What is international payroll processing & how do you get started?
Workplaces have evolved with improved global connectivity and access to the international workforce pool. This means that hiring foreign employees and remote workers has become easier and more advantageous than before. In fact, about 17% of the US labor force is comprised of foreign-born workers.
Building a global workforce has made it simpler for companies worldwide to hire the right people regardless of their location. However, with employment diversity and unprecedented international growth come modern challenges for businesses worldwide. For instance, you might be scratching your head regarding managing payrolls and adhering to global laws.
However, international payroll processing is a significant part of any company’s small or large operation. Fortunately, you can mitigate these challenges with the help of an international payroll service. ThisWorks provides international payroll solutions for companies as global expansion becomes essential.
In this blog, we will tell you what international payroll processing exactly is and how you can manage employee compensation across different countries and regions.
Understanding international payroll processing
International payroll processing is managing and adhering to foreign taxes, laws, and payment methods to pay staff abroad. It involves recording all payable international employees, deducting their gross pay, and remitting taxes to authorities according to local laws.
Getting your international payroll processing right is of paramount importance for several reasons. It ensures employee satisfaction and retention and is crucial for your company’s image and reputation.
While your business can manage international payroll internally, once you start, you will quickly realize that adhering to all the local tax codes and employment laws is extremely research-extensive and complicated. Working with a reliable international payroll provider to handle all the hassles can be very helpful.
What is the difference between domestic and international payroll?
Why do you need international payroll services for paying foreign employees rather than your local workforce? International payroll processing is different from domestic payroll. Paying international employees involves international laws, time zones, taxes, currencies, and compliance with local payment methods. Read more about that here. All of this increases the risk of legal issues and non-compliance penalties.
For example, if you hire employees from Poland, the UK, or Germany, all of these countries have different:
- Mandatory employee benefits
- Local payment methods
- Tax regulations
- Exchange and conversion rates
Understanding these differences is a considerable undertaking for companies with a global workforce. Additionally, non-compliance penalties are excessive in some countries. Therefore, many companies prefer to hire an international payroll company to streamline their global payroll processing. An international payroll provider saves time, money, and effort that it would otherwise take to handle it in-house.
Components that are unique to international payroll management
Before skipping to international payroll processing methods, let’s cover essential payroll handling components.
A company’s ‘payroll’ is a list of all the employees on the company’s list of payable workers. The payroll processing unit of a company deals with a variety of operations, including:
- Accurately recording time worked and, for paid staff, accurately calculating pay.
- Deducting the appropriate amounts for compulsory employee contributions such as pension payments or healthcare premiums
- Payroll tax and income withheld at the appropriate intervals.
- Setting up automated payments or direct deposits, distributing checks to employees, and documenting the amounts in pay stubs (sometimes called “payslips”) for each employee.
- Setting aside income per court judgments for debts such as alimony and maintenance, child support, and other issues.
International payroll is more complicated than domestic payroll processing as more factors come into focus with employees abroad.
Here are some common challenges businesses face while managing and processing global international payroll.
1. Local payroll requirements
Most companies’ biggest challenge with international payroll is adhering to different taxes and labor laws. It is important to remember that all countries have unique payroll requirements, with distinct minimum wages and other statutory benefits. Your business should have an efficient payroll processing system with a detailed understanding of local requirements. This will ensure compliance with local regulations and mitigate risks associated with falling prey to non-compliance penalties.
2. Currency conversion
International payroll processing requires currency conversion. This means you need to convert local currency into the currency used in payroll processing. Currency conversion is a complex process as the conversion rates vary. To ensure that calculations are accurate and avoid blunders, your payroll department must know all the latest conversion rates for each country you have employees.
Communication is vital for ensuring smooth payroll processing. However, different countries have different languages and time zones. This can be a considerable barrier and make it difficult for the payroll department to engage with the local staff. Businesses need to effectively communicate with authorities, vendors, and local staff to ensure there are no gaps in the process.
A company may be severely penalized if it fails to comply with local tax codes and employment laws. It’s crucial to handle legal issues correctly and maintain a positive reputation. Your payroll department should know all the compliance regulations and penalties if you fail to adhere to the local laws.
5. Technology and Infrastructure
Last but not least, technology can significantly affect your payroll processing. Businesses should remember that all countries are different regarding payroll systems, and it is challenging to integrate them into a single system. Global companies must invest in robust technology and payroll software for efficient and streamlined international payroll processing. This will not only make calculations and compensations easier, but it will ensure timely payments to employees globally.
Top 3 ways to manage international payroll
Businesses often use international payroll services to mitigate the risks and challenges mentioned earlier. Working with global payroll solution companies allows you to stay compliant and simplify the process. Here are the top 3 international payroll solutions that will help you mitigate legal risk and maintain your company’s global image:
1. Payroll Software
As mentioned above, technology is vital to your payroll processing methods. One way to manage your international payroll is to use international payroll processing software. Automated payroll processing is a great way to efficiently manage tax withholdings, deductions, benefits, and compensation.
These versatile software tools can help almost all kinds of businesses manage their payroll systems. International payroll processing software is an excellent solution if you need to outsource and automate your global payroll while maintaining a certain degree of flexibility, control, and oversight. It speeds up the payment process and leaves you exclusively responsible for your payroll function. However, most of these software tools require an in-house specialist to operate. Businesses must hire an in-house expert or train their current employees for automation. In addition to this, you will also need a paid license to use the software. Another option and the easiest one is hiring an international payroll service provider who takes care of your automated payroll service.
2. Hire An International Payroll Service Provider
International payroll providers specialize in handling your company’s international payroll. They take care of everything from paying your foreign employees and keeping payroll records to complying with tax rules and time zones.
By hiring international payroll companies like ThisWorks, your business will no longer have to deal with intensive research regarding employment laws and tax regulations in different countries. As a 365-degree Employer of Record, we at ThisWorks also offer international Payroll Services. Find all our services here (internal link). Our professionals understand payroll processing challenges, including conversion rates and payment regulations.
Before hiring a third-party company for payroll processing, it is essential to receive a comprehensive consultation and discuss recent testimonials to make the right decision. While this solution may require a larger initial investment than payroll software, it has long-term benefits. For example, you do not need to hire an in-house specialist, but you will have access to in-country and international expertise.
3. Use an Employer of Record
An Employer of Record (EOR) is a company that can hire new talent on your behalf. This method eliminates the need for you to establish a local entity. ThisWorks, as an EOR, will not only take care of your payroll processing and tax calculation, but we will also handle employee contracts, onboarding, and benefits so that you do not have to worry about anything. Read more about how to manage payroll here.
For companies who want to expand globally, using an employer of record is an attractive solution since it eliminates two of the most considerable barriers to global employment.
FAQ about international payroll processing
Check out some of the most commonly asked questions about international payroll processing and how it works:
How do you calculate payroll?
Calculating international payrolls is complex. You have to consider several factors, including different local and international compensations and conversion rates. Our professionals keep records of taxes, global policies, and local laws to streamline your company’s payroll processing system.
What is multinational payroll outsourcing?
International payroll outsourcing means that a third-party company takes over payroll processing for your company, including administrative functions like tax reporting, calculating voluntary benefits, and managing employee inquiries.
What do payroll processing fees include?
Payroll service fees can vary depending on your company’s needs, size, and requirements. You can contact us and get your payroll processing right with just a few clicks. Our experts are more than happy to guide you through the entire process.
What is a global payroll provider?
A global payroll provider is a third-party company that understands local regulations and tax laws. We help businesses pay their international workers while covering employee benefits, minimum wage requirements, and conversion rates.
How do I pay employees with an international payroll?
Paying international employees is different from paying your local staff. Every country has unique tax regulations, conversion rates, time zones, and languages. Businesses must have a strong understanding of international rules and laws to avoid penalties for non-compliance. Maintaining a global payroll will help you understand these challenges and navigate different areas of international payroll processing.
How do I choose the best international payroll service?
An efficient payroll system ensures your company’s image remains unharmed. You can look at recent testimonials to choose the best international payroll service. Consider your business needs and make an informed decision based on your requirements. When selecting an international payroll service, compare the included services since most providers only offer one service. Of course, find a competent point of contact and check the contract with the contact person before signing it.
Do you need help with international payroll processing? Well, you do not need to worry anymore! With the help of ThisWorks, you will no longer have to scratch your head over complicated tax laws across different regions.
ThisWorks is an international payroll provider that handles everything from tax codes and employment laws to compensation and employee benefits for different countries. Hiring foreign EOR providers like ThisWorks will relieve your company of the burden of conducting thorough research on local tax and employment rules. They are experts who understand the difficulties in processing payrolls, such as conversion rates and other payment laws.
Consider ThisWorks if you need a simple, convenient international payroll processing solution. Our experts are here to guide you through the process. Book a free consultation with our specialists here.
If you want to learn more about global business expansion, check out this blog.
Article Author – Gino Peters
Gino Peters is the Commercial Director at ThisWorks, with a rich history of nearly a decade in international payroll. Throughout his tenure, he has consistently kept abreast of evolving labor legislation, ensuring that ThisWorks remains at the forefront of industry knowledge. Beyond his vast expertise, Gino is deeply committed to advising and guiding clients and partners with precise insights. His leadership guarantees that all content and operations at ThisWorks meet the highest standards of clarity, accuracy, and compliance.
Follow him on Linkedin
Book a free consultation with Gino Peters