How payroll tax compliance software benefits your business

The rise of remote work naturally comes with an increase in international hiring.

Bringing on top talent from around the world can be an incredible advantage for businesses looking to grow.

However, it also comes with a set of challenges.

For one thing, managing taxes and staying payroll compliant on a global scale can be daunting if you aren’t prepared.

In this guide, we’ll walk you through the basics of how payroll tax compliance software helps you manage payroll and stay compliant. We’ll also provide you with essential tips to help you grow your employee base without running afoul of international laws.

Here’s what you need to know.

What is payroll tax compliance?

Running global payroll involves much more than sending out checks on the first of the month.

Depending on the country and the type of employee, payroll can include the following responsibilities:

• Calculating wages for hourly workers and salaried employees

• Determining benefits, including insurance, paid time off, and retirement

• Withholding federal, state, and local taxes

• Remaining compliant with local and national labor laws for each country

• Completing tax returns and issuing the correct forms for each location as needed

• Correctly classifying your workers as employees or contractors

• Adhering to payment deadlines and issuing timely payments according to local laws

Every country handles payroll taxes and compliance differently. And, in most countries, laws and guidelines change all the time.

The UK, for instance, increased its national minimum wage in 2024. Also, a handful of states in the United States, including California, Washington, and New York, passed pay equity legislation in 2023. This legislation requires employers to list salary ranges to help address gender wage inequality.

Onboarding international talent is worth the trouble, but it’s important to ensure you understand the basics in each country before you get started.

Now let’s look at some of the challenges of managing global payroll.

What are the challenges of managing payroll tax compliance?

Navigating the intricacies of payroll tax compliance is no small feat. Companies need to keep up with regular legislative changes, make sure they calculate what they owe correctly, and always pay on time.

Below, we break down the main challenges that make managing payroll taxes a daunting task.

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.

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.

Check whether you need to establish an employer of record (EOR) or a professional employer organization (PEO).

EOR

If you don’t already own an entity in the country where you want to hire, you’ll want to consider an EOR.

An EOR hires employees on your behalf in other countries. They take on the burden of compliance and leave you free to focus on growing your business.

Employees hired through an EOR work with your company just like any of your other employees. One of the primary differences, however, is that the EOR is the listed name on the paperwork. Another difference comes down to the cost savings of not needing to open a new entity in each country you plan to do business in.

PEO

If you already own an entity, a PEO can help you tackle global payroll and compliance challenges.

A PEO co-employs workers with you. The PEO handles payroll, benefits administration, and certain challenges with compliance.

Think of a PEO as an extension of your own HR team.

What are some examples of payroll policies around the world?

Different countries have their own payroll policies, which reflect the local labor laws that govern pay, overtime, and leave entitlements. Here are some notable examples of such legislation:

Fair Labor Standards Act (FLSA)

The FLSA sets the federal minimum wage, determines who gets overtime pay, mandates recordkeeping, and governs child labor across the US.

Federal Insurance Contributions Act (FICA)

FICA requires US employers to withhold Social Security and Medicare taxes from employee paychecks and match these contributions to support these programs.

Federal Unemployment Tax Act (FUTA)

FUTA makes US businesses pay a tax that funds unemployment insurance (also known as unemployment taxes), helping people who have lost their jobs.

Equal Pay Act (EPA)

The EPA is designed to prevent sex-based wage discrimination in the US. Under this law, men and women who perform similar jobs in the same workplace are paid the same.

Davis-Bacon Act

The Davis-Bacon Act requires companies on federally funded projects to pay their laborers and mechanics the same wages and benefits that other local workers get for similar jobs.

European Union’s Working Time Directive (WTD)

The WTD regulates maximum working hours, rest periods, and annual leave, making sure that workers in the EU have enough time to rest and unwind.

Labour Law of the People’s Republic of China

This law governs employment practices in China, setting rules on contracts, working hours, pay, safety, and workplace conditions.

Wages Protection System (WPS) of the United Arab Emirates

The UAE's WPS makes sure that employees get paid on time and through electronic means. It’s designed to help protect their rights and make sure employers follow the rules.

UK Employment Rights Act

This act provides UK employees with various statutory rights, including job security, wage protection, and fair treatment in the workplace.

Labor Standards Act of Japan

Japan's Labor Standards Act sets the standards for working conditions in Japan, including minimum wage, maximum working hours, and safety guidelines.

Germany’s Part-Time and Fixed-Term Employment Act

This law is designed to make sure part-time and temporary workers in Germany have stable jobs and are treated fairly, similar to those of full-time and permanent employees.

Additionally, many international payroll tax laws focus on how workers are classified. Unfortunately, that means misclassification is a widespread noncompliance issue.

Since each country has its own criteria for hiring employees and contractors, it’s crucial to follow the correct classification procedures to avoid costly penalties and fines.

While international payroll compliance may seem overwhelming, you’ll want to avoid noncompliance issues and the often expensive consequences.

The consequences of noncompliance with global payroll

Ignoring or misunderstanding payroll can lead to some severe consequences, including fines, legal costs, and lost time. Here are just a few consequences of noncompliance:

• Penalties and fines are commonly issued to companies found out of compliance. Several factors, including the severity of the offense and the country involved, influence the amount.

• Back pay may be owed to an employee for the period affected.

• Employers may need to replace lost benefits for employees misclassified as contractors.

• Legal fees can add up quickly, depending on the length of the process.

• Employee disengagement and frustration will increase if employees aren't paid correctly and promptly.

• A negative impact on your brand or business reputation could make it harder to attract employees and contractors. Noncompliance may also influence a country’s decision to allow you to continue operating.

Understanding labor laws is your next step to ensuring payroll compliance.

Local labor laws

The way people view work, and the relationship between an employee and employer, is largely cultural.

This is also true for the role of the state in managing these relationships. As each country has its own unique cultural norms, 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 that processes payroll, laws can vary widely. Some may be highly protective of employee rights, while others may offer more flexibility with 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.

Labor laws cover a variety of subjects, including:

• Minimum wage

• Paid leave

• Parental leave

• Mandatory benefits

• Sector-specific benefits

• Overtime

Accounting for all these factors in one country is hard enough.

Add multiple countries into the mix, and you might need to build an entirely new branch of your company to manage the administrative work.

Better yet, start working 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.

Once you are familiar with local labor laws, you’ll need to learn the importance of correctly classifying your workers.

Employee and contractor misclassification

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 do it.

It’s much safer to hire your international employees through an EOR than it is to risk the penalties of misclassifying employees.

Employees in many countries, especially in Europe, enjoy strong protections with clearly defined rights.

Trying to bypass these rights can lead to massive fines and harsh penalties. This could include a ban on doing business in the country if local regulators judge 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.

If you do need an employee, it's smarter to hire them through your local entity or EOR rather than risk the penalties associated with misclassifying them as contractors.

Payroll tax requirements

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.

All countries operate under their own tax code, and the company running the payroll is often responsible for withholding taxes and making certain payments to the government.

You probably won’t need to understand the differences in payroll taxes for every country in the world. Ensure you understand your countries of interest, though, to save time, money, and headaches down the road.

Permanent establishment

Permanent establishment is a tax term that describes a business with enough presence in a country to owe taxes there.

Put another way, if your company meets certain criteria, you may be subject to corporate taxes in another country. This can be costly 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. Be sure you know the basics regarding the risk of permanent establishment for companies that employ remote workers.

Data security and intellectual property

Whether you operate in tech, finance, energy, manufacturing, or another industry, leaving your intellectual property (IP) unprotected poses considerable risk. 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 to guarantee you always receive the full rights 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.

This exposes you to an 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.

Plus, check out our on-demand webinar on IP protection 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

Global Payroll —

2 min

[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 do you maintain global payroll compliance with a partner service?

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?

Connect with a partner who already has legal entities and experts established across the globe.

There are two types of payroll service partners to choose from: payroll services if you own a legal entity and payroll services if you don’t own a legal entity.

Here’s how to decide which one is right for your business:

Payroll services if you own a legal entity

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 doesn’t necessarily have to employ workers on your behalf.

This 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 employees are employed directly by your local entity, not your outsourced payroll provider.

Your partner should facilitate the processing and payment of all forms of payroll. This includes employment tax calculations, benefits administration, payslip generation, reporting, and compliance with relevant payroll laws and customs.

Payroll services if you don’t own a legal entity

Establishing a legal entity in a country isn’t something to take lightly.

You can employ full-time workers legally in countries where you don’t own an entity. You can also begin onboarding these employees in just a few clicks by going with an EOR.

Remote’s EOR solution allows you to access an entire world of talent through one easy-to-use platform.

Remote simplifies global payroll tax management in dozens of countries. We free your HR team from the difficulties of international expansion while offering the benefits of a wider world of untapped talent.

Remote is a fully owned-entity provider, only offering services in countries where we completely own our payroll infrastructure. This allows Remote to provide the highest levels of service and protection.

The benefits of choosing global payroll tax compliance software

Investing in the right partner and global tax compliance software offers clear benefits for your business.

Automation

Payroll software allows you to automate.

Your workers will be paid on time and in the currency the country requires. Tax forms will be issued at the correct time, so you won’t need to worry about missing important deadlines.

System integration

A global payroll compliance software partner that offers you system integration is another bonus. When employee information is entered, HR and payroll can access data on time worked, wages, benefits, payment details, and other critical information.

This integration can save time and reduce errors.

Peace of mind

A software partner you can trust also gives you peace of mind. Your employee information is stored in a secure, centralized location. Providers who are knowledgeable about the countries you’ve expanded to will keep the system updated with the latest laws, regulations, and tax codes.

You won’t have to worry about keeping track of every country you work in — your software provider will do it for you.

Positive cost models

Percentage-based payroll providers used to be the industry standard.

The problem with percentage-based models, however, is that they disincentivize employers from offering promotions or bonuses. In this model, if you pay your employee more, you have to pay your percentage-based provider more, as well.

No one wants that.

This dynamic has recently begun to change. Global payroll providers are increasingly offering flat fees for their services. This 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 EOR in the industry. For a low flat rate, you can hire any worker, from a CEO to a software developer, in any of the covered regions.

The Remote Fair Price Guarantee ensures no hidden fees, no percentages tied to salaries, no deposits, and no surprises at the end of the month.

Your payroll partner should give you the best value for your money without cutting corners.

Ready to ensure international payroll tax 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. This ensures we can provide you and your team with the best experience at the best price.

Remote provides you with payroll tax compliance software you can trust.

It takes care of everything you need to process your global payroll, including:

• Employment tax calculations

• Benefits administration

• Payslip generation

• Reporting

• 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, check out our global payroll services.

Contact Remote today to find out which global employment services are right for your company.

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