Payroll compliance: a checklist

What does payroll compliance mean?

Managing payroll across several countries is often complicated, particularly for startups and small businesses. Finance leaders must ensure payroll compliance in each jurisdiction to avoid legal disputes, fines, and even possible limits on hiring or trading.

This checklist outlines the key steps to maintain payroll compliance when operating across borders.

Eight-step payroll compliance checklist

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

Payroll methods

To lawfully pay staff in different locations, you must have a suitable payment approach in place. For example:

1. Where you hold a legal entity in an employee’s country, you may run payroll in-house or outsource to a trusted provider.

2. If you don’t 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 means you (or your EOR) must register with local tax authorities and any other relevant agencies in every country where staff are located. Some jurisdictions also require an in-country bank account.

Payroll schedules

Pay frequency differs widely between countries (and, in the US, between states). It is vital to follow local pay schedule laws in every country where you employ staff.

For example, some countries require staff to be paid fortnightly, whereas others set a minimum of monthly pay. Requirements can also vary by industry.

To avoid breaching regulations, make sure you understand these variances and operate payroll accordingly.

Statutory benefits

In most jurisdictions, you must withhold and contribute to statutory benefits, including social insurance, pension contributions, and other compulsory programmes.

Make sure contributions on behalf of staff are accurate to prevent legal consequences and secure their entitlement to social benefits. Also ensure any employer contributions required by law are paid.

Data protection

Payroll records contain sensitive personal data, so legal safeguards are necessary. Most countries or regions maintain specific data protection and privacy rules, for example GDPR in Europe.

Ensure your data is securely stored, encrypted and protected, and that your privacy and data-handling procedures comply with the legislation in your employees’ countries.

When calculating pay, take care to follow the employment laws in your employees’ countries. In particular, note the following:

1. Minimum wage requirements. These can differ not only between countries, but also by state, city and industry.

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

3. Collective bargaining agreements (CBAs). Where CBAs apply, there may be extra wage requirements for certain sectors or roles.

4. Industry-specific laws. Certain industries have particular regulations that affect pay and benefits.

Withholding

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

As part of this, you should familiarise yourself with income tax rates, thresholds and any special exemptions in each of your employees’ locations.

Payslip distribution

Each jurisdiction sets rules on payslip issuance, covering what information the document must contain and how it should be delivered.

Make sure each payslip includes all details required by local law, such as gross pay, net pay, tax deductions and social contributions.

Bear in mind that some locations insist on paper payslips, while others accept digital delivery.

Reporting and record-keeping

Payroll reporting duties vary by country, but most jurisdictions demand periodic reports to tax or labour authorities. Many also require payroll records to be retained for a minimum period.

Put in place a system that guarantees accurate, timely reporting and secure storage of records for the required length of time.

Classifying your team members

When recruiting overseas, many startups and small businesses choose to engage independent contractors. If you plan to do this, you must classify hires correctly.

Each country has its own criteria for distinguishing contractors from employees, and you must follow these rules. Failure to do so can lead to misclassification, with potentially substantial fines and penalties.

Learn more about misclassification.

Staying current with payroll tax and employment law changes

Bear in mind that employment and payroll tax laws change regularly. In some jurisdictions, the minimum wage rises annually, and income tax thresholds may also be updated often. Staying informed about these developments is essential to remain compliant.

Sound like a lot of work? Let Remote manage it all for you

Keeping abreast of frequently changing tax and employment laws across countries is costly, complex, and time-consuming. Most startups lack the time and resources to take on this responsibility, let alone deal with the administrative load of running payroll.

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

• If you have your own entities, our Payroll platform makes sure all your employees are paid accurately, compliantly, and on time, from a single place.

• If you don’t have your own entities, our EOR platform covers all of this and much more, letting you hire quickly and easily anywhere in the world while managing your global HR requirements.

Our local, in-house experts offer support and guidance at every stage, giving you peace of mind and allowing you to focus your time and resources elsewhere.

To find out more about how Remote can support your growth — and to establish which option suits you best — speak to one of our friendly experts today.