Getting this wrong not only brings you out of compliance but creates a poor experience for your employees. On that note, it’s important to understand that EORs are not co-hiring schemes. On paper, they are the sole employer, but in practice, they do not participate in the day-to-day management of your workers. In the UK, for example, a separate category exists between employees and self-employed contractors. Like an EOR, Oyster assists with cross-border employment on behalf of your company but with the added benefit of being fully automated, self-serve, and free to start. Aside from compliant, local contracts, Oyster manages payroll and benefits for your team worldwide, empowering you to truly care for your team members, regardless of their location.
Employers must ensure that their payroll processes meet the requirements of any applicable tax treaties or other international agreements. Failure to comply with these obligations could result in significant penalties. If you are paying staff or contractors in different currencies, nothing will save you more money than finding a low-cost solution for currency exchange.
Which payment option for paying international employees?
Start using Remote’s employer of record services and local entities to avoid the time, cost, and risk of building your own. Hiring with an EOR allows you to pay international employees quickly, easily, and compliantly. A representative office is quicker and easier to set up, but it doesn’t let you employ people who will be responsible for generating revenue, like sales, management, software engineers, etc.
Choosing the wrong method for recruiting and paying international employees may also contribute to permanent establishment risk. Now that we have discussed your hiring options, let’s look at the challenges you may need to tackle when you hire international employees. What this process will look like exactly will depend on the country where you’re establishing your local entity and its legal requirements. Expenses will also vary; however, you will always have to cover certain universal costs, including registration fees, initial capital, legal consultation, and documents. Opening an entity takes a long time and can be extremely expensive, depending on the country. Working with an EOR is usually the best option to hire full-time employees quickly and compliantly, but you may want to open an entity eventually if your team in another country is large enough (25+ people).
Outsource payroll to a payroll provider, EOR, or PEO
GEOs may function as EORs for an organization’s workforce as it expands internationally and performs comparable HR duties to PEOs. In the employee’s country of residence, the EOR is their only employer on paper. However, in practice, the EOR has no further involvement other than HR duties like payroll and benefits administration. Companies should also consider what their payroll obligations are and if this can’t be managed through internal payroll mechanisms, whether shadow payroll is required. Shadow payroll, it is worth recapping, is the mechanism that allows employers to meet their local payroll tax payments and reporting obligations by “shadowing” the home payroll compensation reporting.
Can a company employ someone in another country?
Yes, a US company can hire someone in another country; however, the process is not as straightforward as hiring employees in the US. Some common challenges US companies face when hiring an international workforce include: Permanent establishment.
An employer of record is a service that helps companies hire people in other countries. EORs take care of all the day-to-day HR work, like managing payroll, paying taxes and social contributions, and managing benefits, all the way through to ensuring your company’s compliance with local law. A Global Employment Organization is a company that assists other businesses with staffing international employees. GEOs exist to help ensure that companies follow both employment and tax laws when hiring, making global human resources more manageable. Employer of record services provide companies the ability to employ workers legally in other countries, even if the company does not have a local legal entity.
How to pay international employees overseas: A guide for distributed companies
A global EoR has global payroll capabilities and handles risk mitigation, local labor requirements, and compliance in foreign markets. A global EoR is set up to locally hire, pay, and manage international, remote employees on a company’s behalf. A global EoR becomes the legal employer of a company’s supported employees and helps manage their distributed workforce around the world. When running an international business, you need to pay employees in other countries the same as you would in the United States.
An employer of record is a company that employs workers in another country on behalf of a company. For example, if a U.S.-based company wants to employ a worker in France, the American company can utilize an EOR. Companies expanding into new territory–whether across state or international borders–or hiring virtual workers, need an effective way to hire, onboard, train, pay, and protect employees. They must navigate the complicated and ever-changing tax and labor regulations, file paperwork, negotiate with benefits companies, and stay abreast of changes to labor laws. Failure to comply can subject the company to significant fines and penalties.
Laws and regulations
The one used in the employee’s country of residence, or the one that is used in the jurisdiction where the employer is based? Choosing the second approach may potentially have a negative impact on the employee’s pay due to fluctuations in the exchange rate. HR professionals should make a strong case for compliance with local overseas payroll laws.
How do you do international payroll?
- Categorize your overseas employees.
- Establish a local entity so you can do business in the country.
- Research international labor and tax laws.
- Configure your payroll process.
- Determine employee benefits packages.
- Select payment method(s)
- Run payroll and maintain accurate records.
The more informed you going into hiring international employees, the fewer mistakes you’ll make, and as we’ll see sometimes those mistakes can cost you not only money and time, but an array of legal problems. In the case of hiring a local, then chances are that you will need to have payroll set up in their home country, mainly to help with tax and social security. Both your country and the country of your overseas employee will want to have any social security contributions or benefits paid by both the employer and employee. Here, you could also employ credits and other benefits of tax treaties.
Put the employee on the home-country payroll
Your How To Pay Employees Working Across International Borders people management strategy should be iterative and with opportunistic transitions in mind so you can scale your payroll effectively. As you engage your HR & payroll teams to develop a global people management strategy, you will inevitably identify new opportunities, additional levels of detail that expand beyond your initial global objectives. In Germany, employees can receive a continued payment during his/her sickness for a maximum of six weeks, after which there are sickness benefits. Qualifying US expatriates can use foreign earned income exclusions and foreign tax credits to avoid double worldwide taxation while working abroad. Foreign nationals who are nationals of a treaty country may also be eligible depending on their circumstances.
If you are considering a long term strategy and need to send key stakeholders into foreign markets, applying for visas and supporting your employees’ immigration is the logical step. Given the level of commitment involved, this is often part of a long term global strategy. “Shadow payroll” is another means of leasing an employee, but you keep them under the company umbrella.