How to Pay International Employees

Successful businesses thrive on new ideas. What better way to ensure original ideas than hiring remote employees in other countries?

In addition to broadening your business’s cultural and economic horizons, international employees can help your company grow by increasing your employee pool. 

That said, hiring globally does involve several important decisions regarding how to pay international employees.

Fortunately, we’re here to give you four ways to pay international employees so that you can bring the world to your business—and your business to the world.

#1 Give Your Business a New Home

Registering your business in a new country is a safe way to comply with home-country regulations. By 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, what you gain in security, you pay for in time. What’s more, given international HR laws, setting up shop in a new business paradise can be anything but paradisiacal.

If you do decide to establish your business overseas, you’ll need to do the following:

• Know the home country’s regulations – Some countries make foreign subsidiaries pay employee benefits, while others don’t. Some countries tax neither local nor foreign enterprises, while other countries levy taxes regardless of a business’s designation. The point is this: know the employees’ home countries’ tax and HR laws like the back of your hand. You don’t want to take the time to establish a business in another country only to discover less-than-stellar tax implications.

• Register a subsidiary – A subsidiary is a company controlled by a parent company. If you want to establish a business for payroll purposes in another country, you’ll need to register a subsidiary by getting a local taxpayer ID number. Depending on the country, you might also have to appoint a director.

• Keep up-to-date with fees and compliance – Just because you register a subsidiary doesn’t mean your work is over. You’ll also need to pay all fees associated with registration as well as comply with HR regulations.

Although establishing your overseas business takes a lot of work, it might be the right move for your payroll if you’re employing many international employees in one country. All of your employees are integrated into the subsidiary’s payroll—not the parent company’s.

However, if you’re employing only one or two international employees, forgoing registration might be the better option.

#2 Create an Offshore Payroll

Suppose you run a small glass-blowing business called Windy City Glass in Chicago but discover that Cartagena is the glass-blowing capital of the world. As a result, you want to put a Cartagena-based glass-blower on your payroll.

While you could register a subsidiary in Colombia, it would make more sense to keep a single international employee on your U.S.-based payroll. This arrangement is known as an offshore payroll.

There are a few benefits to offshore payrolling an overseas employee, the biggest of which is not having to establish a business overseas.

There is, however, one main disadvantage: unless you’re totally in compliance with the host country’s payroll laws, you run the risk of legal issues.

Fortunately, there are three main ways to stay in compliance while keeping an employee on an offshore payroll:

Partner with a “shadow”

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.

To illustrate, let’s return to Windy City Glass. Suppose WCG finds a Cartegna shadow partner willing to sponsor a Colombian glass-blower for payroll purposes. 

A shadow partner offshore arrangement would work this way:

• WCG would pay the employee, but the shadow partner would handle payroll duties, including deductions and withholdings.

• WCG would then reimburse the shadow partner for payroll expenses—and pay extra for their services.

• The shadow partner would continue to make sure WCG is in compliance.

Under a shadow partner agreement, both the business and shadow partner benefit.

Hire only temporary workers or freelancers

Most countries won’t force a compliance issue on a company if they hire international employees for a short amount of 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 keep compliant, it won’t work when you need to maintain a long-term working relationship.

Look for “workarounds”

If your international employment law game is strong enough, you might be aware of host-country “workarounds” for payments to foreign contractors for services.

In short, 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.

• Employee Payroll Compliance – 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 international contractor is considered “self-employed” for tax purposes.

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

If you’re exploring this offshore payroll option, be sure to do your international HR homework. 

Better yet, work with a company that does the homework for you—a company that provides you with crucial insights so that you’re always in the know, not the no. 

#3 Hire an Employer of Record Services Provider

If even the thought of paying international employees has your head spinning faster than a Dutch windmill, it may be time to hire an employer of record (EOR).

EORs are companies that specialize in the financial and legal procedures that accompany overseas businesses and employees. They can make running global businesses easier by handling the following tasks:

• HR and income tax compliance
• Processing tax information
• International onboarding
• Country-specific research
• Payroll responsibilities
• Benefits administration

While many EORs exist, not all are capable of meeting the increasingly complex demands of global payrolls.

Playroll

For the best overseas HR platform in the industry, choose Payroll. An EOR on a roll when it comes to elevating global HRs, Playroll isn’t your grandfather’s payroll management system. 

Instead, it’s a platform designed to meet the needs of the 21st-century globalized business by finding the right people regardless of where they work and play in the world.

Paying your international employees using Playroll is easy. All you need to do is sign up for an account and enter your candidate’s information (including their country). Playroll then generates a locally compliant work contract for the candidate to sign.

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

#4 “Lease” the Employee

The last way to pay international workers involves an employee “lease” arrangement. In this model, the principal business “outsources” an employee to a host-country company. 

The host-country company then hires the employee for payroll purposes and “leases” the employee back to the offshore business.

This arrangement is similar to the shadow partner model, except for one key difference: the employee is technically no longer employed by the offshore company. Instead, they are considered a local employee.

Benefits of Hiring International Employees

Now that you know the four main ways to pay international employees, let’s dive into the reasons why you’d want to hire international employees in the first place.

These reasons include:

• Diverse people, diverse ideas – In the global marketplace, diversity is paramount. Hiring international employees means adding new life experiences and ways of seeing the world to your team.

• The opening of new markets – Bringing your business to new markets is an exciting—and scary—proposition. However, if you have someone who can fill you in on their country’s culture and business practices, you’ll have the knowledge you need to navigate new markets.

• Increased productivity – While “working around the clock” sometimes carries a negative connotation, hiring globally sheds new light on this phrase. That’s because an international employee will likely be starting their day while you’re winding down (and vice versa). Harness the power of time zones by going global.

Playroll: Payroll Solution for the Modern Business

Hiring internationally is a wonderful decision for your business. In addition to bringing fresh perspectives to your team, global hires give you the knowledge to navigate new markets.

Just ask Windy City Glass.

Make the decision even better by working with a company that knows a thing or two about the power of international hires. A company like Playroll . A payroll company par excellence, we bring global talent to local businesses.