How to Pay International Payroll Employees

Paying international workers has never been easier. When hiring an employee from another country, there are a few things to consider in order for the process to go smoothly and efficiently. We will cover what you need and how it works, as well as some potential pitfalls along the way.

The “us company paying foreign employees” is a question that has been asked many times before. There are many ways to pay international payroll employees, but the most common way is through bank transfers.

Every procedure is more difficult than you imagine when growing your company operations internationally, and it may be perplexing, particularly when dealing with foreign payroll and taxes. For starters, you’ll need to determine if your company will have an in-country presence where your workers will work.

This option will decide whether you’re subject to payroll rules outside of the United States, which might include payroll taxes owed by workers, any currency translation you’ll need to do, and approved payment methods. Another decision you must make early on is whether you will utilize a local or global payroll service to manage your workers’ pay and benefits across nations.

As a result, if you want to be sure you’ve covered all of your bases before venturing into new countries, consult our guidance on how to pay your worldwide staff.

1. Think about the types of international employees you have on your payroll.

To identify the appropriate payroll procedure for your company, first assess the types of overseas workers you have or need, and then decide whether you’re dealing with remote employees or contractors.

Are your workers:

• Temps?
• Existing workers who have lately relocated to another country?
• Employees from other countries recruited just to work for a US company?
• Employees from other countries employed to work in a US-based company’s worldwide branch?

Choose to discover more. Foreign workers on a temporary basis Employees from the United States Working Abroad Employees that are native to another country International workers who are self-employed are natives from other countries.

Foreign workers on a temporary basis

Some US corporations engage temporary workers to undertake distant work or short-term projects locally to address labor shortages. They are generally required for an employee on sick leave, maternity or paternity leave, seasonal client demand, transitory increases in manufacturing orders, and other short-term tasks and may be part-time or full-time.

If the firm hires temporary workers directly, the first step is to ensure that you are adhering to the local payroll rules, including tax compliance standards for this sort of employee. You’ll need to withhold the proper taxes, Social Security payments, and other payroll expenditures, which an international supplier like Rippling can assist you with.

It’s essential to know what benefits are given on their behalf if you hired a temp from a staffing agency and paid a charge in addition to the money received by the employee (temporary employees who work through an agency may have paid benefits). Even though these workers are theoretically part of the agency, make sure they are paid correctly.

Employees from the United States Working Abroad

Because of the paperwork and additional money they may be exposed to, companies with local workers allocated to an abroad project for a short length of time may sometimes avoid telling the nation about the temporary worker. They just keep the employee on their payroll in the United States, withholding income and FICA (Social Security and Medicare) taxes as needed. This may work in certain situations and places, but the longer your employee is away from home, the more difficult it gets.

It would be pointless to go to the trouble of registering with a new nation only for one employee. If you’re sending personnel to test the market, for example, you’ll need to estimate how many overseas workers you’ll have and how long they’ll be working. Then determine whether or not to proceed with establishing a presence in the nation.

Employees that are native to another country

Hiring local employees might be much more difficult. Assume they’re an employee rather than a contractor. In such situation, you’ll need to follow the local payroll regulations and tax compliance standards in the host nation by withholding the applicable taxes, Social Security payments, and other payroll charges.

Working with an international payroll service like Rippling may assist, but international rules differ by country, so you’ll still need to register your company in the area where you’re paying workers. To begin processing payroll on your behalf, the payroll provider will require a tax ID number issued by the employee’s host nation.

International workers who are self-employed are natives from other countries.

Many businesses will recruit their foreign remote workers as independent contractors, which seems to be a win-win situation since you won’t have to worry about local or international tax rules. You may simply pay the workers their gross compensation, and they will be responsible for settling any taxes or other fees with the appropriate authorities in their host nation.

When businesses improperly categorize people as contractors, problems develop. The United States has its own independent contractor test, and many other nations’ regulations are quite similar.

If you monopolize your workers’ time, that is, if they spend the same amount of time as full-time employees and don’t have the freedom to work for other organizations while still having control over how and when they work, your employee is most likely an employee. Misclassifying workers and contractors may result in thousands of dollars in back taxes, fines, and legal fees if done incorrectly (depending on your intent and how many times this has happened).

Tip: For more information on US-based rules, see our page on independent contractors vs. employees. We also highly advise you to verify the legislation of your employees’ host nation about this subject.

2. Make sure your company is set up to handle international payroll.

You can better estimate how you need to set up your global employer status after you’ve completed a thorough examination of the types of overseas employees you’ll have on staff.

• Establish a presence in the host nation of your workers by registering and applying for a tax ID number. According to the host country’s laws, you’ll have to withhold and pay money for taxes, Social Security, and other applicable payroll expenditures.
• Work with an in-country affiliate: This entails collaborating with a firm that is already established in the employee’s host country. It will add the person to its payroll and pay them appropriately; you, on the other hand, will pay the affiliate the whole payroll amount plus a charge for utilizing their resources.
• Check for foreign employer exceptions: Look for solutions in the host nation that allow for foreign employer exclusions. According to the Society of Human Resource Management (SHRM), the UK and Thailand will enable you to recruit and pay local staff without having to make withholdings or contributions in their respective countries.
• Register as a payroll-only employee in your own country: Some nations have an alternative registration option that allows you to register just for payroll reasons without having to go through the time-consuming process of forming a company. You will be able to legally conduct local payroll, but you will still be responsible for local taxes and Social Security payments.
• Adding a new domestic employee to your payroll is as easy as adding a new domestic employee to your payroll. However, if an employee is relocating abroad for a short time, it is frequently done. If they remain too long (check local rules), their job will be transferred to that nation, and you’ll have to find another means to handle their paycheck.

Remember that the alternatives you have for processing payroll for overseas employees are dependent on the sort of personnel you have and the conditions of their employment.

3. Decide on a pay cycle

You must set a pay period to control how frequently you will pay your overseas workers, just as you do when paying domestic staff. You may choose to synchronize the pay periods if you have both local and global payroll. Although some organizations pay workers monthly, the most prevalent are semi-monthly (twice a month) and biweekly (every two weeks).

Consider setting the final payday of the month at least a week before the month’s end if you’re picking exact pay dates. This reduces the amount of time needed for processing and payments before the following month starts, simplifying accounting.

Whether you’re obligated to follow the labor regulations of a foreign nation, see if there’s any advise on how frequently you should pay each employee. You don’t want to be caught paying each employee monthly when their local labor regulations demand them to be paid bimonthly at the very least.

4. Keep track of your working hours

If you pay your staff on an hourly basis, you’ll need a good means to monitor their work time. Consider employing Rippling’s time and attendance monitoring tool if you don’t have an office space in their host nation.

It will allow you to monitor your staff in real time and will sync with Rippling’s payroll software instantly. Based on the workers’ work location, it enforces overtime, meal breaks, and other federal, state, and municipal labor rules. Finally, it enforces attendance through geolocation, QR codes, and selfie clock-ins.

5. Become acquainted with international payroll taxes.

Payroll is difficult in large part because of taxes. Many nations have taxes that are comparable to those in the United States, although with different nomenclature. On a national, regional, and occasionally municipal level, income taxes are the norm. If you have to withhold taxes from your workers, be sure you understand how the tax system works. Some countries have a number of flat rates depending on income groups, progressive rates (such as the United States), a single flat rate, or even regressive tax rates.

Employees in several countries are required to pay to Social Security and pension systems. You’ll need to figure out which agencies need to be paid so you can send the money. Your company may also be liable for paying payroll taxes on an employee’s earnings. Before continuing, we highly suggest you to consult with an international tax consultant or payroll provider.

It’s conceivable that you won’t be liable for any tax withholdings or benefit deductions if you hire an overseas independent contractor. In most cases, the employee must register as a company in their local region and pay taxes and other charges in accordance with the country’s regulatory rules. Any mistakes or omissions they make in this area are unlikely to be blamed on your company.

Tip: Get to know your employee’s country’s tax regulations so you can give advice and tools to keep them out of trouble. Start by learning about the tax systems of the nations you’ll be visiting.

6. Choose the employee benefits to provide to global workers.

Choose whether or not to provide employee benefits such as life and health insurance. If that’s the case, you’ll need to choose a service that can give you with reasonable pricing. Professional employer organizations (PEOs) are ideal for firms that wish to give the best prices to their foreign workers since they pool personnel from all of the companies they represent to reduce expenses.

You won’t have to worry about payroll processing or legal compliance since they’ll take care of it. However, they may be expensive, costing anywhere from 15% to more than 25% of your salary.

Some foreign payroll services, such as Rippling, make it simple to supply insurance—health insurance, 401(k), and commuter benefits. You must also guarantee that employee contributions and any monies you agree to pay to the benefits provider are recognized.

7. Decide how international workers will be compensated.

Aside from taxes, one of the most crucial considerations is how you’ll pay your employees. Because they’re in another country, cutting a paper check isn’t an option. If you use an international payroll service, such as Rippling, it should include money transfer services in its payroll plans.

Sending international ACH payments to your staff is another option for transferring funds to them. However, at this point, the Federal Reserve will only allow you to send money to 25 nations, including Canada, France, and Denmark.

You may even create an account with a central bank in another country, fund it monthly, and pay personnel straight from the account. In countries where you must transmit payments for payroll taxes through local bank accounts, this is a necessary.

When paying overseas staff, you’ll almost certainly have to deal with multiple currencies. Keep in mind that, if at all feasible, when paying employees, consider boosting their pay rate to allow for changes.

8. Find out about international payroll laws.

The regulations governing payroll differ based on where your workers reside. We won’t be able to address all of the conditions and probable scenarios that will decide the regulations that apply to your company. Instead, here’s a list of frequent subjects to look into for each nation where your workers live (if you’re obligated to follow their laws) in case it affects your payroll:

• The bare minimum pay
• Time limitations and remuneration for overtime
• Annual vacation
• Laws governing employment contracts
• Programs for Social Security
• Contribution requirements for pensions
• Taxes

Conclusion

Learning how to pay international workers is difficult and relies on a variety of elements, including the circumstances behind your admission into a foreign country and the country into which you aim to grow. Finally, you must determine if your scenario necessitates compliance with the rules of your workers’ host nation or whether you can legally avoid the complication. In any case, we suggest that you seek the advice of a legal specialist or an international payroll service like Rippling.

Pay a visit to Rippling

International payroll is a process that has been around for a while, but it’s not as easy as you might think. There are many things to consider when hiring employees overseas. Reference: hiring overseas employees.

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