Checklist for payroll compliance

What does payroll compliance mean?

Running payroll across multiple countries is often complicated, particularly for startups and small businesses. Finance leaders must ensure payroll complies with local requirements in every jurisdiction to avoid legal problems, fines, or restrictions on hiring and operating.

Use this checklist to follow the essential steps needed to keep your payroll compliant across borders.

Eight-step payroll compliance checklist

Below are the main compliance areas to consider when managing international payroll:

Payroll methods

You must have a compliant payment approach in place to lawfully compensate employees in different locations. For example:

1. Where you have a legal entity in an employee’s country, you can process payroll internally, or outsource it to a trusted provider.

2. If you don’t have a legal entity in an employee’s country, you can engage an employer of record (EOR).

How does a payroll provider differ from an EOR?

To do this, you (or your EOR) must be registered with local tax authorities and other relevant agencies in every country where your employees are based. In some jurisdictions, an in-country bank account is also required.

Payroll schedules

Pay frequency differs widely between countries (and, in the US, between states). You must comply with local pay-schedule laws in every country where you employ staff.

For example, some countries mandate bi-weekly pay, whereas others set a minimum of once per month. Industry rules can also affect these requirements.

To prevent non-compliance, make sure you understand these variations and run payroll accordingly.

Statutory benefits

In most jurisdictions, you are required to withhold and contribute to statutory benefits, such as social insurance schemes, pension contributions, and other mandatory programs.

Make accurate contributions on employees’ behalf to avoid legal consequences and to protect their entitlement to social benefits. Also confirm that you meet any required employer contribution obligations.

Data protection

Payroll records contain sensitive personal data, so legal safeguards apply. Many countries or regions have specific data protection and privacy rules, such as GDPR in Europe.

Make sure data is stored securely, encrypted, and protected, and that your privacy and data-handling practices comply with the laws in your employees’ countries.

When determining salaries, closely review employment laws in each employee’s country. Specifically, watch for:

1. Minimum wage requirements. These requirements may differ by country—and within countries by state, city, or industry.

2. Overtime regulations. Local employment laws may mandate overtime pay, with significant variation in rates and eligibility.

3. Collective bargaining agreements (CBAs). Where CBAs exist, there can be extra wage obligations that apply to particular sectors or positions.

4. Industry-specific laws. Certain industries may be subject to special rules that influence wages and benefits.

Withholding

Tax compliance is a core aspect of payroll management. For every employee you must withhold and remit the correct amounts for income tax, social contributions, and any other applicable taxes.

As part of this, you'll need to familiarise yourself with income tax rates, thresholds, and special exemptions across all of your employees’ locations.

Payslip distribution

Each country sets its own rules for issuing payslips, covering what information must appear and how payslips should be delivered.

Ensure every payslip lists the required details under local law, such as gross pay, net pay, tax deductions, and social contributions.

Also note that some jurisdictions insist on paper payslips, while others permit digital delivery.

Reporting and record-keeping

Payroll reporting requirements vary by country, but most jurisdictions require periodic reporting to tax or labour authorities. Many places also mandate keeping payroll records for a minimum period.

Put in place a process that guarantees accurate, timely payroll reporting and secure storage of records for the required duration.

Classifying your team members

When hiring internationally, many startups and small businesses choose to engage independent contractors. If you plan to do so, you must classify your hires correctly.

Each country defines the distinction between a contractor and an employee differently, and you need to follow those definitions. Failure to do so risks misclassification and can lead to significant fines and penalties.

Learn more about misclassification.

Staying current with payroll tax and employment law changes

Employment and payroll tax laws often change. For example, minimum wage levels may increase annually in some jurisdictions, and income tax thresholds can also change frequently. Remaining aware of – and keeping pace with – these developments is essential to stay compliant.

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Keeping on top of constantly changing tax and employment laws across multiple countries is expensive, complex, and time-consuming. Most startups lack the time or resources to manage this level of commitment, let alone handle the administrative burden of payroll runs.

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