Our world is getting smaller each day. Thanks to advancements in telecommunications, it is becoming increasingly popular -- and easier to hire remote employees. If your team is growing globally and looking to hire overseas employees, chances are you're wondering how you are going to pay them.
Need help managing your remote teams? Here are our 7 key tips for working remotely.
Figuring out how to send payroll overseas to remote employees isn't as simple as it may seem. The answer to this will vary depending on several factors, including the employee's location and the length and type of work you are hiring them for. In some cases, depending on local laws, you may have to set up a branch in the host country. If you do not have a branch/office or any other type of registered entity that allows you to run payroll in that country legally, then you may have to default to paying your employee remotely from your home office.
But, the question that pops up is: can you legally pay overseas or foreign employees remotely?
To accurately answer this question, let's consider the following scenarios where you would need to pay a foreign employee:
Your growing business has hired a foreign employee who will work from home remotely.
I.E.: Your Canadian company hires a full-stack developer in the U.S. for a full-time, remote position.
Putting together a remote team that is based on skills vs. location
I.E., To access new and fresh talent beyond its borders, your U.K. startup puts together a scrappy, remote team across Eastern Europe
Assigning an employee from home to a 10-month project abroad
I.E.: Your Hong Kong-based company sends a project manager to Singapore to oversee the start of a new branch or headquarters
In most of these scenarios, we may look to pay each of the employees remotely, with one-off payments from our home payroll. Here, you would probably treat these employees as if they were working out of your primary business location. This stop-gap type of solution may work for short, one-off engagements but not for long-term arrangements with your employees.
While not incorrect, this can pose problems later on down the road and if you try to scale. The major problem that will eventually pop up is that upon hiring an employee in another country, you are now accountable in two separate tax and payroll systems, one at home and one in this foreign country. This will lead you to put in more work to ensure that you are staying compliant with both systems, which can cause complications down the line.
What to Consider When Paying Overseas Employees
When figuring out how to send payroll overseas to remote employees, there are a few things you should think consider.
Relationship with the worker
Depending on how you structure your relationship with the employee, your duties and responsibilities as an employer will change.
The amount of companies hiring contractors for their teams has grown through the last few years. More companies bring these types of employees on, and it seems to be an easy answer for the international payroll issue. This is because these contractors are considered self-employed, and it is more of a B2B arrangement between them and the employer.
The issue here is the risk that a company takes on - if they misclassify the worker. While you may consider them a contractor, if the country you are hiring them from thinks of the employee as a full-time employee of your business, you can run into legality and tax issues.
On the other hand, depending on location, formal employees (both locals and ex-pats) can be entitled to an extensive suite of benefits and worker protections in their home countries. While you may be able to avoid setting up an H.Q. in a specific country by hiring contractors, you will eventually need to find a way to comply with and meet the host country's regulations.
Read more on how to appropriately classify your relationship with workers in our blog post.
When considering how to send payroll overseas to remote employees, remember that currency is a significant consideration. Currency variations can profoundly impact a remote or foreign worker's pay and taxes, and you may have to adjust their salary according to their home currency.
In some cases, you can create a currency exchange agreement that helps you mitigate currency fluctuations (from your end or the employee's end).
I.E. if a remote employee is paid in your company's home currency but is paying for their expenses in another currency (their home currency).
Taxes and Social security
Since your remote employee resides in a foreign country, they most likely will have to pay tax, but your company will also need to withhold tax back at home.
To avoid double taxation, look to see if any tax treaties exist between your country and the employee's country. This could allow you to use specific tax credits to offset any extra taxes and avoid double taxation.
Don't forget! 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. Contact us today to learn more about how to get started.
How to send Payroll Overseas to Remote Employees
Now that you know what you should be looking for when setting up payroll for an overseas remote employee, here is how you set up the payroll.
Ultimately, you have four options at your disposal. Let's dive in:
1. Paying the remote employee on your home country payroll
If you are engaging an existing employee for smaller, one-off overseas assignments or projects, this could be an easy solution. Paying your employee on the home payroll should be fine as long as it is not for an extended period.
Many countries allow this setup, but be aware of any unique laws or rules. You may be required to register with the government to avoid setting up a legal entity in the employee's country.
This works with an existing employee for a short period. 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.
2. Work with a local partner, a third party or a PEO to get the employee on their payroll
If you already have a partner or a Professional Employer Organizations (PEO), you can work with them to get payroll your remote employee locally.
The third-party or partner becomes the 'employer' for payroll administration and navigating compliance. From there, your company can remit the salary through them and withhold and manage any required contributions.
3. Outsource payroll or hire a GEO to handle your overseas employee
Outsourcing payroll is an option for companies looking to send payroll overseas remote employees. A good idea on the surface, payroll providers, are mainly administrative in function and are not considered a legal employer, so this is a limited option.
Another more viable solution is outsourcing your payroll to a Global Employment Outsourcing (GEO) provider. We consider this to be a better option as they generally offer a local employer of record in the employee's country that is already incorporated.
A GEO can provide your company with a way to hire, manage payroll and withhold taxes for your remote foreign worker for a more extended period. With this option, you avoid any issues that come from paying via your home payroll and can help you keep compliant in both countries.
4. Pay your overseas remote employees as independent contractors
While not ideal for every employee you are hiring, this option can work well for some situations or short-term projects where the company does not need to manage the employee's time or workflow. A typical example of this is for freelance writers or even salespeople who work on commission. Indeed any specialist or consultant that works on an hourly rate can easily be contracted out to.
Navigating compliance while paying overseas employees
Figuring out how to send payroll overseas to remote employees can be challenging. It would help if you accounted for compliance with foreign employment and social security laws and taxes from the outset.
While it may be tempting to take the easy route of setting up a remote payroll or just paying your employee from your home payroll, this can bring about a myriad of non-compliance issues. This can put you at risk of fines, and penalties for not complying can lead to the enforcement of local and regional employment laws on behalf of your remote worker.
Knit is here to help.
If you are seeking ways to send payroll overseas to remote employees, and are having difficulty choosing the best solution, look no further.
Setting up payroll payments without the risk of running a remote payroll from home can be challenging. Despite finding an above-board way to pay your foreign employee remotely, you will still be subject to the host country's labour laws, which most likely include contributions, unemployment insurance, leave, notice periods, justifiable termination and severance.
Ultimately, it is in your best interest to find a better solution, especially as you grow. Avoid any problematic compliance issues by working alongside a trusted partner like us, Knit.