How to manage global payroll for your international team
Today, companies of all sizes can hire great people all over the world. Managing global payroll isn’t easy, though, even for experienced businesses.
Global payroll involves much more than processing payments to employees. Your international payroll solution is more of a strategic asset than an administrative one, allowing you to hire and pay top talent swiftly, easily, and in full compliance all over the world.
Not all global payroll providers can fulfill this role effectively However, companies unfamiliar with global payroll may recognize the many challenges of compliance, taxation, and other obstacles that global payroll solutions can solve. For example, if a company does not own a legal entity in a country, a global payroll provider can help that company hire international workers without needing to spend thousands of dollars over several months to open a new entity.
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Global payroll
Types of payroll
Best practices
What does global payroll include?
Global payroll is often used as a catch-all term to describe the practice of onboarding, managing, and paying employees and contractors around the world. Depending on the person you ask, global payroll could mean something as simple as sending payments to independent contractors or something as complex as having another company act as the employer of record for your employees in that country.
There are three basic services offered by global payroll solutions providers:
Requires you to own an entity | Employs workers on your behalf | Intellectual property protection | Takes on your labor law compliance | Payroll for your local entities | Benefits administration & management | Payment to contractor | |
|---|---|---|---|---|---|---|---|
Global Employment Services | |||||||
Localized Payroll Services | |||||||
Contractor Payment Services |
Global employment services
When you do not own an entity in the country where your employees live, you need full global employment services. Global payroll providers can employ your workers on your behalf using a model commonly known as Employer of Record, or EOR.
Under this model, your employees are still your employees, but the global payroll provider acts as the employer on paperwork to allow you to employ workers in the country legally. Global employment services include payroll management, benefits administration, intellectual property protection, and assignment of your company’s in-country employer legal responsibilities to your provider.
Localized payroll services
Global payroll providers can also handle your local payroll needs in countries where you already own your own legal entities. This is a good option for companies that have already made significant investments in a country and plan to maintain a large in-country workforce. In these cases, the global payroll provider handles local payroll and benefits administration but does not employ the workers on your behalf. You are responsible for your own in-country legal obligations and intellectual property protection. These payroll providers may be PEOs, in which case a company may enter into a co-employment arrangement with the PEO to manage employees' HR needs.
Contractor payment services
In cases where your company needs to work with someone in another country but does not wish to make that person a full employee, your global payroll provider can help you with international contractor payments. For short-term arrangements and deals with individuals who prefer to remain self-employed, this can be a good option. That said, companies must be cautious to avoid fines and penalties, not to mention accidental loss of intellectual property depending on the laws where the contractor lives.
Because countries have different guidelines on who qualifies as an employee, your global payroll solution acts as your first line of defense against worker misclassification. Many companies default to paying international workers as contractors because it’s easier. However, doing so can expose the company to potential lawsuits if the contractor decides to claim an employment relationship.
Sometimes, companies may use different methods in different countries. For example, a company could employ workers through a global employment solutions provider in one country, use that provider’s local payroll services in another country where the company owns an entity, and use the same provider to pay contractors all over the world. Your global payroll provider can help you work out the right mix of services for your situation.
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Types of global payroll providers
Global payroll providers usually take one of two forms: a partner-dependent global payroll service or an owned-entity global payroll service.
Both types of providers can handle payroll for companies in countries around the world. Both types also generally provide all three of the service types outlined in the previous section. However, only some providers own their own local entities, while others rely on third parties within their covered countries to provide their services for them.
Vendor-dependent global employment solutions providers
Partner-dependent global employment solutions providers outsource their services to third parties within the different countries where they operate. Working with a partner-dependent service may make sense in the short term, but limited intellectual property protections and a generally poor experience for employees managed by partner-dependent providers (not to mention excessive costs) limit the utility of this option in most cases. Whenever possible, avoid this option.
Owned-entity global employment solutions providers
Owned-entity global employment solutions services provide full payroll, benefits, compliance, and tax services for employers hiring in foreign countries. Unlike partner-dependent services, owned-entity providers own their own entities in the countries they cover, so they do not have to outsource. This model provides stronger protections for IP and invention rights, as well as a significantly improved experience for employees.
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Best practices for global payroll
Once you know which type of global payroll services you need, make sure you follow a few best practices
1
Choose your global payroll partner carefully.
First, select a global payroll partner who matches your needs. If you own an entity in the country, you may not need full global employment services. In this case, localized payroll services will likely cover all of your needs. If you already have a provider, you may be able to get a better price or better service by shopping around. Whichever option you choose, make sure your provider is an owned-entity provider and not a partner-dependent one.
2
Prioritize the employee experience.
During and after your payroll partner vetting process, keep the needs of your team top of mind. Your employees deserve a great experience no matter where they live. Nothing damages the relationship between employer and employee like a late or incorrect payment, so take the time to set up your international payroll solution correctly from the beginning. Work with your provider to provide employees with the benefits that matter to them and make sure your provider appreciates the responsibility of acting as your company’s payroll representative.
3
Understand the difference between an employee and a contractor.
Next, clarify the relationship between the company and the worker. Legal battles in foreign countries get costly quickly, not only in money but also in time. When executives, managers, and lawyers have to argue court cases thousands of miles away, the company loses valuable hours that would be better spent elsewhere. If your company needs to pay workers abroad, establish relationship boundaries clearly and in writing to clarify whether workers are employees or contractors. Your global payroll provider may be able to help with this depending on the type of service you require.
4
Pay the right salary for the person, role, and location.
After setting expectations for the relationship, make sure you pay appropriately. How do you determine compensation for remote employees? That depends on your company’s compensation philosophy. While some companies choose to pay everyone the same rate no matter where they live, others base their salary calculations on the cost of living in the area where each employee lives. Do your research to make sure any offers you make are competitive for the role, region, and employee’s work experience. Again, your global payroll provider may be able to help you understand local salary ranges.
5
Consider whether you need your own entity.
Next, think about your long-term goals. Do you need to open your own entity in the country where you want to employ someone? That question depends on a variety of factors, including how long you plan to employ workers there, how many workers you want to hire, what kind of payroll partner you have in the country, and the costs of opening the entity. If you are not sure which option makes the most sense for your business, your global payroll provider may be able to help.
6
Guard your intellectual property closely.
Did you know that in some countries, intellectual property rights default to the creator, not the client? When working with contractors and employees abroad, make sure you do not accidentally expose your IP and invention rights to unnecessary risk. Talk to your global employment solutions provider about how they protect your IP abroad.
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Frequently Asked Questions
Companies can use the same payroll provider to pay foreign and local employees. Global payroll services can help businesses hire in multiple countries at once without needing to engage multiple partners.
It may not always be in a company’s best interest to use only one provider, however. For example, many companies based in the US use one provider for US employees and another provider for international employees. A good global payroll provider will work with your HR team to keep things simple.
You can compensate workers in multiple countries by using a global payroll service such as an EOR or PEO. A PEO requires your company to own an entity in the country where you hire. An EOR hires employees on your behalf, so you don’t need an entity.
Paying workers in multiple countries is as easy as paying workers in one country, provided you use the right tools. Remote allows companies to pay and manage employees in dozens of countries all over the world.
To be competitive for local talent, you need to know how much foreign employees expect to make. Creating a global compensation strategy, complete with geo regions, allows you to make fair offers quickly to international candidates.
Many countries require employees to have paid sick and vacation leave, special allowances, holiday bonuses, and end-of-the-year bonuses. When you create offers for employees in other countries, make sure you account for all of the local factors that might affect your payroll process.
All countries have unique labor and tax laws. These laws address topics such as employee and contractor misclassification, benefits entitlement, remuneration, parental rights, social security, anti-discrimination, unionization, termination, health and safety, and training. Which laws apply depends on the country from which you are hiring and the country in which the employee lives.
In general, employees are entitled to all the protections of their home country, which means employers must be compliant with all local laws when hiring abroad.
Global payroll information for specific countries
Global payroll does not stop when your employees get paid. On the contrary, global payroll is a strategic asset that empowers your team to do their best work from around the world. Consider your potential partners carefully to give your employees a great experience and turn global payroll into a powerful driver of your organization’s success.
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