Tackling payroll can have its own challenges, especially in a remote work setting. Having employees in different time zones and possibly with different currencies, there can be a lot of obstacles to get through. When all your employees are scattered across the globe, how do you effectively manage a payroll system that works for all parties?
What Is a Payroll System?
To give a quick refresher, a payroll system is any system you have in place that allows you to pay your employees. It also can contain tax information and contain transaction reports. Your payroll system can be manual or you can download software systems that allow for more automation and decrease the risk of payroll errors.
What Is International Payroll?
International payroll is the process of paying employees across multiple countries. It can be managed either centrally by the company or at a local level by setting up subsidiaries in each country the business operates. Companies wanting to manage international payroll themselves will need a payroll system that can manage payroll at different rates and in different currencies.
What Are the Challenges of International Payroll?
There are unique challenges that come with implementing international payroll. It’s important to be mindful of these challenges and how to fix them before setting up your payroll system.
Different Currencies
Hiring someone who lives in a different country with a different currency can be difficult. You want to be sure you aren’t over or underpaying them for their services, so how do you figure this out?
The easiest way to figure out what you should be paying your international employees is by looking up the country’s exchange rate. In other words, you’ll be seeing how your current rate in your currency translates to your employees’ currency. Additionally, instead of paying per hour, many companies opt to pay per project or task, making the exchange rate easier to calculate.
Taxes
Employees located in the United States know that they are subject to US federal income tax withholding. What about international employees who work for US employers? This is where a lot of research comes in.
You want to be selective about where you’re hiring employees from because of the different tax laws that come with each country. There are many tax laws and obligations that a US-based employer will need to adhere to. There are even laws stating that an international employee can only work for a US-based employer for a certain amount of time. You have to be sure that you’re aware of the different laws and tax rules of the countries you’re employing from.
Time Zones
One of the biggest challenges that come with international payroll is ensuring that your international talent is getting paid on time. No matter where your employees are stationed, they’re expecting timely payments. When top talent doesn’t get paid on time, then they’re sure to get frustrated and search elsewhere for employment.
A great way to avoid this problem is utilizing payroll software that allows you to schedule payments ahead of time. A payroll system can have the employees’ information entered and automatically send out scheduled payments. This can prevent late payments and also ensure that you aren’t working outside of your designated work hours.
Foreign Bank Accounts
In the United States, direct deposit is one of the easiest ways of getting paid. This is basically your company’s account paying your employee directly. However, when it comes to international bank accounts, not all banks are permitted to send funds directly. This can lead to some challenges when trying to pay your global employees.
One way you can get around this is by transferring the money from the company’s account to multiple different bank accounts until it gets to your employee. This isn’t the safest option though, since having so many transactions can increase risks. Instead, something that is much safer and a great investment if you want to keep employing international talent is setting up a separate foreign bank account for your company. This can ensure that your employees get paid on time and that their check isn’t getting slowly chipped away at by bank fees.
How To Manage Your International Payroll
With these challenges in mind, you’ll want to be sure that you stay on top of collecting employee data and keeping up with the changing laws and tax trends in your employees’ country. There are many factors that you must consider to make sure your international payroll system is running smoothly.
Employee and Contractor Agreements
Just like with any other employee and employer relationship, you want to set the terms and obligations of each party. This has the worker’s requirements as well as the employer’s agreement to provide a certain hourly wage and benefits.
It’s important to keep in mind that each country has different requirements for what should be included in this contracted agreement. There are also multiple types of agreements in different countries, so you want to be sure the agreement you’re choosing is the correct type.
Onboarding
Similar to domestic onboarding, you’ll get all your employee’s information that you’ll insert into your payroll system. This includes their personal information and their banking information.
It can take a long time for your employee’s information to integrate into the system. Oftentimes, international employees have to wait upwards of three months until they finally receive their compensation. The best practice is to familiarize yourself with the timeline and try to employ talent from countries that may not have these long waiting periods.
Tax Laws & Deadlines
We already discussed how taxes can be tricky when it comes to an international payroll. Additionally, you have to be sure that your employees get their required tax documents within the designated timeline.
If you miss deadlines or fail to give your employees the correct documentation, you’re susceptible to tax penalties. These tax penalties can add up and your company may not be able to handle these mistakes. Luckily, there is software created to help you keep up with global compliances. This investment will save you from unnecessary tax penalties in the future.
Employee Benefits
Just like in the United States, other countries have requirements and best practices for employee benefits. Different benefits you’ll need to research are:
- Retirement Contributions
- Health Insurance
- Paid leave (vacations, sick days, parental leave)
- Worker’s Compensation
- Severance Pay
The rates for these different benefits often differ in other countries, so you want to be sure you’re matching them correctly to satisfy your employees. You also want to be sure you’re not violating any requirements by not providing any of these benefits.
Data Protection
As with all employees, you want to be sure you set up a Data Protection Agreement and set up security regulations and protocols. You’ll want to monitor your systems to ensure there are no data breaches and be sure that security clearance is only given to select personnel.
You also want to be selective about the help you receive. Whereas it might seem like a good idea to outsource your payroll management through a third party, there are many risks. They could free up your time, but sharing financial and employment data with a third party is always risky. Be sure you do your research and only share your data with trusted sources.
How To Set Up an International Payroll System
Similar to your regular payroll system, there are systems designed specifically for international payroll. With all the different factors, you want to be sure you’re getting professional insight. Contacting international and domestic banks can help you get all the information you need on how to set up a global payroll system.
