Payroll compliance checklist

What does payroll compliance mean?

Coordinating payroll across several countries is often complex, particularly for startups and small businesses. Finance leaders must ensure payroll compliance in every jurisdiction to prevent legal disputes, monetary penalties and even potential limits on hiring or operating.

This checklist outlines the essential steps to maintain payroll compliance across borders.

8-step payroll compliance checklist

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

Payroll methods

To lawfully pay employees in different locations, you must have an appropriate approach. For example:

1. Where you hold a legal entity in an employee’s country, you may operate their payroll internally, or outsource it 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?

Accordingly, you (or your EOR) must be registered with the local tax authorities and any other relevant agencies in every country where your employees are based. In certain countries, an in-country bank account is also mandatory.

Payroll schedules

Pay frequency can vary significantly between countries (and, in the US, between states). You must comply with local pay schedule regulations in every country where you employ staff.

For example, some jurisdictions require bi-weekly pay, whereas others permit a minimum of once per month. Industry-specific norms may also apply.

To prevent non-compliance, ensure you are aware of these differences and process payroll accordingly.

Statutory benefits

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

Make accurate contributions on behalf of employees to avoid legal repercussions and to protect their entitlement to social benefits. Also ensure that required employer contributions are paid where applicable.

Data protection

Payroll records contain sensitive personal data, so legal protections apply. Most countries or regions maintain their own data protection and privacy laws, such as GDPR in Europe.

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

When calculating salaries, pay careful attention to employment laws in your employees’ jurisdictions. In particular, note the following:

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

2. Overtime regulations. Overtime pay may be required under local employment laws, which can vary considerably in rate and applicable conditions.

3. Collective bargaining agreements (CBAs). In jurisdictions with CBAs, there may be additional wage obligations specific to certain sectors or roles.

4. Industry-specific laws. Some industries are subject to special regulations that affect wages and benefits.

Withholding

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

As part of this, familiarise yourself with income tax rates, thresholds, and any special exemptions in each employee’s location.

Payslip distribution

Each jurisdiction has specific rules on payslip issuance, detailing the required information and acceptable methods of distribution.

Ensure every payslip includes the details mandated by local law, such as gross pay, net pay, tax deductions, and social contributions.

Also note that some jurisdictions require paper payslips, whereas others accept digital delivery.

Reporting and record-keeping

Reporting obligations vary by country, but most jurisdictions mandate periodic reporting to tax or labour authorities. Many also require payroll records to be retained for a minimum period.

Implement systems to ensure payroll reporting is accurate and timely, and that 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 intend to do so, it is essential to classify hires correctly.

Each country has its own criteria distinguishing contractors from employees, and you must comply with those definitions. Failure to do so can lead to misclassification and substantial fines or 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 wage rates may increase annually in some jurisdictions, and income tax thresholds can be adjusted frequently. Remaining informed of these developments is essential to maintain compliance.

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Keeping pace with constantly changing tax and employment laws across multiple countries is costly, complex, and time-consuming. Most startups do not have the time or resources to assume this responsibility, let alone the administrative burden of running payroll.

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