How to Pay International Employees Compliantly

How to Pay International Employees

1. Establish a Legal Entity Abroad

Setting up local entities gives you full control over hiring, operations, and payroll. Formally establishing your business on foreign soil, you can rest easy knowing your international employees are getting paid without all the hassles of nonregistered payrolls.

However, it’s resource-intensive and requires in-depth knowledge of local labor laws, payroll taxes, and employment standards in each foreign country. If you do decide to establish your business overseas, you’ll need to do the following:

• Register a subsidiary and open bank accounts
• Set up a local payroll system
• Understand and comply with local tax codes to avoid double taxation
• Regularly update your payroll strategy as laws evolve

Establishing a legal entity can streamline the payroll process for a large international team, but for smaller or early-stage global expansion, it may not be the most cost effective method. If you’re employing only one or two international employees, opening a foreign subsidiary is probably not your most cost-effective option.

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2. Set up Offshore Payroll

For companies hiring one or two international employees, managing payroll through your home-country entity may seem simpler. This method, known as offshore payroll, keeps the employee on your domestic payroll system.

However, the risks around offshore employees taxes, employee classification, and local compliance can’t be ignored. Payment must align with host-country payroll taxes, benefits, and labor laws – or you risk fines and employee dissatisfaction. Fortunately, there are three main ways to stay compliant while keeping an employee on an offshore payroll:

Partner with a Reputable Payroll Partner

Similar to a subsidiary, a shadow partner handles the payroll for an international employee. However, unlike a subsidiary company, the shadow partner isn’t affiliated with the parent company.

Partnering with a global payroll solution offers many benefits that include: 

1. Compliance Assurance: Ensures adherence to local laws, tax regulations, and benefits, reducing legal risks.
2. Local Expertise: Partners with in-country experts to navigate regional payroll challenges and legal requirements.
3. Cost Efficiency: Avoids the cost of establishing legal entities in multiple countries, lowering overhead.
4. Streamlined Operations: Centralizes payroll processes, improving efficiency and allowing HR teams to focus on more strategic work.
5. Risk Mitigation: Minimizes errors and ensures compliance to reduce risks in global payroll management.
6. Enhanced Employee Satisfaction: Ensures timely, accurate payments, which in turn boosts employee satisfaction and retention.

​Selecting the right payroll partner is crucial for managing international employees effectively. Here are some notable providers:

• Playroll: Playroll is a global employment platform that simplifies international hiring and payroll management. Designed for businesses expanding their workforce across borders, Playroll offers a streamlined way to manage employee contracts, compliance, and payments in multiple countries.
• ADP Global Payroll: Provides cloud-based human capital management, offering global payroll services with integrated HR, talent, tax, and benefits administration.
• CloudPay: Delivers global payroll solutions in 160 countries, focusing on compliance and a unified platform for multinational organizations.
• Gusto: Offers international payroll and Employer of Record services for global employee hiring, onboarding, and payments in local currencies.
• Paychex: Provides payroll, HR outsourcing, and compliance solutions, specializing in services for small and medium-sized businesses.

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Pay Employees as Contractors or Freelancers

Most countries won’t force a compliance issue on a company if they hire international employees for a short time. That said, what’s considered “short” is subject to debate. If a foreign worker is hired for three months or less, it’s usually not a problem to keep them on the business’s offshore payroll.

However, if an international employee works the majority of the year in a different country, they may have to comply with that country’s tax and HR regulations. While limiting international hiring to temporary employees or freelancers can help you stay compliant, it won’t work when you need to maintain a long-term working relationship which puts you at risk of employee misclassification.

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2025 Guide To Avoid Employee Misclassification

Our comprehensive guide to employee misclassification include a checklist to distinguish correctly between employers and contractors, and top tips to avoid misclassification risks.

Read Guide

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Look for “Workarounds”

If available, legal employment workarounds allow businesses to keep international employees on offshore payrolls via host-country payroll laws.

These laws take three primary forms:

• Employer Payroll Compliance: Instead of forcing a business to establish a subsidiary in a host country or rely on a shadow partner, some countries allow businesses to simply establish payrolls for tax purposes. Under this arrangement, a business only registers its payroll, not its entire enterprise.

• Foreign Payroll Employee: In this offshore model, an employee registers as a “foreign payroll employee,” relieving the employer of compliance issues. This international payment arrangement is common in many African countries.

• Foreign employee exemptions: Some countries, such as the U.K. and Thailand, make it easy on offshore payrolls by exempting employers from deductions and withholdings. Instead, the worker is considered “self-employed” for tax purposes.

Although workarounds allow offshore payrolls to stay compliant, they may be few and far between. In the U.S., for instance, workarounds are almost nonexistent. 

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3. Hire Through an Employer of Record 

Partnering with an Employer of Record (EOR) is one of the fastest, most reliable ways to pay international employees. An EOR acts as the legal employer on your behalf, managing everything from tax filings and benefits to onboarding and local contracts.

This approach is ideal for companies entering new markets or scaling quickly, offering a complete global payroll solution without needing to establish local entities at great time and cost.

The top benefits of using an EOR like Playroll include:

• Full, guaranteed compliance with local employment laws and payroll regulations.
• Seamless onboarding and payment in local currencies.
• Centralized management of international payroll and reporting.
• Reduced exposure to misclassification or compliance risks.
• Real-time support navigating exchange rates and tax changes.

While many EORs exist, not all are capable of meeting the increasingly complex demands of global payrolls. Playroll's EOR services simplify the complexities of managing international payroll by handling payroll, tax compliance, and HR functions in over 180 countries, freeing you up to focus on your core business activities.

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Playroll simplified our expansion into new markets by providing a comprehensive understanding of local regulations. Through this partnership, we could immediately tick the box on compliance, at no risk to BET Software.

Gizelle Govender, Senior People Partner, BET Software

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Playroll's Features:

Paying your international employees compliantly using Playroll is easy. ​Playroll's Employer of Record (EOR) services offer several standout features to streamline how you manage and pay international employees:​

1. Seamless Multi-Country Payroll: Playroll consolidates payroll across various countries and local providers into a single, unified view, allowing payments in your preferred currency and simplifying currency conversions.
2. Locally Relevant Tax Compliance: The platform ensures accurate tax deductions and filings tailored to each country's regulations, mitigating compliance risks.
3. Tailored Compensation and Benefits: Playroll assists in offering competitive statutory benefits and guides you through country-specific compensation practices, boosting employee satisfaction.
4. Advanced Reporting and Analytics: The technology-backed platform provides comprehensive reporting tools, offering insights into total costs, bonuses, and contributions to improve operational efficiency.

Once your employees are onboarded via Playroll, you’ll have the ability to manage all aspects of multinational payroll right from your dashboard.

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4. “Lease” the Employee

In some cases, you can “lease” an international employee through a host-country company. The local company legally employs the worker, handles payroll and taxes, and leases their services back to your business.

This setup allows the employee to be classified as a local worker, keeping your company out of direct compliance requirements. It’s similar to a shadow payroll model but with a formal employment relationship managed through a third party.

It can work when:

• You need in-country presence without full entity setup
• You want a short-term or lower-risk engagement
• You’re navigating particularly complex payroll processes or labor laws

This method still requires close coordination to ensure employees receive timely, accurate compensation and benefits.

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5. Use a Professional Employer Organization (PEO)

​A Professional Employer Organization (PEO) is another route to manage payroll for international employees if you already have a legal presence in the country. While you remain the legal employer, the PEO supports HR functions, local compliance, and payroll process management. 

Key services include:​

• Payroll Management: Timely salary payments, including withholding and remitting payroll taxes.
• Benefits Administration: Administering local benefit plans that meet legal standards.
• Human Resources Support: Guiding you through onboarding and termination processes.
• Risk Mitigation and Compliance: Aligning your payroll strategy with local expectations.

By partnering with a PEO, companies can effectively manage the complexities of international payroll and employment, ensuring their global workforce is compensated accurately and in full compliance with local regulations.

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The Importance of Cross-Cultural Communication in Paying International Employees

Beyond the legal structures, how you pay international employees – down to the payment methods and communication channels – impacts your ability to attract and retain top talent.

Some key considerations when picking the best approach for your business:

• Ensure employees receive payments on time in their preferred currency.
  
• Account for exchange rates when calculating compensation.
  
• Be transparent about deductions, benefits, and local contributions.
  
• Use tools that help avoid payroll errors and build employee trust.
  

A clear, consistent payroll system is key to building a strong, motivated global team.

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What to Consider When Paying International Employees

​When compensating international employees, it's crucial to navigate various factors to ensure compliance and operational efficiency.

Key considerations include:​

Compliance Issues

Each country enforces its own labor laws governing aspects such as wages, employment contracts, termination procedures, and benefits. Non-compliance can lead to significant penalties and legal challenges. ​

Varying Tax Regulations

Tax obligations differ across jurisdictions, encompassing income tax rates, social security contributions, and employer-paid benefits. Misunderstanding these regulations can result in financial penalties and reputational damage. ​

Payroll Cycles

Payroll frequencies – such as weekly, biweekly, or monthly – vary by country. Aligning with local standards is essential to meet employee expectations and comply with labor laws. Additionally, consider the impact of currency exchange rates and banking practices on payment timing and amounts. ​

Addressing these factors diligently ensures that international employees are compensated accurately and in accordance with local regulations, thereby safeguarding your organization's compliance and reputation.

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Navigate Global Hiring with Confidence

Gain comprehensive insights on employment regulations, payroll and compliance in 180+ regions, to navigate global employment with ease.

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Common Global Payroll Challenges & How to Overcome Them

​Managing global payroll presents several challenges that organizations must address to ensure efficiency and compliance. Key challenges and strategies to overcome them include:​

Integrating International Payroll into Existing Systems

Integrating diverse payroll systems across multiple countries can lead to data inconsistencies and processing errors. To address this:​

• Adopt a Centralized Payroll Platform: Implementing a unified global payroll system reduces discrepancies and streamlines operations.
• Ensure Compatibility: Select payroll solutions that seamlessly integrate with current HR and accounting software to maintain data integrity.

Navigating Cultural Differences in Payment Expectations

Cultural norms significantly influence compensation perceptions, including pay frequency, bonus structures, and preferred payment methods. To navigate these differences:​

• Conduct Cultural Assessments: Research local customs to align payroll practices with employee expectations, enhancing satisfaction and retention. ​
• Customize Payroll Policies: Tailor compensation strategies to reflect regional practices, demonstrating respect for cultural nuances. ​

Ensuring Transparency with Employees

Clear communication about payroll processes fosters trust and reduces misunderstandings. To promote transparency:​

• Provide Detailed Pay Statements: Offer comprehensive breakdowns of earnings, deductions, and benefits to clarify compensation details.
• Establish Open Communication Channels: Encourage employees to seek clarification on payroll matters, addressing concerns promptly to maintain trust.​

By proactively addressing these challenges, organizations can enhance their global payroll operations, ensuring compliance and fostering a positive employee experience.

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Simple Payroll Solutions for the Modern Businesses

Playroll is a full-service global payroll solution that simplifies how to pay international employees across 180+ countries.

With Playroll, you get:

• Seamless multi-country payroll with real-time cost visibility.
• Automated, compliant payment methods in local currency.
• Native exchange rate management.
• Tools like an employee cost calculator to forecast your hiring spend.
• Transparent reporting on bonuses, deductions, and total compensation.

Whether you're figuring out how to pay foreign employees in a new market or scaling your international payroll operation, book a chat with our experts to find out how we can help simplify your payroll operations.

📣 Global Payroll Made Simple with Playroll

Handle compliance, automate payroll, and support your international team with confidence.

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