Expanding your business operations into foreign markets can be a great way to increase your brand recognition and your profit margin, while hiring international employees can help you engage top talent. However, an international expansion also requires you to deal with many administrative back-office tasks. For example, you’re going to need to pay international employees. This isn’t as easy as it might seem, especially if you want to make sure they’re paid correctly.
Whether you need to pay US employees overseas, hire top talent in a different country, or expand your business globally, here’s how to pay your international workers correctly.
What Is the Right Way to Pay International Employees?
Paying your international employees isn’t the same as paying workers in your own country. You need to pay workers using the payroll and employment standards in their country, not yours.
For this reason, the right way to process payroll is to ensure you understand and follow the local payroll and tax laws of the foreign country you’re operating in. That means knowing the federal, state, and local laws where your company is operating as well as where the employee is working. Though the federal laws will be the same no matter where you work in the country, the state (or provincial) and local laws will vary depending on where the work is being done.
Though the payroll regulations and tax legislature might be similar to those in your home country, they will not be the same. Tax rates might differ, the payroll deductions will be different, and the deadlines and due dates will vary. There might also be different laws surrounding overtime, holiday pay, paid vacation, and leave than you’re used to.
It is your responsibility to ensure that you are paying your international employees correctly. Tax fraud and illegal payment methods, like misclassifying employees as independent contractors and cutting cheques without making the required deductions, sending the government remittances, and filing the right paperwork, will land you into trouble. You could face significant fines and penalties.
Not only will you need to learn the current payroll and tax laws to pay international employees properly, but you’ll need to continuously keep on top of ever changing employment laws. You’ll likely have to buy brand-new payroll software that is specifically created for processing in the country you’re operating in, too.
Set up an Entity in a Global Market
One of the toughest parts — and by far the most expensive part — of paying international employees in other countries is setting up the infrastructure to do so. Before your first payroll period, you’re going to need to set up your company as an employer in the country in question.
There are significant barriers to entry in global markets. You’ll need to register as an entity, set up employment contracts and registrations, open a foreign bank account, contract with a foreign payroll provider, and retain legal and financial advisors to do this on your own. This can quickly add up to months of work and can cost a minimum of $30,000.
Consider Optimal Conversion
Your payroll budget might be affected by conversion. You will likely be creating your budget based on your country’s funds, but this might not correspond exactly with the funds of the country you’re in. To ensure you don’t go over budget when paying your international employees, make sure you always consider conversion rates. These rates fluctuate often, so you should be converting your funds for payroll at the most advantageous times. A huge exchange rate can hurt your payroll budget.
Do Your Salary Research
The type of international employees you need to hire might be paid a typical salary rate in your country, but the skills demand in the country you’re working in might be different. You should conduct salary research ahead of time so you know what compensation you should be offering—you might catch a break and be able to pay them less, or you might have to dish out more to get the skills you need in that country. You’ll also want to consider employee benefit requirements.
Engage an Employer of Record (EOR)
The most efficient and cost-effective way to pay your international employees accurately, promptly, and within the law is to engage an employer of record (EOR), often called a professional employer organization (PEO). Many foreign companies benefit from handing over the responsibility of paying their workers to an EOR.
Under the law, whoever pays the workers is legally responsible for them, so once you sign over your workers to an EOR, you won’t have to worry about correctly processing payroll, dealing with government bodies, ensuring tax compliance, or filing paperwork. The experts at the EOR will take care of all of the administrative work that comes with payroll and human resources.
Just as importantly, an EOR will already have the infrastructure in place for you to start paying international employees. You won’t have to open bank accounts, register a business entity, or create employment contracts. An EOR quickly and easily eliminates the barriers to entry in global markets.
An EOR can open up foreign markets and help you protect your company while paying international employees. It will also save you time from handling administrative tasks, so you can focus on your expansion efforts.