How to Pay International Employees (With or Without Entities)

Modern companies looking to expand globally are often on the hunt for actionable insights into managing international payroll—from understanding local compliance and cross-border payment restrictions to choosing between setting up an entity or using an employer of record (EOR).

Many businesses face the challenge of navigating varying local labor laws, tax regulations, and payment methods without jeopardizing compliance or straining resources.

Deel has confidently helped organizations streamline their processes while mitigating the risks associated with international hiring. This blog outlines precise steps and tailored solutions designed specifically for businesses aiming to build a robust and compliant global workforce.

By leveraging Deel's trusted expertise and innovative payroll platform, you can unlock significant operational efficiencies and confidently pay international employees around the world.

Key factors to consider before paying international employees

There are factors you need to consider to ensure you set up an international employee arrangement that fits your needs.

Local labor laws and regulations

• Minimum wage, working hours, and benefits: Each country has specific requirements regarding minimum wage, standard working hours, overtime, and mandatory benefits. Ensure adherence to these to avoid legal complications
• Tax obligations for both employer and employee: Understand the tax responsibilities in the part-time or full-time employee's country, including income tax withholding and employer contributions. Non-compliance can lead to penalties

Currency exchange and fluctuations

• Paying in local currency vs. home currency: Decide whether to compensate employees in their local currency or your home currency. Paying in local currency can simplify matters for employees and may be legally required in some jurisdictions
• Managing exchange rate risks: Currency fluctuations can impact payroll costs. Implement strategies to mitigate these risks, such as setting exchange rates in advance or using financial instruments to hedge against volatility

Tax compliance and reporting requirements

• Employer obligations in the employee’s country: Familiarize yourself with the tax filing and payment obligations for employers in the employee's country. This includes understanding corporate tax liabilities and social security contributions
• Double Taxation Agreements (DTAs) and their role: DTAs between countries can prevent employees from being taxed twice on the same income. Leverage these agreements to optimize tax efficiency for both parties. Read our guide on how to prevent double taxation to learn more

Employee benefits and social contributions

• Mandatory benefits: healthcare, retirement, etc.: Many countries require employers to provide specific benefits, such as health insurance, retirement plans, and paid leave. Ensure compliance with these mandates
• Country-specific social security contributions: Understand the social security systems in each country and the required employer and employee contributions. This ensures employees receive appropriate entitlements and safeguards against legal issues

Payment methods for international employees

Local entity setup

How it works: Establishing a subsidiary or branch in the employee’s country allows direct management of payroll and compliance. This involves registering a legal entity, adhering to local regulations, and handling all employment-related responsibilities internally.

Advantages:

• Full control: Direct oversight of employment terms, payroll operations, and compliance with local laws
• Brand presence: Enhances the company's local presence and brand recognition
• Tailored benefits: Ability to design and offer customized benefit packages that align with local expectations

Considerations:

• Resource intensive: Establishing a local entity can be time-consuming and costly, requiring significant administrative effort
• Complex compliance: Navigating foreign legal and regulatory landscapes can be challenging, with risks of non-compliance
• Scalability issues: Setting up entities in multiple countries may not be practical for companies seeking rapid global expansion

Free guide: A Guide to Setting up a Local Entity

Employer of record (EOR)

How it works: An EOR is a third-party organization that legally employs workers on your behalf in a foreign country. They manage all employment-related responsibilities, including payroll, taxes, benefits, and compliance, allowing companies to hire internationally without establishing a local entity.

Advantages:

• Speed to market: Facilitates quick and compliant hiring, enabling rapid entry into new markets
• Compliance assurance: EORs possess expertise in local labor laws, reducing the risk of legal issues
• Administrative relief: Alleviates the burden of managing payroll, taxes, and benefits administration

Considerations:

• Cost: EOR services may involve additional fees, impacting overall employment costs
• Limited control: Companies may have less direct oversight over certain employment aspects, such as specific HR policies
• Dependency: Reliance on a third party for critical employment functions may affect internal processes

International payroll providers

How it works: Global payroll providers specialize in managing payroll across multiple countries, ensuring compliance with local regulations. They handle tasks such as salary disbursement, tax withholding, and reporting, often through advanced software platforms.

Pros:

• Efficiency: Streamlines payroll processes, reducing administrative workload
• Compliance support: Offers expertise in local payroll regulations, minimizing compliance risks
• Scalability: Easily accommodates business growth into new regions

Cons:

• Flexibility: Some solutions lack the ability to tailor solutions to unique organizational needs, locations, and worker types
• Integration challenges: Aligning the provider's systems with existing internal processes can be complex if the provider doesn’t have strong integrations or APIs

Direct payments

How it works: Employers make direct wire transfers to international employees without utilizing formal payroll systems or structures.

Risks:

• Non-compliance: This approach often leads to violations of tax laws and labor regulations
• Legal issues: Potential for legal disputes due to improper employment classifications and lack of adherence to local laws
• Benefits administration: Challenges in providing and managing employee benefits, leading to dissatisfaction and retention issues

Selecting the appropriate payment method depends on factors such as company size, expansion goals, budget, and the level of control desired over employment processes. Careful consideration of each method's advantages and drawbacks is essential for successful international workforce management.

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, remote work, 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.

Step-by-step process to pay international employees

1. Determine the employment classification
   Assess whether the individual will be an employee or an independent contractor, as this classification affects tax obligations, benefits, and compliance requirements. Take Deel’s AI-powered worker classification assessment to determine your risk.
2. Research local employment laws and compliance requirements
   Investigate the labor laws, tax regulations, and employment standards in the employee's country to ensure full compliance.
3. Choose the right payment method (entity, EOR, or payroll provider)
   Select the most suitable method for your organization, considering factors like control, cost-effectiveness, compliance, and administrative capacity.
4. Set up payroll systems and payment schedules
   Implement payroll systems that accommodate multiple currencies and comply with local regulations. Establish clear payment schedules to ensure timely compensation.
5. Ensure tax withholding and social contributions are handled
   Accurately calculate and withhold taxes and social contributions for each jurisdiction to maintain compliance and avoid penalties.
6. Regularly review compliance as regulations change
   Stay updated on changes in international labor laws, tax codes, and compliance requirements. Regular audits and consultations with local experts can help maintain ongoing compliance.

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 Global Payroll.

Unlike other payroll platforms, Deel offers unrivalled compliance, speed, and expertise in global payroll. Deel's owned infrastructure and entities are available in over 100 countries. You're supported by in-house payroll managers and legal experts, and have access to an all-in-one global payroll and HR platform. You can manage payroll, worker immigration, contractors, IT, performance management, and more, all in one place.

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.

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