:
- Extensive global coverage
- Competitive exchange rates
- The disadvantages of money transfer companies include:
- Lack of payroll processing
- Lack of tax support
- Lack of compliance with local payroll regulations
3. Work With An International Payroll Provider
International payroll providers are third-party organizations that handle international payroll for their customers. These providers keep payroll records, manage the payroll process, distribute payments to employees, handle taxes and more.
Using international payroll companies with broad geographical coverage allows you to expand globally without the need to learn about payroll specifics in each respective country.
The advantages of hiring an international payroll provider include:
- Complete payroll outsourcing without involving your in-house experts
- Access to payroll expertise necessary to process payroll in multiple countries
- No need for a license
- The disadvantages of hiring a global payroll provider include:
- Higher fees compared to payroll software
4. Hire An Employer Of Record
An employer of record (EOR) is a third-party company that is responsible for hiring and paying your employees on your behalf.
Unlike a professional employer organization (PEO) that can also handle payroll and benefits but needs to be registered along with your own company in the respective location, an EOR allows you to access top international talent without the need to establish your own legal entity.
In addition to this, PEO companies share legal responsibilities with you, regarding your employees. An employer of record is responsible for all legal issues, without gaining management or supervisory control over your employees’ performance.
Employer of record companies take care of the global payroll process, including timesheet collection, paying taxes, distributing benefits and reporting to the local authorities.
Some EOR companies also provide contractor management services.
The advantages of hiring an employer of record include:
- Ability to work with international talent around the globe
- Ability to outsource the hiring and payroll process
- Reduced operational costs
- Risk mitigation in regards to compliance with local payroll laws and employee classification
- The disadvantages of hiring an employer of record include:
- Larger investment compared to payroll software
The Challenges Of In-House International Payroll
Having employees all over the globe and adhering to employment laws in each country can pose several challenges.
If you decide to handle international payroll in-house, you will need to:
- Register your company as an employer in each jurisdiction where you have employees
- Familiarize yourself with local employment law
- Collect data about all of your employees
- Handle the collected data in compliance with the local data protection regulations
- Ensure your employees are eligible to work for your company
- Process payments for each respective period
- Verify if payments were processed and received
- Report to local tax authorities to ensure the correct deductions were made
Challenges you may face while handling the entire operation on your own include:
Language and cultural differences can cost you more than just nerves when it comes to payroll. Having expense invoices in different languages and failing to understand employees, partnering organizations or local authorities can lead to serious issues such as missing document deadlines or filing the wrong documentation.
Each country has its own payroll laws and regulations that vary in terms of taxes, pension programs, bonuses, social security and unemployment.
Failing to comply due to insufficient knowledge or language limitations can result in fines and other serious penalties.
Local Payroll Practices
Payroll practices differ from country to country, even if they are geographically close to each other. Payments can change on a monthly basis, which can result in different tax rates. Benefits and bonuses may be part of a payment package or calculated additionally.
Distributing payment information may involve employees, tax authorities and benefit vendors, and in some situations, the number of parties involved may be 10 or more.
Transferring money across international borders can include complex legal requirements or currency requirements.
In addition, international deposits and planning around time zones can take time, which can delay payment delivery. In some countries, this may result in a loss of employees, while in others such a delay can lead to a suspended or revoked business license.
Planning an accurate monthly or annual payroll budget around changing local regulations, multiple international banking practices and uncertain exchange rates can be a significant challenge.
The success of the process depends on careful monitoring, thorough knowledge of local practices and extensive experience.
Managing the international payroll on your own can require time, efforts and knowledge of local payroll regulations
What Do External International Payroll Services Include?
Various global payroll providers offer multiple payroll processing services.
The most common services include:
- Administering salary information through accurate timesheets
- Managing absences and holidays
- Organizing automatic payments or direct deposits to employees
- Distributing bonuses
- Distributing benefits
- Distributing pay slips
- Withholding employee taxes
- Making deductions such as pensions as per the legislation requirements
- Dispatching deductions and taxes to the local authorities at designated intervals
- Garnishing wages in accordance with alimony/maintenance debts, court orders related to child support and more
- Managing change of employees
- Managing changes in salaries
- Updating employee records
- Reporting taxes at the end of the year according to the local procedures
- Adjusting settings for the new tax year
Working with a global payroll service provider can help you cover the entire payroll process, from the administration of salary information to dispatching deductions and year-end tax reporting
DesignRush Recommends: Flexible International Payroll Solutions
Working with 10,000+ verified agencies in different categories, DesignRush helps facilitate professional partnerships across various spheres and industries. Our recommendations are based on thorough research into each service provider’s expertise.
If you plan to expand your operation abroad, working with a global payroll provider can bring numerous benefits, such as expert knowledge, specialized software solutions and in-house support to make sure all aspects of payroll are properly managed.
Our choice for international payroll management? Remote.
Remote can help you manage the payroll and taxes for your international staff, administer benefits and ensure compliance with the local payroll laws.
As an international payroll provider, Remote offers:
- Consolidated payroll processing across multiple countries
- Access to payroll reports by country
- Tax deductions
- Tax returns
- Benefit administration
- Expense management
- Pension collection
- Pay slip distribution
- Secure document storage
- Compliance with local payroll regulations
The currencies supported by Remote for billing include EUR, USD, AUD, CAD, DKK, GBP, JPY, NZD, NOK, SEK, and CHF.
Remote’s employer of record package, which includes international payroll, starts from $299 per employee, per month, when billed annually. Your first employee is free of charge when you sign an annual contract.
If you wish to make use of Remote’s global payroll solution only, send an individual inquiry based on the countries you want to cover, the number of people you plan to employ and other details.
In addition to payroll solutions, Remote offers employer of record services, contractor management, remote relocation and consulting services.
Wrapping Up On International Payroll
Having international employees makes global payroll processing a must. This can be a time-consuming and complex process accompanied by numerous challenges such as local payroll practices, language barriers and compliance with the regulations in the respective countries.
To manage your international payroll, you can:
- Use specialized payroll software
- Use money transfer companies
- Partner with an employer of record
- Hire a global payroll provider
Working with a reputable company like Remote can help you process your payments accurately and securely while ensuring that you adhere to local laws and regulations in each respective country.