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Tax and Compliance 11 min

Guide to managing global payroll tax and compliance

Written by
Pedro Barros

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The rise of remote work naturally comes with a rise in international hiring. While bringing on top talent from around the world can be an incredible advantage for businesses looking to grow, the challenges of managing tax and compliance globally can be daunting if you aren’t prepared. However, with a bit of preparation, you can hire and pay top talent swiftly, efficiently, and in full compliance with global tax regulations all over the world.

In this guide, we'll walk you through the basics of global payroll compliance and provide essential tips to help you grow your headcount without running afoul of international laws.

What is global payroll?

Running global payroll includes much more than sending out checks on the first of the month. Depending on the country and the type of employee, payroll can mean you're responsible for withholding taxes, calculating wages, staying compliant with local labor laws, and other time-intensive work.

Every country handles payroll tax and compliance differently. Onboarding international talent is worth the trouble, but you don’t want to dive in headfirst without understanding what you’re getting yourself into.

Remote has a complete introduction to the definition of global payroll and its related functions. For this article, we will primarily focus on aspects of tax and compliance.

The challenges of global payroll tax compliance

Large international companies have the resources and HR departments to help them manage their payroll tax and compliance across the globe while staying compliant. For a small to medium-sized company, it's a different story. With limited resources, you need to know how to pay international employees without onboarding your own payroll and legal staff in every country where you hire.

If you do not already own an entity in the country where you want to hire, an employer of record like Remote can help. An employer of record, or EOR, hires employees on your behalf in other countries, taking on the burden of compliance and leaving you free to focus on growing your business. Employees hired through an EOR work with your company just like any of your other employees — the only difference is the name on the paperwork (and the cost savings of not having to open a new entity in a foreign country, of course).

If you already own an entity, a professional employer organization, or PEO, can help you tackle global payroll and compliance challenges. A PEO co-employs workers with you, handling things like payroll and benefits administration, along with certain challenges of compliance. Think of a PEO as an extension of your own HR team.

For more information, check out Remote’s guide to the differences between an EOR and a PEO.

The importance of local labor laws

The way people view work and the relationship between an employee and employer is largely cultural, as is the role of the state in managing these relationships. Because each country has its unique cultural codes, it shouldn't come as a surprise that each country has different labor laws.

Local labor laws are often an amalgamation of different rules and regulations, including written legislation, case law, and commonly accepted practices. Depending on the country where payroll is processed, laws can be highly protective of employee rights or more flexible in how employers choose to manage their own payroll systems.

To give a potential international employee a competitive offer, you need to know the norms and expectations in the country where they live. That includes the basics of staying compliant, general payroll practices, tax withholding, and benefits administration duties.

Labor laws cover a variety of subjects including:

  • Minimum wage

  • Paid leave

  • Parental leave

  • Mandatory benefits

  • Sector-specific benefits

Accounting for all these factors in one country is hard enough. Add multiple countries into the mix, and you would need to build an entire new arm of your company to manage the administrative work — or, more simply, work with a global payroll services provider who already knows the ropes.

Not all global payroll services are the same, though. Some providers outsource their local duties to third parties, which creates a frustrating experience for your employees and exposes your company to new risks. If you want to hire abroad, make sure you only work with an owned-entity global payroll provider.

Employee and contractor misclassification risk

You may be tempted to buy yourself a little time by paying employees as contractors until you open your own entity or figure out how to navigate the local tax laws. Don’t be fooled, though — it’s much safer to hire your international employees through an EOR than it is to risk the penalties of misclassifying employees.The reason for not attempting to treat employees as contractors is simple. Employees in many countries, especially in Europe, enjoy strong protections and have clearly defined rights. Attempting to bypass these rights can lead to massive fines and harsh penalties, including a ban on doing business in the country if local regulators judge that you have intentionally tried to skirt the law.

So, how do you avoid trouble? One of the biggest differences between a contractor and an employee is autonomy. As an employer, you can tell your employee how and when to do their work. With a contractor, you have far less control over how and when the work gets done.

There are many pros and cons of hiring employees versus contractors. In many cases, hiring a contractor may be the correct choice. But if you do need the services of an employee, take the smart route and hire full employees through your local entity or through an EOR instead of misclassifying them as contractors.

Payroll tax requirements vary per country

Labor laws and employee classification are difficult enough, but even if you get everything right, you still have to face the challenge of actually running global payroll. Every country in the world operates under its own tax code, and the company running the payroll is often responsible for withholding taxes and making certain payments to the government..

Running through the differences in payroll taxes for every country in the world is beyond the scope of this article. Fortunately, you can check Remote’s Country Explorer to see all the payroll tax requirements in countries around the world. When you hire employees in another country, Remote handles the payroll tax withholding on your behalf, so you never have to worry about missing a payment or landing in hot water with local regulators.

Permanent establishment risk

Permanent establishment is a tax term for a business with an ongoing presence in a country sufficient to make the business pay taxes there. Put another way, if your company meets certain criteria, you may be subject to corporate taxes in another country. This can be especially troublesome if you end up paying taxes twice on the same income.

Just as with other rules, permanent establishment works differently in different places. Even though most countries follow similar guidelines, the devil is always in the details. See Remote’s guide to permanent establishment for companies with remote workers for more details.

Data security and intellectual property

Whether you operate in tech, finance, energy, manufacturing, or another industry, leaving your IP unprotected poses a considerable risk to your company. Like local labor laws and tax compliance, IP protection works differently in every country.

Making sure you have the most comprehensive IP protection in every country requires a lot of expertise. Especially if you want to guarantee you always receive the full rights to your company’s IP under the laws of the countries where your employees work.

Some global employment providers pass your IP to their partners before sending it on to you, exposing you to increased risk of losing ownership of your inventions and proprietary ideas. This most often happens when a global payroll provider offers services in a country where they don't own their own legal entity.

If you want to minimize IP risk, you should always work with a partner who has legal entities in every country where they offer services.

To learn more about how IP ownership works for international teams, the dangers and pitfalls of poor IP protection, how to protect your business against data breaches, and compliance and international data regulations, be sure to check out our on-demand webinar on IP protection.

link to [Webinar Recording] Permanent establishment risk: Debunking the myths

[Webinar Recording] Permanent establishment risk: Debunking the myths

In this permanent establishment webinar and insightful Q&A, we lay out the foundations of permanent establishment and how to mitigate the risks if you are building a global team. 

How a global payroll partner can help you stay compliant and manage payroll tax

You can build owned legal entities in each new country and invest heavily in setting up your global payroll and tax compliance. If you plan to hire a few dozen employees and make a significant investment in that country’s market, opening your own entity might make sense. However, you can also set up global payroll in a way that saves you time, money, and growing pains, allowing you to begin onboarding new employees in minutes instead of months.

How? By partnering with the right partner with legal entities and experts across the globe. A partner like Remote can simplify global payroll tax management in dozens of countries, freeing you and your HR team from all the hardest parts of international expansion while allowing you to benefit from a whole new world of untapped talent.

But which payroll partner is right for you? Let’s take a look at the different types:

If you already own a legal entity in the country where you want to hire, you need a partner who offers global payroll services but does not necessarily have to employ workers on your behalf. That may mean working with a PEO to co-employ workers, or it may mean simply partnering with a company that has a local presence to run and manage your payroll.

With this kind of global payroll, your employee is employed directly by your local entity, not your outsourced payroll provider. Your partner should facilitate the processing and payment of payroll, including employment tax calculations, benefits administration, payslip generation, reporting, and compliance with relevant payroll laws and customs.

For more information on global payroll in countries where you already own an entity, check out Remote’s global payroll services page.

Establishing a legal entity in a country is not something to take lightly. Luckily, you can employ full-time workers legally in countries where you do not own an entity — and you can begin onboarding these employees in just a few clicks.

Remote’s employer of record solution allows you to access an entire world of talent through one easy-to-use platform. With Remote, you can enjoy stress-free hiring of international employees all across the globe. We are a fully owned-entity provider, which means we only offer services in countries where we completely own our payroll infrastructure, allowing us to provide the highest levels of service and protection.

For more information on global payroll in countries where you do not own a legal entity, check out Remote’s page on employer of record services.

What to watch for when choosing global payroll provider

What are the signs of a great global payroll provider versus a just-OK global payroll provider? The most important thing is to look out for a solution that gives you the best value for your money without cutting corners.

Cost models for global payroll providers

Percentage-based payroll providers used to be the industry standard. The problem is that percentage-based models disincentive employers from promoting their employees or giving them well-deserved bonuses. If you pay your employee more, you have to pay your percentage-based provider more as well. No one wants that.

Luckily, that dynamic has begun to change. Flat fees are becoming more common, which allows you to hire the best global talent and pay them what they deserve without worrying about your bill going up.

Remote offers the best pricing of any employer of record in the industry. For a low flat rate, you can hire any worker in any of our covered regions, from a CEO to a software developer. No hidden fees, no percentages tied to salaries, no deposits, and no surprises at the end of the month.

For more information, see our Fair Price Guarantee.

Set up your global payroll tax and compliance with Remote

Remote helps companies run their payroll and tax requirements in other countries in full compliance with all local laws. We only offer payroll services in countries where we own legal entities to ensure we can provide you and your team with the best experience at the best price.

Remote takes care of everything to process your global payroll, including employment tax calculations, benefits administration, payslip generation, reporting, and compliance with relevant payroll laws and customs.

To learn more about how we can help you set up your global payroll in full compliance and ready to scale, see our global payroll services page. If you have questions, contact a member of our global employment team so we can help you figure out which global employment services are right for your company.

Get your Global Payroll Guide for expert advice on outsourcing

Learn how to manage global payroll for your team and keep your company compliant with international labor laws.