How to Pay International Employees?
The dynamics of work culture has evolved rapidly in recent times. Companies hire talents in other countries, permanently or temporarily. However, a lot of factors come into play when considering paying foreign employees overseas for the work done. Geographical differences also equate disparities in economic and financial sectors. As a result of organizations, especially companies in the United States, encounter difficulties in getting payroll sorted out and paying their employees who work in a foreign country. Labor laws, taxes and other foreign regulations come to play. To circumvent these difficult processes, find out more about how to pay your employees in other countries in a manner which is totally compliant with laws and regulatory requirements.
How Do US Employers Pay Employees Overseas?
People who work for US employers in other countries, have no fewer rights that US employees. For US companies with employees in foreign countries, preparing payroll in the US with accordance to the labor laws and regulations is not such a small task. This is to avoid violating their rights as it is easy to overlook certain pertinent details. How then can a US company fulfill its financial obligations towards its foreign employees? Salary paid to foreign employees can be done in couple of ways which will be explained below:
- Establishing a subsidiary
One way by which a US company /US employer can pay their staff in foreign shores is by establishing a subsidiary in such country. This is especially true in a case where the company/employer engages in multiple business operations in such foreign environment and has several employees to that effect. It may be a favorable option for large companies, especially the ones with the intent to spread their tentacles to other countries and have the necessary resources to do so. However, this may not be a viable option for small companies or business owners as establishing legal entities in foreign countries entails a lot of processes which cost time and money.
- Engaging the Services of a PEO
A PEO is a Professional Employer Organization that handles the HR responsibilities such as hiring, onboarding and payroll management, while ensuring that your company stays compliant with local laws and regulations. One major advantage of a PEO is that you as an employer, can outsource your responsibilities to them and you are rest assured that the salary paid to foreign employees done on time.
This is possible because PEOs have established entities in these countries and have the right resources to carry out these operations. Outsourcing payroll responsibilities is an efficient way for a US company to ensure that salary is paid to its foreign employees at the appropriate time. Such payroll will cover details such as basic salary, health insurance, tax deductions as well as other payments and will be arranged between the PEO and US company based on the company’s policies, labor regulations and employer-employee agreement.
- Paying through a Third-party Employer
A third-party employer acts as the employer of your employees in the foreign country. This third-party employer could be a business partner or a company affiliated with yours. Since it is a legal establishment in that country, US employers can arrange for their employees to be employed and listed in the payroll of the third party, just for payroll purposes. The US company gets to transfer the required salary and the third party pays the employees in the currency of the foreign country.
- Paying your Employees as Foreign Contractors
This form of payment is dependent on your relationship with your foreign employees. As earlier mentioned, employees can be hired temporarily or permanently. If this business agreement is one that is temporary, then you may want to consider treating them as foreign contractors and paying them as such. If they work on their own terms, hours and equipment, you should consider paying them as overseas contractors.
However, for a US company paying foreign contractors, this does not come without its challenges as it is a risky venture. There is the possibility of misclassification. One can be found to be violating certain laws by not paying overseas contractors as employees and not otherwise, possibly depriving them of certain rights such as insurance and not paying for overtime. To avoid this complication, it is necessary that the US employer understands the intricacies of the labor laws, taxes and regulations pertaining to that country. Other details that need to be known include working hours, working days, provision of safety guidelines, tax remissions, and so on. Some countries only permit employees to work for 44 hours per week. This varies from country to country. Having requisite knowledge of these details is important because misclassification is a punishable offense in most countries.
- E-payment Platforms
With the emergence of the global cashless policy which individuals and organizations are gravitating towards, as well as the impact of Covid-19 in recent times, the world has moved online and financial transactions are not left out. You can take advantage of various e-payment platforms such as PayPal and Stripe to pay your employees. A more recent advancement is Bitcoin, which is gradually becoming an acceptable means of payment. Selecting a suitable e-payment platform and understanding which countries they can reach will facilitate easy and speedy payment.
Tips on How to Pay International Employees
Conducting business in foreign markets is not without its challenges. As a US employer, your financial responsibilities towards your international employees include but are not limited to:
- Calculating salary and paying its equivalence in foreign currency
- Providing and ensuring safety guidelines
- Calculating and deducting income tax from employees’ pay
- Covering health and other forms of insurance
- Contributing pension quota
- Making provision for compensation in case of termination
- Ensuring that these payments are accurately calculated according to the requirements of the foreign country and are appropriately dispensed at the allotted time.
Executing these responsibilities will require expert advice and adequate preparation. The following tips, will help provide information on points to be subscribed to when paying your employees.
- The Regulatory Environment
It is of utmost importance that as a US employer, one understands the regulatory environment of the country in which you’re employing staff. These details include:
- Working hours and Time Zones: As these vary from country to country, it becomes necessary to know and keep them in mind. It is important to know how many working hours are required in the target country, both weekly and daily. This is to avoid overworking your staff without due payment. Understanding the time zones will also aid effective operations. This will enable your employee function optimally without intrusion.
- Payment Installment: Some countries require that their employees get paid for an extra month, thus bringing it to 13 instead of 12 months. Knowing if your target country requires such will facilitate effective payroll management.
- Benefits: You may be required to cover certain expenses of your employees such as transportation, vacations, dental care, maternity leave and so on in certain countries. In order not to violate these requirements, it is important to check to make adequate preparation for such.
- Taxes: The importance of this cannot be over-emphasized. It is necessary to know what percentage of your employees’ income is required in taxes by the regulatory body of that country. This also includes how and where to remit such payment. This will help to avoid issues with the local authorities. One can also conduct a background check to see if tax treaties exist between the US and such countries. The US has tax treaties with over 60 countries. Knowing which will help prevent your employee from paying double taxes and aid in payroll management.
- Currency/ Conversion Rates: In order not to underpay your staff or overpay as the case may be, it is important to stay abreast of currency fluctuations and exchange rates. This will help in accurate calculations of payments to be made.
- The Regulatory Bodies and Laws: Each county has established bodies that are responsible for issues relating to work ethics, tax deductions and so on. To know these bodies, their duties as well as requirements will facilitate the process of paying your overseas employee. It will also prevent noncompliance.
The tips listed above require adequate and thorough research to avoid violating policies and resulting litigation. In summary, it is necessary to bear these tips in mind. The process however may be time-consuming. Thus, your decision is based on the choice of payment mode you opt for.
- Payment Methods
Taking the above tips into consideration will help you determine a suitable and sustainable method of payment for your overseas employees. You can pay your foreign employees through any of these means:
- Outsourcing your HR responsibilities to a Professional Employer Organization(PEO)
- Working with a third-party employer such as a business partner or and affiliate in the target country
- Setting up a legal entity or branch of your company in the foreign country
- Paying your employees as overseas contractors, depending on the existing contract agreement.
- Selecting a suitable e-payment platform.
Most processes have gotten easier with the growth of technology. Financial transactions are automated in recent times. This automation process via tech will enable employers to calculate salaries for each cycle, as well as tax, insurance and even pension contributions. There are variety of available software. This will help in saving cost as well as time. Some help employees track paycheck and payroll, as well as whatever tax deductions are being made. This creates transparency and further fosters good working relationship between employer and employee.
In conclusion, these points should be put into consideration when hiring employees abroad. To mitigate risk of non-compliance and circumvent some of these difficult processes, WeHireGlobally is at your service. If you’re looking to hire an efficient international PEO company to cater for your HR needs, WeHG is your go-to. Save yourself time and money by taking advantage of our well-tailored operations in about 150 countries across the globe. Let us take care of your employees in a locally compliant manner.
FAQ Guide to Paying Employees Internationally
You can pay an international employee via various means such as hiring efficient international PEOs such as WeHireGlobally, establishing a subsidiary in the target country, liaising with a third-party employer, paying your employees as overseas contractors and taking advantage of e-payment platforms.
Yes, a US company can pay foreign employees. This can be done through various alternatives. Selecting a convenient option of payment is crucial as a business owner. However, any US company paying foreign contractors must be sure the model is compliant.
International employees do pay taxes. However, since taxes in the US are based on citizenship, physical location of work and residency, a non-US citizen working for a US company in a foreign environment is not subject to taxes in the US. Such employees will be subject to the tax regulations of the country he/she is in.