The once so famous buzzword ‘globalization’ may have lost some of its magic, but in today’s world which is driven by technological advance and digitization, going global has become a real mission statement for many businesses and organizations. With the rise in remote work, a new key component has been added to the complex field of international expansion: global talent acquisition and management. More and more companies are starting to hire abroad to gain access to larger talent pools and get market insights before properly launching their business operations overseas.
However, hiring and managing a globally distributed team doesn’t come without its challenges. While the remote hiring process itself is quite demanding already, the real trouble starts when it comes to paying your remote workers. No matter where in the world your employees are based, they all want to be paid on time, on a regular basis and in the right currency. Not to forget that, as their employer, you are responsible for withholding the right amount of tax and deductions from their salary which can turn into a real administrative burden.
If you have also recently started to grow your global team and are now facing the question of how to pay your remote employees which are spread all over the globe, we’re here to help you. In this article, we’ll highlight the most common issues related to paying a remote workforce and show you a simple way of handling global payroll in a compliant and cost-effective way.
First things first: How much should you pay your remote workers?
Figuring out how to pay your remote workers is, of course, a real challenge. But the headache starts way before that. When interviewing a candidate for a remote role, one of the aspects that will surely come up in conversation is money.
Getting remote work compensation right can be quite tricky. Apart from including generous benefit packages to attract top talent, you will have to decide on a strategy on how to set salaries for your remote employees which can either be based on your company’s location or on your employee’s place of work – or, as a third option, be in line with a national median.
Which currency to pay your remote employees
When thinking about how to pay employees in another country, one of the first questions that will come up is probably which currency to use. Unless your company and your new hire are both based within the borders of the euro area, it’s very likely currencies will differ. This means that you have two different currencies to choose from when paying your remote worker, namely his or her local currency or the currency you use for your business operations.
The latter can, however, become quite tricky as fluctuations in the exchange rate may have a negative impact on your employee’s pay. What’s more, many employment laws require employees to be paid in the local currency, which means you have no choice but to issue payments in the employee’s home-country currency. For example, if you hire a remote employee in India, the salary indicated in the employment contract needs to be given in Rupees.
When and how often to pay your remote team
Another issue linked to paying a remote workforce is that payroll frequency varies between countries. While remote employees in Germany are usually paid once a month, payments to members of your distributed team who are based in Brazil might have to be issued on a bi-weekly basis. There might even be a specific payday which employers have to respect in that specific country. Not to forget that each country has different rules on whether employees are entitled to a 13th – or even 14th salary – or not.
How much tax to withhold from your remote employee’s pay
Just as for your “normal” employees – i.e. the ones based in the same jurisdiction as your company – you are also responsible for withholding the appropriate amount of tax from your remote employee’s salary. Needless to say that taxation rules and regulations vary greatly between countries.
When paying a globally distributed team, you will therefore have to be familiar with the tax system of every single country where you have remote workers – this is because taxes need to be paid in the employee’s home country and not in the country where your company is registered. In addition to knowing how much income tax to withhold from your employee’s monthly pay, you also have to make sure the money is transferred to the responsible government institution on time – otherwise you risk being fined.
Which other deductions to make from your remote employee’s salary
Yet withholding the right amount of tax isn’t the only obligation employers have when it comes to salary deductions. Another important part of handling remote employee payroll is deducting the right social security contributions – and, obviously, paying the employer’s share of it. Similar to tax rates, social security contributions are also country-specific and range from a 5% contribution to the mandatory provident fund (MPF) in Hong Kong to a jaw-dropping 45% contribution in France – depending on the employee’s occupation.
Which payment method for paying remote employees
The next question that needs answering before you can actually proceed to pay your remote workforce is which payment method to use. While for a domestic workforce, the obvious answer to this would be via direct deposit, managing payments to a globally distributed team isn’t quite as straightforward.
The reason for this is simple: The fees for international bank transfers and currency conversion quickly add up to considerable sums as soon as your remote team starts to grow. Setting up company bank accounts in different countries all over the world isn’t a solution either because it usually comes with the obligation to set up a legal foreign entity which is a very costly and time consuming procedure.
How to set up payroll for your remote employees
Unless the employee in question usually works from within the same jurisdiction but is sent abroad to conduct some work there for a short period of time, adding the members of your remote team on your home-country payroll is not an option. In fact, hiring local employees in a foreign market generally requires setting up a local payroll system.
Even if you already have a foreign entity in place, managing payroll and navigating local tax law is quite a hassle – considering that payroll means everything from administrating tax and deductions over issuing payments on time up to providing your workers with pay slips and other written documentation that is in line with local norms. Luckily, there’s an easy solution to this: Contracting a local payroll provider who will take care of everything payroll-related so that you can focus on more important business decisions.
How to pay remote employees: The all-in-one solution
Setting up local payroll in different countries all over the world is only one pressing issue when employing foreign workers. In addition, global employers also have to deal with the legal frameworks each country has put in place to govern employment relationships and taxation. Navigating employment and tax laws around the globe will take up a big share of your financial and HR resources while simultaneously exposing your company to high compliance risks.
By contracting the services of an experienced Employer of Record (EOR), companies can compliantly hire and pay remote teams all over the world. From global payroll to compliant employment contracts, Lano’s smart platform offers you everything you need to hire and manage your globally distributed team. Get in touch with us today to learn more about how to effortlessly pay your remote employees.