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 will 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 global payroll 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 tax and compliance differently. And, in most countries, laws and guidelines change all the time.

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

Onboarding international talent is worth the trouble, but you will want 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.

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 do not already own an entity in the country where you want to hire, you will 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 of compliance.

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

What are some examples of global noncompliance?

One example of global noncompliance in payroll is the misclassification of workers. Each country has its own criteria for hiring employees and contractors. Ensure you follow the correct classification procedures to avoid costly penalties and fines.

Employers must also be aware of local labor laws that affect pay scales, overtime, and leave. These vary by country and are subject to change.

While these challenges 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 are not paid correctly and promptly.

• You may see a negative impact on your brand or business reputation that affects whether employees and contractors want to work for you. 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 where payroll is to be processed, 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 the 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 is 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.

Attempting 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 the services of an employee, take the smart route and hire them through your local entity or EOR instead of risking the penalties that result from 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.

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.

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, in an effort to save time, money, and headache down the road.

Permanent establishment

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 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.

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.

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 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 do not 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 does not 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 employee is 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 do not own a legal entity

Establishing a legal entity in a country is not something to take lightly.

You can employ full-time workers legally in countries where you do not 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, freeing 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 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 have 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 set up global 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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