Global Payroll — 17 min
Running payroll is a complex process, even for companies operating 100% locally. If you’re thinking of hiring international talent, it’s easy to feel overwhelmed at first. There are a variety of factors to consider, including global payroll compliance, currency exchange rates, how to factor in cost of living, and offering local benefits packages, all of which can make global payroll management a tall task.
That’s the bad news. The good news is that global payroll doesn’t have to be a chore — if you know how to manage it.
Whether you’re planning a big global expansion or simply looking for a better way to manage payroll for your existing international staff, this guide is for you.
Global payroll is an umbrella term for practices related to onboarding and managing payroll for international employees and contractors. Depending on the employees’ or contractors’ host country, global payroll can include a number of actions, including:
Let’s take a closer look at how the different components of global payroll work together to support international teams.
This resource offers an introductory level overview of global payroll. For a deeper dive, we also recommend downloading our Global Payroll Management Guide. Remote’s Global Payroll Management Guide provides actionable advice on how to manage payroll for your global team while keeping your business compliant with international labor laws.
For anyone new to global payroll, it’s important to understand the options on the table. There are three main methods of establishing a payroll process.
An employer of record is a service through which a designated company manages your entire payroll process in a foreign country. EORs make it possible to employ international staff without the need to set up a legal entity in each country. From a legal perspective, they are the employer for your international staff. Apart from ongoing payroll management, an employer of record can also help manage the hiring process and formalities.
PEO, just like the above-mentioned EOR, acts as your HR. However, if you opt to use a PEO, you have to own your legal entity in the country or region. Working with a PEO means entering into a co-employment relationship with your employee and another provider. Both of you employ the person simultaneously, while your PEO manages HR functions on your behalf.
Global payroll can also be managed internally, provided that you have the time and resources to handle compliance in house. Before deciding on this approach, you need to make sure that you can:
To run in-house payroll successfully, it’s essential to use software that will automate at least part of the process and analyze employee payroll data.
Let’s now take a look at the main challenges associated with global payroll.
The challenges of global payroll can be steep, but the right partner can help you build an international team with minimal risk quickly and easily.
Here are a few reasons you may want to consider working with a global payroll provider:
To decide whether you’re better off using in-house resources or partnering with a company like Remote for global payroll, it’s important to understand the various responsibilities of a global payroll provider. Here’s a breakdown of the main areas.
For each employee, you need to provide:
Before you hire staff in a new market, you must be sure to stay compliant throughout the entire payroll process. Understanding these responsibilities is the first step toward successful international hiring.
There are several cultural factors to consider when hiring internationally. Your global payroll provider should be able to help you with:
When you hire international workers, you become responsible for their data. Your global payroll solution provides a way for you to safeguard that data by placing it in the hands of local experts who understand where data can and cannot be hosted or transferred.
Every company with data of European citizens is subject to GDPR, but your responsibilities become even broader when you hire Europeans to your team. Different countries around the world all have different laws relating to data protection, and they all have processes to enforce steep penalties for companies out of compliance. If you do not have full-time data protection teams with local knowledge within your company, you could benefit from working with a global payroll provider with team members on the ground in every country where you hire.
Earlier in this resource, we mentioned the differences between PEO, EOR, and in-house payroll management. To expand on that knowledge, global payroll providers can be widely divided into two types:
For more information on the differences between owned-entity and partner-dependent global employment partners, read our guide on owned-entity global employment.
So if a PEO involves a co-employment relationship, and an EOR hires employees on your behalf but does not involve a co-employment relationship, is a global PEO any different? And is the term any different from global payroll?
A global PEO is still a PEO — just one that can provide companies with PEO services in multiple countries. While a global PEO may be able to act like an EOR and take on certain legal responsibilities in the countries where your employees live, you can only work with a PEO (global or otherwise) if you have your own local legal entity, as an entity is a prerequisite for entering into the co-employment relationship.
So, in summary: any partnership with a PEO requires you to own a local legal entity and enter into a co-employment relationship. An EOR can hire employees on your behalf in other countries without a co-employment relationship and without requiring you to open a local legal entity.
Global payroll is a general term that refers to paying employees internationally. It can come under different names such as payroll outsourcing, managed payroll, or payroll services, and may include working with a PEO or an EOR. Global payroll may even include making payments to independent contractors in other countries.
However, there is a more specific definition of global payroll as well: working with a company to run your payroll in a country where you own your own local legal entity. Some companies offer global payroll services in addition to PEO or EOR services. If you are not sure about which type of global payroll service you need, Remote can help you understand your situation and recommend the best approach.
One of the key considerations when hiring global staff is deciding on the right type of contract. How are your remote workers classified? Depending on the country where your prospective hire lives, a worker may be seen either as someone who is a self-employed contractor or a full-time employee hired directly by the company. In some places, like the U.K., there are additional worker classes between the two traditional definitions. As a general rule, employees have more legal coverage and benefits than contractors.
That being said, when you decide to bring a new member on board, you always need to understand which legal requirements are your responsibility. Look into the following local labor elements:
Once you’ve established which party covers these and any other obligations, you’ll know how reporting and payroll can be handled. Tax and contributions will usually be dealt with individually by each contractor. For full-time employees, the hiring party typically covers at least a portion of insurance premiums and other payroll-related benefits.
To avoid any compliance or misclassification issues, be sure to give our dedicated employee versus independent contractor misclassification resource a read.
There are situations where outsourcing global payroll is the right choice. Let’s discuss them now:
To make sure that you have a scalable approach regarding global payroll, it’s important to track and report your costs. Once again, you have two options — an internal tool or file where you track and apply changes manually, or reporting software from a global payroll solution.
Using software to track your costs for global payroll is a much more scalable and cost-efficient way to manage your spending. Spreadsheets may be free, but the sheer volume of data involved — not to mention the hidden costs associated with inevitable human error — make manual tools a poor option. A good global payroll spending management system should provide:
If you decide to outsource global payroll, selecting a vendor is only a small part of the overall process. Here are a few tips to help you get started.
It’s vital to select a company that is capable of handling different types of employment contracts in different countries. Any long-term partner should be able to handle all your needs using locally owned entities in every country where you operate, as well as support international contractors. Your chosen partner should offer easy-to-use payroll software and have local expertise for things like social contributions, benefits administration, and taxes.
The experience of your employees is everything. A bad experience with a payroll partner could easily cause your employees to lose trust in your company’s ability to pay on time or provide necessary benefits. Be sure any payroll partner can reliably pay your team in the correct currency through the proper channels. For example, employees in Mexico can only be paid through government-approved banks.
Are your workers properly classified as employees or contractors? If not, your business could face hefty penalties and fines in a variety of countries. Making the news because your company incorrectly classified workers could also damage your ability to recruit. Work with your global payroll provider to ensure you classify your team members correctly. If need be, your global payroll partner can help you convert contractors to employees.
Appropriate compensation is the foundation of your ability to recruit global talent. Fortunately, your global payroll partner should be able to help you understand what an appropriate salary and benefits package should look like in your prospective hire’s country. If you need help designing a global compensation strategy, a good partner can help with that, too.
Do you plan to hire dozens of employees in one country? If so, you should probably consider opening your own local entity. For a smaller or medium-sized team, working with an employer of record service may be the more financially responsible option. Even if you do plan to hire a large team, though, consider working with an EOR to start and then transferring the employees to your own entity once you are ready to do so. That way, you can get started with local hiring right away instead of waiting a year or longer.
As your team grows into more countries, it’s important to choose the best global payroll option for your business. Whether you want to hire one employee or 1,000, Remote is here to help. We combine global contractor payments, employer of record services, benefits administration, and payroll management into one easy-to-use platform available in more than 60 countries. With Remote, you can:
Managing global payroll doesn’t have to be hard. Contact Remote today to learn more about how we can help you grow your global team. If you’re ready, you can sign up now to begin onboarding international contractors and employees right away.
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