Checklist for payroll compliance

What does payroll compliance involve?

Handling payroll across several jurisdictions is often complex, particularly for startups and small businesses. Finance leaders must ensure compliance in every jurisdiction to avoid legal exposure, financial penalties and potential restrictions on hiring or trading.

This checklist outlines the core actions you should take to keep payroll compliant when operating across borders.

8-step payroll compliance checklist

Below are the main compliance areas to address when administering international payroll:

Payroll methods

You must adopt an appropriate payment approach to lawfully remunerate staff in different jurisdictions. 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?

This typically requires you (or your EOR) to register with local tax and regulatory authorities in every country where staff are located. In certain jurisdictions, an in-country bank account may also be required.

Payroll schedules

Pay frequency can differ widely between countries (and, in the US, between states). It is essential to observe the local pay schedule laws in each jurisdiction where you employ staff.

For example, some jurisdictions mandate bi-weekly pay, while others only require monthly minimum payments. Industry-specific rules can further affect this.

To prevent non-compliance, make sure you are familiar with these variations and process payroll in accordance with local requirements.

Statutory benefits

In most jurisdictions, employers must withhold and contribute to statutory schemes, including social insurance, pension plans, and other compulsory programmes.

Make precise contributions on employees’ behalf to avoid legal consequences and to secure their entitlement to social benefits. Also ensure you pay any required employer contributions where applicable.

Data protection

Payroll records contain sensitive personal data and are legally required to be protected. Many jurisdictions have specific data protection and privacy regulations, such as GDPR in Europe.

Ensure payroll data is stored securely and encrypted, and that your privacy and handling procedures comply with the applicable legislation in each employee’s country.

When setting salaries, be especially mindful of the employment laws in your employees’ jurisdictions. In particular, be aware of:

1. Minimum wage requirements. These may differ not only by country, but also by state, city and industry.

2. Overtime regulations. Local laws may require overtime pay, with significant variation in rates and qualifying conditions.

3. Collective Bargaining Agreements (CBAs). Where CBAs apply, there can be additional wage obligations specific to particular sectors or roles.

4. Industry-specific laws. Certain industries have regulations that directly affect wages and benefits.

Withholding

Tax compliance is a central element of payroll. For every employee, you must withhold and remit the correct amounts of income tax, social contributions and other applicable taxes.

This requires familiarising yourself with income tax rates, thresholds and any special exemptions across all employee locations.

Payslip distribution

Each jurisdiction sets its own rules for payslips, specifying what information must appear and how payslips should be delivered.

Ensure every payslip includes the legally required details, such as gross pay, net pay, tax deductions and social contributions.

Also note that some jurisdictions insist on paper payslips, whereas others permit electronic delivery.

Reporting and record-keeping

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

Implement processes to guarantee accurate and timely reporting, and to ensure records are securely retained for the required duration.

Classifying your team members

When hiring internationally, many startups and small businesses engage independent contractors. If you choose this route, you must ensure hires are classified correctly.

Each country defines the contractor–employee distinction differently; you need to follow those definitions. Failure to do so can lead to misclassification and substantial fines and penalties.

Learn more about misclassification.

Keeping up to date with payroll tax and employment law changes

Employment and payroll tax laws change regularly. For example, minimum wages may be increased annually in some jurisdictions, and income tax thresholds can be adjusted frequently. Staying informed about these developments is essential to remain compliant.

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Keeping track of continuously changing tax and employment laws across multiple countries is costly, complex and time-consuming. Most startups do not have the capacity to manage this level of ongoing administration, let alone run regular payroll cycles.

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