How to Pay International Employees: Practical Guide

The ability to hire talent from anywhere in the world can give your business a competitive advantage, but it also comes with navigating local regulations and tax laws. As with any employee, it’s vital to ensure you’re paying your international employees accurately and on time every payroll cycle. 

Performing payroll across borders might seem daunting, but our practical guide will give you all the basics so you and your HR team can successfully manage your obligations. 

Choose your hiring model for international employees

The best place to start is figuring out how you’re going to hire and pay your international employees, setting yourself up for rigorous compliance and efficient systems. 

Create local legal entities

If you’re expecting to hire 20 or more people from overseas, setting up a local branch of your business can be a helpful long-term strategy. A local entity gives you full control to manage contracts, payroll, paying local taxes and more. This option gives you the greatest level of independence, though it does take more time and resources to set up and run. It can take several months to set up a local entity, and potentially cost thousands in initial costs, so it represents a committed, long-term investment.  

Use an Employer Of Record (EOR)

Partnering with an employer of record (EOR) can be a faster and lower-risk route to employing internationally. This is a third-party entity already established in your target territory that legally employs your workers on your behalf, fully complying with the country’s employment laws and business regulations. This means compliant recruitment, contracts, payroll and employee admin without having to set up and run your own local entity, saving money and resources. It’s a good option for faster and more flexible expansion into new territories, allowing you to test the market before fully committing.   

Use a Professional Employer Organisation (PEO)

Similar to an EOR, a professional employer organisation (PEO) establishes a co-employment relationship with another organisation, allowing you to outsource HR, benefits and payroll administration. A PEO can provide local expertise and support with employment compliance in your chosen country, helping you hire and manage staff more effectively.

However, unlike an EOR, a traditional PEO model typically requires your business to have its own legal entity in the country where you are employing staff, as the employment responsibilities are shared between your company and the PEO. This means you retain certain legal obligations and liabilities as the local employer. Find out more about using an EOR vs a PEO.

Find out more about using an EOR vs a PEO. 

Hire international contractors

Taking on international employees as independent contractors can seem like an attractive idea, providing a level of simplicity and flexibility – and significant cost-saving. However, it’s important to ensure you’re following the rules. Sometimes, contractors are needed for specific skills or tasks, but local regulations may require roles to be classed as full employees. Not complying with such regulations can land you with fines and other penalties, so double-check local laws before embarking on this route. 

Pay remote employees directly

In some cases, businesses can pay international employees directly through bank transfers or global payment platforms. However, this approach is often more complex than simply sending payments overseas. Employers are typically responsible for complying with local tax, payroll and employment laws, which may require registering for payroll in the employee’s country or establishing a local legal presence. In some jurisdictions, non-resident payroll arrangements may be available, but the rules vary significantly.

You’ll also need to manage income tax withholding, social security contributions, employment rights, currency exchange rates and fees, as well as local pay frequency requirements. Failure to meet these obligations can create compliance risks, including tax liabilities and potential permanent establishment issues. Before hiring internationally without an EOR or local entity, it’s important to understand the specific requirements in each country where you employ staff.

Register payroll and ensure compliance with local labour laws

One of the first things you’ll need to do is register payroll in your chosen territory, allowing you to set up employee tax IDs and comply with local employee regulations and rights. This could include social security programs, pay frequency, use of language and other aspects of HR administration.  

Understand local labour laws

It’s essential to understand local labour laws and regulations – getting it wrong can be damaging to both your bottom line and your reputation, the last thing you want when you’re trying to attract new talent. Make sure you’re covering every aspect, including: 

• Minimum wage rules
• Statutory benefits 
• Leave entitlement 
• Sick pay entitlement
• Termination and notice requirements 
• Payroll cycles 

Select international payroll providers and payment methods

There are practical considerations for paying international employees, including payment methods, local currency and speed of payroll operations. It’s usually best to use an existing platform for international payments rather than doing all the payroll admin yourself. Just check how different systems integrate with your existing HR and employee management systems, as well as what countries are covered.  

Compare international payroll providers

When choosing your international payroll provider, keep these factors in mind when comparing: 

Service coverage – Naturally, you want your target country to be covered, but it’s also worth thinking about the future. If a provider only covers a few major countries, you’re limited to those if your need for international talent extends more globally. 

Compliance – This is key, so make sure any payment provider has rigorous checks and controls for meeting compliance in their covered territories. Country-specific expertise is vital to avoid getting landed with fines or damaging your reputation with employees. 

Reporting and data – While you want a reliable service that takes the admin away from your HR team, you also need reliable and easily accessible reports so you can effectively manage your business. Data security should also be rigorous at every stage. 

Cost per employee – Compare the cost of each provider by the number of employees so you can account for your growth plans as well as your current needs. 

Choose payment rails and currency exchange options

Paying overseas employees usually means payments in local currencies, so you’ll need to deal with exchange rates and fees. There are several options for payment rails, including: 

Bank transfers – Local payment rails like ACH in the US, SEPA in Europe or Faster Payments in the UK, transfers offer straightforward bank account to bank account payments in local currency. 

International real-time payments – RTPs provide near-instant payments at any time of the day or week, available in around 70 countries worldwide. 

SWIFT – International payments between banks using the global SWIFT network. 

Multi-currency wallet – This digital solution allows you to store, send and convert multiple currencies without the need for multiple bank accounts. 

Research the options to find out which will work best for your business, looking at the different payout options to provide a fast and reliable payment system for your employees. 

It’s vital for retention that your overseas workers can trust you’ll pay them accurately and on time, every time. You also need to find a fair approach to currency exchange so your employees aren’t losing out to an unfavourable rate.

Manage payroll costs and exchange rates

Speaking of exchange rates, this is a key area to manage for a number of reasons. Paying employees internationally means modelling the impact of shifting FX rates. The cost of payroll can change month to month as rates fluctuate, so a hedging policy is wise to anticipate these changes. Multi-currency wallets can also come in handy here, allowing you to manage multiple currencies at once. 

Your payroll costs will also differ between markets, with different statutory costs to manage in each territory. Make sure you’re including these unique statutory costs along with FX costs in your models. 

Payroll processing operations and technology

Your responsibilities for payroll translate to your international employees, with the same needs for accurate calculations and prompt and reliable payments. The best way to achieve this is to automate and centralise your payroll in one system, keeping everything integrated with HR data. 

This allows you to set up compliance filings for your overseas employees and ensure payment schedules are established to meet local laws and employee expectations. Payroll software should also allow you to do final checks at a glance, with any errors or discrepancies highlighted so they can be caught and rectified before mistakes happen. 

Managing international contractors and remote employees

Looking after your international employees is vital, as is doing all the necessary paperwork for contractors and workers. Prioritise meeting local compliance and regulations, including right-to-work checks and verifying tax status. 

It’s also important to make employees feel welcome and part of your organisation from the start, even if they’re working thousands of miles away from your head office. Standardise your onboarding process with documentation, including practical information and a proper introduction to your company culture. 

Protect IP, data and contracts for global talent

Your employee contracts are a major factor for compliance, outlining everything from company policies to compensation, ensuring everything is aligned with local laws and regulations. They’re also important for protecting your data and intellectual property, as different territories may treat IP rights differently to your home country. 

Your contracts should cover confidentiality and competitor clauses, probation and termination terms, and clear policies on working hours, leave, and notice periods in alignment with local laws. You should also provide your contracts in your new employee’s native language – often a legal requirement. 

Test, report and maintain ongoing compliance

Compliance isn’t a one-and-done task. Laws change regularly in every country, so make sure you never get left behind with your policies. Continually reviewing your systems will help you to see where changes need to be made, both in running payroll cycles and updating contracts and other policies. 

Run test payroll cycles when expanding your employee base into new counties, and audit your payrolls periodically in every territory. Compliance reports should be a monthly task, making sure you’re on top of local regulations and ready to make changes when necessary. 

Quick checklist before first international payroll

Planning is always the best approach for getting things right, as well as partnering your processes with useful and reliable technology. Before running your first international payroll, make sure you’ve checked everything off this list: 

• Employee details – Accurate bank details and tax IDs
• Register for payroll – Provide employee tax IDs to local authorities and ensure you’re ready to manage tax deductions in your payroll. 
• Establish payment methods – Make sure you’re ready to use appropriate currencies and your chosen payment methods are up and running for each employee.  
• Set up technology partners – Get your payroll and HR systems set up and integrated, ensuring everything is working smoothly. 
• Test the system – Perform a test run of your payroll and confirm receipt of payment before your first actual cycle. 

Make your international payroll and compliance a breeze with Employment Hero 

Manage end-to-end employment with HeroForce, allowing you to expand your business into new territories. Employ talent from over 180 countries, scaling your workforce to match your plans with ease. 

Integrate with our automated payroll software, and you’ve got a reliable partner that calculates and processes your payroll accurately and on time. 

Make paying international employees a breeze with Employment Hero.