What options are available for paying international employees? — Here’s a comprehensive guide on how to pay international employees.
21-Sep-22
The ability to work from home has become a prized set-up in the post-pandemic workplace. In fact, 67% of hybrid workers believe they can perform their jobs effectively working abroad, while 88% of workers are planning to work from anywhere this year. For some people, however, working digitally has always been their arrangement as they serve clients in their country of residence, which may not be where their employers are located.
For instance, many businesses in the West outsource work to the Global South, as these countries have lower costs of living, allowing companies to keep labour costs low while retaining top-quality talent at the same time.
By hiring employees abroad, you can also expand your options and work against the global talent shortage. A feature on filling jobs by LHH highlights how, among those who had left their jobs during the Great Resignation, nearly one-third were already looking for another job or planning to return to their former position. At this stage of the global talent shortage, it’s imperative for HR departments and hiring managers to handle risk and minimise turnover.
As with all workers, one of their key demands is timely pay. For employees who do not meet you face-to-face, let alone live in the same country as you, it’s essential to maintain their trust by maintaining their payroll. This way, both you and your employees working overseas can continue work without any hindrances.
International Payroll responsibilities
As an employer, it’s your responsibility to define the role of your employee and organise the appropriate payment method. It may be more convenient for businesses to work with a third-party employer affiliated with your business or outsource payrolls through a Professional Employer Organisation (PEO). Third-party employers will act as legal establishments within that host country to arrange overseas payrolls for your business, whereas PEO will handle all HR-related matters including payroll management, in accordance with local laws and regulations.
For non-residents of the UK, generally, no pay-as-you-earn (PAYE) tax is deducted from the salary, so it’s possible to proceed on a gross basis via UK payroll. However, if you are considering paying wages to overseas employees directly, there are additional laws and taxes that you may have to consider.
National Insurance or Social Security for International Employees
Social security or insurance is usually deemed separate from income tax, but still should be considered by employers. A list shared by Gov.UK on employees working overseas discloses the specific countries that have social security agreements. Depending on your employee’s home country, national insurance for overseas workers will either have to be paid by employers in the UK, covered by employees in their resident country, or both countries may have to be paid for social security. For the last option, you may have to register your business as a foreign company so you can fulfil withholding obligations, following a domestic or standard rate.
Tax Considerations for International Employees
As shared in our post “The Future of Global Mobility Tax”, people are opting for the “work from anywhere” trend as more flexible and remote global arrangements open up, so it’s essential for employers to consider overseas employee tax. Different considerations such as permanent establishment, employer of record, and tax equalisation agreements should be taken into compliance lest you enter into tax issues. For instance, some countries hold treaties like the aforementioned social security agreements, so being familiar with these when paying wages to overseas employees can help offset taxes and prevent double taxation.
Guide to Paying International Employees
With the complicated nature of taxes and cross-border rules, companies may struggle with issuing overseas payroll properly. While it’s possible to employ the help of local affiliated businesses or PEO, being able to understand and handle finances as an independent business can ensure payments are done correctly and in a timely manner. Here are some tips on how to pay international employees:
Consider changes in currency
When settling an agreement in the contract on the employee’s salary, it’s important to consider the agreed salary in equivalence in foreign currency. The value may change over the duration of their employment, so having flexible, appropriate budgets can ensure that neither you nor the talent is at a disadvantage.
- Use e-payment platforms
The best method of payment for any contractual workers is through online e-payment platforms. Although they are not necessarily employees, country laws may still subject contractual workers to similar foreign worker guidelines. After settling any necessary taxes or national insurance for overseas workers, you can transfer via PayPal or Stripe easily to accounts on the platform or to your employees’ bank accounts. If this amount meets a threshold, there are usually no transfer fees involved— which can help your company save costs when paying wages to overseas employees.
Through awareness of laws and regulations, businesses can properly comply and pay their employees working overseas. By maintaining vigilance regarding these issues, you can continue to benefit from remote productivity while mitigating any tax consequences.
At Centuro Global, we assist in hiring and paying your global team with speed and security. Get started with onboarding employees and contractors in over 170 countries in minutes. If you have any questions, contact us today and one of our experts would be happy to help.
This article was written by Rita Jessa for the special use of Centuro Global
