Can’t figure out how to pay your overseas employee? Here are 3 important factors that will help you to decide!
While the hiring process is very simple, figuring out how you will pay an overseas employee can be quite difficult.
There are a number of factors at play here and a lot depends on the type of employee, the length of their employment, and even the country.
If you don’t have an office or a branch in a foreign country from where you’ll be hiring your employees, then the only option left is paying them remotely from your home office.
To help you figure out how you can do that, we’re going to be talking about some important factors and options that will help you to figure out how to pay your overseas employee.
Let’s dive right into it, shall we?
3 Important Factors to Help You Decide How to Pay an Overseas Employee
When you’re deciding on how to pay your overseas employee, you’ll need to consider a few things first. Here are 3 important factors that will help you to decide:
1. The Type of Worker
Contractors are on the rise these days and it seems like they’re presenting an easy solution to the whole international payroll issue. Since they are self-employed, it becomes more of a back to back arrangement.
Nevertheless, the actual problem lies in the risk of misclassification. This is where the employee’s country sees them as YOUR employee based on how you manage and structure their work.
Formal employees, like expats or locals, are subjected to labor protections and a variety of benefits in host countries. These can’t be ignored for long and you’ll have to come up with a policy not only to comply but also to meet local regulations.
2. Let’s Talk Money
When it comes to currency fluctuation, it can greatly affect an overseas employee’s net pay. That means you’ll have to fix their salary based on their country’s currency.
Another way you can do this is to have a currency exchange agreement that will counterbalance fluctuations in each of two directions. Let’s say an employee is being paid in your home currency, but they are paying for their expenses in another currency.
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3. Social Security and Tax Treaties
Everybody has to pay tax, your foreign employee will also have to pay tax. But, your company will have to hold back tax at your end.
It’s wise to avoid double taxation, so you’ll have to look in the tax treaties between your country and the country your employee belongs to. Figure out the credits that you can use.
Similarly, both the host and home country will want social security contributions that are paid by both the employer and employee. Another great thing about tax treaties is that it allows immunity for this with a few countries.
4 Ways You Can Pay Your Overseas employees
Here are 4 ways you can pay your employees overseas:
1. Pay Them On Your Home Payroll
If you have a short project or assignment overseas then you might be able to keep your employee on the home payroll. Some countries allow this.
They’ll also have some special rules for remote payments. These may include some form of registration without the presence of a legal entity.
However, keep in mind that if you’re hiring a local then they’ll need to have a payroll in their country. This is for social security and tax purposes. Plus, they won’t have any presence or tax ID in your home country.
This option is for expats. If they are staying abroad and become tax residents in the long term, then you’ll have to deal with two separate tax systems.
2. Making Use of a Third Party or Local Partner
If you already have an existing business in a foreign country, then you can ask them to payroll your employees locally.
The third party takes on the role of the employer for payroll administration. Meanwhile, your company administers the salary through them for required contributions and withholding.
3. Outsourcing Payroll
You have two options if you’re choosing to outsource payroll – through a GEO service or a payroll provider.
GEO service offers a thorough solution that provides the local employer (which is you) a record. This record is incorporated and is in place to withhold taxes, hire, and payroll for your employee.
Meanwhile, payroll providers can’t work as a legal employer because they are mostly administrative. This is a limited option and doesn’t give you much room.
However, these two are better than a remote home payroll option because they help to avoid any non-compliance issues you might face.
4. Independent Contractors
This works perfectly for those projects or positions which are self-starting and don’t have tight control over the employee’s methods or time.
Such as, employees in sales who are working on commission can be hired as contractors or hourly specialists such as accountants or lawyers.
Conformity When You’re Paying Overseas Employees
Lastly, your topmost priority should be conformity with foreign employment, social security laws, and tax laws. It’s important to review all available options when it comes to both hiring and paying your employees overseas.
You may be tempted to take the easy way, but attempting a remote payroll might bring on unforeseen non-conformity issues. You may have to face fines, the imposition of local employment laws on account of the employee, and penalties.
This can be a bit problematic, setting up a payment method without any risk sounds near impossible, but it can be done.
You’ll have to keep in mind the foreign country’s statutory contributions, notice periods, leave, severance, justifiable termination, and labor laws as well.
So, it might be a good idea to find a final and foolproof employment solution and payroll.
Final Thoughts
In conclusion, we’d like to say that we hope the factors and options we discussed will help you find a way to pay your overseas employees.
Keep in mind the things you have to consider and make sure you’re not crossing any lines. It’s not an easy process, but once you find your balance and a foolproof system, you’ll be at ease and run your business smoothly.
Finally, if this has helped you in any way don’t forget to share our article and help out others who are struggling too!
