International Payroll: Guide to Paying International Employees

Remote work has opened many companies up to countless new markets and opportunities for global expansion. According to the Deel Lab’s latest State of Global Hiring Report, APAC companies are hiring globally at the fastest rate, while LATAM is the top region to hire from. 

Working with talent across different countries is key to leveraging these opportunities. However, this globally accessible talent market also carries some challenges that you must know how to overcome, such as how to pay international employees. 

From tax compliance and international payroll to navigating payment methods and employee payroll records, and local labor laws, it can be a lot to handle.

Moreover, launching your first remote team might not be the only reason why you need to be informed about international payment methods and international payroll processes. For example, your US-based employee might be on a temporary assignment, or you might be interested in a one-time, project-based, international cooperation.

In this guide to paying international employees, you will learn how to choose the best employment relationship for an international worker, what your cross-border payment options are, and how they impact your compliance and tax requirements.

What to consider before paying international employees

When it comes to paying remote employees, there are several possible scenarios. You may be a US company paying foreign employees temporarily. Or you are sending your own employee to France to work on a project. Maybe you are interested in building a remote team scattered around the globe, or penetrating foreign markets, so you need some foreign employees to help you expand.

In all of these situations, the local payroll system you usually use won’t be enough. 

Before you start looking at alternative payroll solutions, however, there are factors you need to consider to ensure you set up an international employee arrangement that fits your needs.

Let’s take a look at what those factors are.

Choosing the right working relationship for your global employment needs

When you decide to recruit overseas employees, there are two common approaches you can take: hiring independent contractors or hiring full-time employees through an employer of record (EOR).

Hiring independent contractors

Hiring independent contractors offers more flexibility and usually comes at a lower cost for the hiring company.

If you hire an overseas employee that will work for your company from their home country, you are only responsible for their fees, not for the accompanying benefits and local taxes. These are their responsibility, which makes this a very cost-effective option. 

However, if their home country views your partnership as regular employment, their working status may be questioned under local employment laws. Based on variables like your degree of control over the contractor, the working methodology you adopt, the longevity of the partnership, and the agreed fees, the host country’s government might rule against you, which can be costly.

Are you looking to hire independent contractors in Ghana, Italy, or Seychelles? Learn more about how to do it compliantly with support from Deel Contractor of Record. Deel Contractor of Record offers a higher level of protection against misclassification with the same great flexibility and level of service for you and your contractors

Hiring full-time employees with an EOR

To make sure you minimize potential business risks when hiring international workers, consider hiring full-time employees through an EOR, such as Deel.

In this case, you must consider that they are entitled to all the privileges and benefits their local laws grant them, and their employer is obligated to pay taxes according to their home-country payroll and tax laws.

While it varies by country, employees are usually granted typical employee benefits such as health insurance and social security. The employer is also responsible for income tax and possible tax withholdings for unemployment insurance (which are fairly common).

The exact combination of taxes and benefits you will need to pay depends on the country you want to hire in and its labor laws. When you use Deel to engage EOR employees, we handle everything and ensure you’re compliant when it comes to contracts, minimum wage, terminations, and other local laws.

International payment considerations you need to make

Currency and exchange rates

Employees in a foreign country will likely use a currency other than the US dollar (or whatever currency you usually operate with). Working with different currencies can carry extra costs, which may affect the amount you will pay, or the final amount your employee will receive. For example, depending on the region and current economic trends, money transfers and currency exchange fees can be steep.

This is one of the most common challenges for international employment and something you should seriously consider when hiring in a new country. With Deel’s Global Payroll, those calculations are taken care of for you.

Compliance with tax laws and statutory employee requirements

One of the main issues employers face with international workers is double taxation.

Since your employee will have to pay local taxes, and you are also required to file taxes according to the IRS (if based in the US), the cost of an international employee can be unnecessarily high. To avoid this, you should seek workers from countries that have signed tax treaties with the US (or the country you are based in). This way, you might avoid double payments for benefits, social security, and health insurance.

Choosing the right payment method

There are several dozen payment methods available for paying international remote employees.

In some cases, you might have to rely on traditional international wire transfers. However, they could be faster and more cost-effective since fees and exchange rates can be steep. Several digital wallets commonly used by international contractors, such as PayPal, Payoneer, and Wise, allow for more flexibility. However, they aren’t available in every country.

Another important consideration when choosing the correct payment method is processing time and ease, as not all solutions are equal. Deel’s On-Demand Payroll and extended payroll cut-off dates for EOR clients provide maximum payroll flexibility for teams of all sizes and locations.

Choosing the best model for hiring international employees

Once you have figured out how to ensure your international payment choices are compliant and convenient, it’s time to choose what hiring model will work best for you.

There is no one solution, as advantages and disadvantages depend on your needs and the goals you want to achieve. The two main things you should keep in mind are:

• Choose an option that poses no risk to your business
• Ensure your human resources department breaks no foreign or local labor laws in the process

Once the groundwork is done, it’s time to choose between the available options.

Keep the employee on your home country’s payroll

This method requires less administrative work than any other, but this is only an option if your employee is relocated for a short project or brief assignment. Some countries will allow this, and the process is relatively simple, but this is not an option if you hire local workers or expect your employees to be abroad for extended periods.

This option does not work when hiring foreign employees, as they have obligations towards their own country, and they likely don’t have tax ID or US-based bank accounts to receive payments from the US legally (similar conditions might apply for payments from different countries too).

We don’t recommend this option except for particular cases.

Partner up with a local company

If your business is solely focused on one country or region, you could partner up with a company that can act as the official employer—taking care of payroll, benefits, legal protection, and taxation. They will create and sign employment contracts on your behalf, and you can form a partnership with them, outlined in a written agreement. You can remit the cost of salaries to them, and they can distribute them to all your employees legally and compliantly.

Although it looks like a risk-free solution, partnering up with a foreign company that you can trust, and create a solid working relationship with, isn’t easy and won’t happen overnight. Also, this approach won’t work if you start hiring in multiple countries since it will take up way too much time and resources, so consider your long-term plans too, when considering it.

Use a global payroll provider

To streamline cross-border payments and reduce your risk of non-compliance, consider using with a global payroll provider.

Working with a global payroll provider enables you to comply with local and international laws without the need to establish a legal entity (foreign subsidiary) in any of the countries you seek workers in.

At Deel, we take care of the payroll process for you, including:

• Employee benefits and taxation
• Local filing with authorities
• Salary and tax payments (where applicable)
• Payslip creation and delivery
• Localized contracts and documents
• Compliant onboarding and offboarding

If you’re hiring workers in multiple countries, consider using a centralized global payroll system that enables you to pay all of your workers—EOR employees, independent contractors, and direct employees—in one place. Hiring workers as international contractors

If you want to work with international workers directly, without partnering up with any entity, you can hire independent contractors. When you hire international contractors, you are only responsible for their fees and need to file one tax form (if based in the US). 

According to their labor and payroll laws, tax rates, and limitations, your contractors will file tax forms and pay what is needed in their own country. You are also free to arrange your way of working and payment methods directly with them.

Learn more about the benefits of working with independent contractors.

Keep in mind that you aren’t allowed to establish an employment relationship under the guise of a contracting one, or you risk misclassification and the potentially severe consequences this has. For example, for the US, you'll need to consider labor legislation on both federal and state levels. Korean law includes ten factors to determine worker classification—from contractor’s duties to basic salary. And in India, there’s a higher chance of misclassification if a contractor works longer than 240 days.

Read more about misclassification risks and how to avoid them.

Another option is to engage workers through an employer of record. Ensure you aren’t open to compliance-related risks by choosing the right option for your current business needs and future plans.

Take advantage of the various international payment options and enjoy the opportunities of world-class global talent and the flexibility that remote business offers.

Deel makes international payroll easy

Paying your international workforce shouldn’t be an obstacle to your success. While figuring out the best payment method or how to handle different currencies and bank charges can be overwhelming, there’s a solution for you: Deel’s Global Payroll.

Deel has earned a 4.8/5 rating on Trustpilot with over 2,400 reviews. Clients cite our team’s excellent customer support, lightning-fast fund delivery, and easy-to-use platform as some of the many reasons they continue to trust Deel with their payroll, HR, and compliance needs.

Competitors

• Funding methods: Most only offer bank transfers and direct debit or credit card
• Withdrawal options: Most only offer bank transfers
• Contractor's card: No competitor offers a physical contractor’s card
• Advanced payments: Some of them offer advanced payments but at a high cost
• Scalability: Most of our competitors don’t provide Global Payroll services, which - makes their solutions less scalable

Deel

• Funding methods: 10+
• Withdrawal options: 8
• Contractor's card: Physical and digital contractor’s cards
• Advanced payments: Advanced payments through Deel Advance
• Scalability: Contractor payments, EOR, and Global Payroll in one platform

Learn more about Deel’s Global Payroll or request a 30-minute demo to speak with a product specialist.