International Payroll Processing: All You Need to Know

What is processing of foreign payroll? How do you pick a reputable provider? This manual provides all the information you need regarding worldwide payroll.

Written by Diana Ramonez January 15, 2023

The global workforce is becoming the new normal and is not just a fad. Your company may access new markets and multilingual and multicultural talent by assembling a global staff. Global workforces are being built by businesses globally, from startups to large corporations, to achieve unprecedented growth and diversity.

But with these fresh options come fresh challenges. The processing of international payroll is a problem for businesses making their first international hires. It might be challenging to comprehend local regulations, taxes, currencies, time zones, and payment options. And developing a reliable, legal worldwide payroll system is extremely harder.

Regardless of the scale or method of your company’s global expansion, the seven distinct components of global payroll are covered below, along with your four best options for dealing with them.

What is international payroll?

The process of paying foreign workers or independent contractors for the job they do for your business is known as international payroll (or global payroll).

Payroll for international employees and independent contractors is more complicated than adding them to your current payroll system. It entails becoming acquainted with the labor regulations, tax regulations, and other financial specifics of every new nation where your employees are located.

7 distinct elements of global payroll management

Processing payroll abroad is more difficult than processing payroll domestically. When paying foreign labor, additional factors—we count seven, which are described below—come into play.

1. Local laws and regulations

The largest payroll difficulty for businesses trying to grow internationally is that employment laws in the new market may vary from those in your own. You must comprehend and abide by the local laws of any new country you choose to employ an employee or contractor in.

– Deadlines and tax rates
– Statutory benefits for employees
– Minimum stipends
– Maximum hours worked each week
– Definitions of independent contractor vs. employee

Make your international payment timing, method, and quantity decisions before you begin doing business in a new area.

When? You might need to pay overseas personnel at various times because different countries have different pay schedules. Depending on your agreements and regional employment rules, get ready to handle payments weekly, monthly, or even daily.

How? You might use different payment methods for your foreign personnel than you do for your local ones. The conversion rates and processing periods for paper paychecks, direct deposits, money transfers, and digital wallets vary.

The amount? Before looking for candidates in new markets, you must be aware of the distinctive market-standard rates and laws (such as minimum wage) that apply to each nation. Additionally, to make sure you are providing a competitive, alluring take-home pay to a foreign employee, compute the local taxes and fees that will be deducted from their gross compensation before you make an offer. Learn more about how to determine foreign employee compensation.

Additionally, certain nations may be highly accustomed to strange payroll procedures like paying workers for the 13th month. In addition to their regular 12 monthly pay, employees frequently earn a 13th month’s salary at the end of the year. In certain nations, like Greece or Argentina, it is required, while in others it is simply recommended practice (mostly throughout Latin America).

3. National and international tax regulations

Payroll taxes can be tricky, especially when you take into account regional differences. Every country has both federal and local income taxes, however the rates might vary greatly. If you overlook a form or a tax, your firm could face tax penalties. Your company will be responsible for adhering to tax regulations in the US and anywhere you hire people. Self-employed people handle their own income taxes (and should be aware of potential tax treaties between your country and theirs and fill out Forms W-BEN or W-8BEN-E to avoid double taxation).

Fortunately, most nations now offer digital tax filing to make the procedure simpler. Payroll software with tax-related features will enable you to abide by international tax rules from your own country. For worldwide expansion, a tax-compliant payroll system is essential, especially if you oversee a sizable workforce across numerous nations.

4. Employee benefits

Employee remuneration sometimes includes a sizeable portion of benefits. You can recruit and keep international talent with the aid of a solid plan.

The majority of nations require employers to contribute to social security. It involves covering the costs of healthcare, pension contributions, disability, unemployment insurance, and worker’s compensation for accidents sustained on the job. In many nations, employers are required to offer paid annual leave to workers (up to 30 days annually in some cases) or to pay for the first month of a worker’s pregnancy leave while the government pays for the remainder.

Work-from-home stipends, wellness stipends, crypto payroll, and other modest extras make your organization a more desirable place to work after you’ve determined the obligatory remuneration.

5. Bank fees and currency conversion rates

Payrolling internationally necessitates transporting money across borders, which costs money. For instance, if you decide to use SWIFT transfers (a sizable communications network between banks used for secure international money transfers), each international transfer will cost you between $25 and $50.

For businesses operating internationally, currency exchange rate changes are a problem. You are required to pay your staff in the local (fiat) money in many nations. Your payroll budget could be affected if there are adverse changes in exchange rates between the currencies that you and your employees utilize.

6. Data security

The General Data Protection Regulation (GDPR) was revised by the EU in 2018 to impose stronger requirements for data protection. Data protection has grown to be a major concern for businesses, particularly those with sizable, global workforces. More and more employees have access to your payroll information, and no matter where you hire, you must follow regulations.

Eliminating unencrypted emails and all redundant employee data are two ways to reduce hazards. Your employees’ personal information will be accessible to a third-party firm if you outsource payroll. You must have a comprehensive Data Processing Agreement (DPA) in place. This contract between you and the payroll service ensures that your data is handled securely and in accordance with GDPR, and that you are protected legally in the event of a breach.

7. Development of the business’s Human Resources division

The first step in growing your business is to set up your foreign payroll. You’ll soon require a staff for personnel management, administration, onboarding, and other tasks as your business expands.

Utilize robust automated technologies like an HRIS, HRM, or ERP to lessen your HR workload. Your team will devote more time to enhancing the employee experience and human capital management and less time to monotonous chores. Your team can access real-time data in a centralized tool because some of those bigger HR systems contain built-in payroll software (or connections with other payroll software).