Checklist for payroll compliance

What does payroll compliance mean?

Overseeing payroll across multiple jurisdictions is often complex, particularly for start-ups and small firms. For finance leaders, ensuring payroll meets each jurisdiction’s requirements is vital to avoid regulatory problems, financial penalties and potential limits on hiring or trading.

This checklist outlines the essential measures to keep your payroll compliant when operating internationally.

Eight-step payroll compliance checklist

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

Payroll methods

To lawfully pay employees in different countries you must put an appropriate payroll model in place. For example:

1. If you have a legal entity in an employee’s country, you may operate payroll internally, or outsource to a trusted provider.

2. If you do not have a legal entity in an employee’s country, you can use an employer of record (EOR).

How does a payroll provider differ from an EOR?

Generally, either you or your EOR must be registered with local tax authorities and any other required regulators in each country where staff are employed. In some jurisdictions a local bank account is also obligatory.

Payroll schedules

Payment frequency differs markedly between countries (and, in the US, between states). It is important to comply with local pay schedule regulations in every country where you have employees.

For example, some jurisdictions require employees to be paid fortnightly, while others allow a minimum of once per month. Requirements can also vary by industry.

To prevent non-compliance, ensure you are familiar with these distinctions and operate payroll in line with local rules.

Statutory benefits

In most jurisdictions you must deduct and contribute to statutory schemes, such as social insurance, pension contributions and other mandatory programmes.

Make sure contributions are calculated correctly on behalf of employees to avoid legal consequences and to preserve their entitlement to social benefits. Also ensure any employer contributions required by law are paid.

Data protection

Payroll records contain sensitive personal data and must be safeguarded under applicable privacy laws, such as GDPR in Europe.

Ensure payroll data is stored securely and encrypted, and that your privacy and data-handling procedures comply with the legislation relevant to your employees’ locations.

When calculating salaries, pay particular attention to the employment laws that apply in each country where your employees work. In particular, be aware of:

1. Minimum wage requirements. These differ not only by country but also by region, city and sector.

2. Overtime regulations. Overtime pay may be mandated under local employment law, with considerable variation in rates and qualifying conditions.

3. Collective bargaining agreements (CBAs). Where CBAs apply there may be additional wage provisions for particular sectors or roles.

4. Industry-specific laws. Certain sectors can be subject to special regulations that affect pay and benefits.

Withholding

Tax compliance is fundamental to payroll administration. For each employee you must withhold and remit the correct amounts of income tax, social contributions and any other applicable levies.

This means familiarising yourself with local income tax rates, thresholds and any special exemptions in every location where your employees are based.

Payslip distribution

Each jurisdiction sets its own rules for payslip issuance, including what must be shown on the document and how it may be delivered.

Make sure every payslip contains all locally required details, for example gross pay, net pay, tax deductions and social contributions.

Also note that some jurisdictions require payslips to be provided on paper, while others accept digital delivery.

Reporting and record-keeping

Reporting obligations vary between countries, but most jurisdictions require periodic submissions to tax or labour authorities. Many also mandate retaining payroll records for a minimum statutory period.

Establish processes to ensure your payroll reporting is accurate and timely, and that records are securely retained for the required duration.

Classifying your team members

When hiring overseas, many start-ups and small businesses choose to engage independent contractors. If you take this approach, you must ensure workers are classified correctly.

Each jurisdiction applies its own tests to distinguish a contractor from an employee, and you need to comply with those definitions. Failure to do so can lead to misclassification, with potentially substantial fines and penalties.

Learn more about misclassification.

Staying informed about payroll tax and employment law changes

Bear in mind that employment and payroll tax legislation can change frequently. For example, minimum wage rates may be updated annually in some places, and income tax thresholds can be revised often. Keeping abreast of these developments is essential to remain compliant.

Does that sound like a lot of work? Let Remote handle everything for you

Managing constantly changing tax and employment rules across multiple countries is expensive, complex and time-consuming. Most start-ups do not have the capacity to take on that responsibility, let alone cope with the administrative load of payroll runs.

Fortunately, Remote can manage all of this for you — whatever your circumstances.

• If you have your own entities, our Payroll platform keeps payroll for all your employees accurate, compliant and on time, from one place.

• If you don’t have your own entities, our EOR platform does all this and much more, enabling you to hire swiftly and easily anywhere in the world while handling your global HR needs.

Our local, in-house experts offer support and guidance throughout, giving you peace of mind and freeing you to focus your time and resources elsewhere.

To find out how Remote can help your business grow — and to determine which approach is right for you — speak to one of our friendly experts today.