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Remote work has triggered many changes in the workplace and opened up exciting new opportunities to access a much bigger talent pool. Businesses of any size can benefit from expanding the geographic reach of their talent search and hire skilled workers abroad to build a globally distributed team.
However, managing a global workforce also comes with several challenges. One of them is how to pay employees that are located in different parts of the world. Employers with a global team will soon find that traditional payment methods are too slow and expensive, and that they involve a lot of admin and additional work for HR and payroll teams.
In short: Global businesses can’t rely on direct deposit alone to pay their remote teams, but need to look for other ways to pay employees that are based on different continents. Here is an overview of alternative pay methods that are suitable for companies with an international workforce.
There are three established ways of paying employees for their work: cash, check and direct deposit. Although some jurisdictions have banned employers from paying wages in cash, salary payments in the form of cash or paychecks are still legally accepted payment methods in many countries.
However, the most common way for paying employees is direct deposit, i.e. electronically transferring money from the business’s bank account to the employee’s bank account. According to the 2020 “Getting paid in America” survey, over 93% of Americans currently receive their wages and salaries via direct deposit.
Using a bank transfer to directly deposit an employee’s salary into their bank account solves many of the problems that come with using cash or paychecks, such as the risk of loss or theft. Plus, electronic transfers are fast and allow employees to access their earnings without having to wait for long. Since electronic transactions are secure, paperless and trackable, direct deposit is often considered as the most convenient way to pay employees.
The radical changes we’ve seen in the way we work also have had an impact on how we pay employees. Remote work and globally distributed teams are the new reality and traditional pay methods don’t work anymore. The problem with cash and paychecks is obvious. Putting money or a check in an envelope and posting it to the other side of the world simply isn’t an option. But also bank transfers don’t work all that well if you have to process an infinite number of international payments on a monthly (or even weekly) basis.
First of all, there is the issue with processing times. International bank transfers are usually processed as SWIFT payments, which can be quite slow. Especially if the money has to be transferred between several intermediary banks to make the transaction possible, the transfer can take up to 5 days to go through.
The elevated cost of the transaction is another factor to consider. International bank transfers are expensive. Depending on how many banks have to be involved, service fees can quickly add up to $50 per transaction. Not to forget the additional charges for foreign exchange.
An additional cost factor that needs to be considered is the time your HR and payroll teams need to put in to issue the payments to all your remote employees. With a globally distributed team of 50 or more employees, Payroll and HR can easily spend several hours each month on managing payments alone.
Yet another aspect that is often overlooked is the reality of the unbanked. It may be common standard in most of the Western world for employees to have a bank account, but this isn’t necessarily the case everywhere else in the world. In fact, data provided by the Worldbank suggests that there are around 1.7 billion people worldwide who remain unbanked in the 21st century. Nearly half of these 1.7 billion people live in China, India, Indonesia, Mexico, Nigeria, Pakistan and Bangladesh.
For unbanked employees, paying their salaries the traditional way simply isn’t happening and businesses intending to hire employees in different parts of the world need to be prepared for this eventuality. Luckily, there nowadays are alternative ways of paying employees, which allow organizations to effortlessly pay the members of their global teams regardless of where they are.
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Cryptocurrencies are virtual currencies which are based on blockchain technology and secured by cryptography. Digital currencies are decentralized, meaning that there is no central authority that monitors them. The most popular cryptocurrencies are Bitcoin and Ethereum, but there are several thousands virtual currencies out there.
Over the last couple of years, cryptocurrencies have turned into a popular investment option and are increasingly used to pay for goods and services. Ever since the hashtag #PayMeInBitcoin started circulating on Twitter, paying employees in cryptocurrency has joined the possible payment methods employers have to pay their staff.
Potential growth in value makes it an attractive investment for employees
Can help companies attract and retain young talent, since salary payments in crypto are popular among Millenials and Gen Z
Easy and convenient way to pay a globally distributed team once the setup is done
Payments in cryptocurrency are processed almost instantly without having to go through a financial institution
May be more beneficial with regard to tax
No bank account needed
No need for foreign exchange and no additional fees
Fluctuation in value may lead to employees being underpaid
(Unintentionally) underpaying staff can lead to non-compliance with regulations on employee compensation
Local laws may prohibit salary payments in cryptocurrency
Trends around crypto payments need to be watched carefully
Not suitable for all employees
Still restricted acceptance of cryptocurrencies as payment method for goods and services
Another alternative method of paying employees is the use of virtual payment platforms like PayPal, Payoneer or Wise. These financial service providers are specialized in facilitating both domestic and international payments. While there is no real need to use an online payment system for paying domestic employees (since direct deposit works perfectly well in this case), they are a viable alternative pay method for remote teams.
No bank account needed
Faster than international bank transfers (in some cases instant processing)
Fees for different services can be quite high
Pricing models differ between providers and companies need to invest time to find the one that works best for them
Additional conversion fees for foreign exchange
Exchange rates may be worse than the ones offered by a traditional bank
Digital wallets, also known as mobile wallets or electronic wallets, are an increasingly popular cashless payment option. Consumer markets such as China and India, but also Africa have seen a strong growth in the use of mobile wallets. As their use increases in day-to-day transactions, employers have also started to explore the potential of leveraging digital wallets to pay staff.
By transferring salaries into an employee’s e-wallet, the money is directly available for making purchases. Digital wallets also host a great potential for international companies with a globally distributed team. In the form of digital multi-currency wallets, they are a great solution for paying remote employees located in different countries.
Can help improve employee experience by providing a modern-day pay experience that is in line with employee personal lives
No bank account needed
Great opportunity for employer branding, positioning the company as a forward-thinking employer
Enable employees to receive, store and send money in various different currencies
Cheaper than international bank transfers
Fast, secure and easy
Payroll solution used by the company must be able to integrate the payment method
Some employees may be reluctant to accept digital wallet payments for their salaries
There may be fees for certain transactions and services
Looking for a digital multi-currency wallet to pay your global team? With Lano Wallet, you can pay remote employees as well as international contractors and freelancers in 50+ currencies. Send mass payments to team members in 150+ countries with only a couple of clicks and benefit from free local payments and the best exchange rates around.
Pay cards, sometimes also referred to as payroll cards, are prepaid debit cards employers can transfer wages and salaries to. The payment process is similar to direct deposit, but the employee doesn’t need to have a bank account to receive funds. They can then use the pay card for electronic payments or to withdraw money from an ATM.
In most cases, employees can even view their expenses online via the service provider portal. The most recognized pay card providers include Money Network, Rapid PayCard, Skylight Financial Netspend and Global Cash Card.
No bank account needed
Fast and secure
Convenient for employees and employers
Cards can get lost or stolen
Additional cost for the company to contract the service of a pay card provider
Employees might incur additional fees for certain services while using the card
There may be legal regulations regarding the use of pay cards (this is especially the case in the US)
Although stock options are not an alternative pay method as such, they are a great way to diversify your employee compensation strategy. Providing stock options to employees means giving them the possibility to purchase company shares. Stock options can be a great incentive to boost employee loyalty and motivation. When offering stock options to their employees, employers need to decide on whether to offer incentive stock options (ISO) or non-qualified stock options (NSO), the main difference being the way they are taxed.
Our blog post What are non-qualified stock options? tells you more about the differences between ISOs and NSOs.
Great supplement to make compensation packages more competitive
Employees feel more connected to the company
Potential tax benefits
Tax treatment can be complicated
Employers need to keep a close eye on stock options to not lose control over the business
Employees may not get the desired benefit out of it if the stock isn’t doing well
Before paying your staff, you have to process payroll first. With team members based in different countries all over the world, running payroll can be a real problem. Local laws and regulations need to be observed and the payroll team needs in-depth knowledge of the local tax and social security system.
Lano’s global payroll solution gives businesses access to a global network of trusted payroll providers in 150+ countries. Let the experts take care of each payroll run, and then simply review and approve your employees’ payslips and fund payroll to your global team in one single click.
Book a demo to chat to our sales team and find out more about how Lano helps businesses pay their global team faster and easier than ever before.
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