You've just hired a brilliant developer in Berlin, a marketing genius in São Paulo, and a customer success star in Singapore. Exciting, right?
But then reality hits: How exactly do you pay them?
International payroll processing isn't as simple as adding new names to your existing system. Every country has its own employment laws, tax regulations, and payment requirements. Get it wrong, and you could face hefty fines, unhappy employees, or both.
The good news is that with the right approach, you can build a compliant global payroll system that keeps your team happy and your business protected.
Key takeaways:
- Setting up international payroll requires establishing a legal presence in each country, whether through your own local entity or partnering with an Employer of Record.
- Understanding local payroll taxes, which can range from 21% in Germany to over 30% in Spain, is essential for accurate budgeting and compliance with local tax authorities.
- Payment frequency, currency requirements, and documentation standards vary significantly in different countries.
Step 1: Establish a Legal Local Presence
First, you need to be able to legally hire employees in any country where you're expanding and hiring.
One way is by opening a legal entity. This process includes registering your business with local authorities and obtaining tax IDs and Social Security registrations. The entire process can be time-consuming and costly, ranging from a few days and NZD 250 in New Zealand to over a month and thousands of euros in many Western European countries.
For example, when we estimated the cost of setting up a legal entity in Portugal, the total came out to around EUR 22,000. And that’s just for the initial setup costs, and doesn’t include potential legal and accounting fees, insurance, office costs, VAT, etc.
If that all sounds like more than you’d like to take on, there are other options. One is to hire contractors instead of employees — though this comes with misclassification risks.
Another is partnering with an Employer of Record (EOR) to act as the legal employer of your international employees. An EOR handles all HR responsibilities on your behalf while you maintain day-to-day management of your team.
Step 2: Learn Local Employment Laws & Tax Requirements
You'll need to know the tax rates and social contributions your company is responsible for and when to pay relevant tax authorities for every country where you hire.
Employer payroll taxes vary dramatically across countries. For example:
- Employers in North Macedonia pay nothing in employer taxes
- In Thailand the tax rate is 5-6%
- Spanish employers pay approximately 32% of gross wages for social insurance programs
Understanding these obligations is crucial — if you're calculating costs based on payroll taxes in the United States (around 12%, depending on state taxes), it can be a harsh dose of reality to discover your actual costs in Spain are almost three times higher.
Next, you must also understand the mandatory local statutory benefits (e.g., vacation, sick leave, healthcare), which differ in every country, and how they will impact payroll management. For instance, EU law requires a minimum of 20 paid vacation days, while the United States has no federal requirement.
Your HR team will need to learn and adhere to the local payroll cycles for each country. In some countries, it's common to pay weekly or bi-weekly, in others, it's monthly. For example, Austria's labor law mandates that wages are paid monthly, while employers are required to pay employees twice a month in the Philippines.
If you’d rather skip the need to learn multiple tax laws and pay schedules, you can work with an EOR, which will ensure compliance with local laws, taxes, and payroll cycles.
Step 3: Determine Proper Worker Classification
Employers need to take extra care to ensure workers are properly classified. Are they an employee — entitled to benefits and legal protections — or an independent contractor, responsible for handling their own taxes and benefits?
Many jurisdictions use multi-factor tests to determine a worker’s status. In the United States, California's ABC test requires that contractors be:
- Free from company control
- Perform work outside the company's core business
- Be engaged in an independent trade
If any criterion fails, the worker is legally considered an employee.
Getting it wrong can be expensive. For example, California can impose civil penalties of USD 5,000-25,000 per misclassified worker, plus back wages, benefits, and taxes.
There are steps you can take to structure contractor roles to ensure they aren't being treated as employees, but it can sometimes be a gray area, with laws differing by country.
One way to avoid accidental misclassification is by partnering with an EOR, which will ensure that all workers are properly classified as either contractors or employees.
Step 4: Open Local Banking Accounts
You'll also potentially need to open new bank accounts in order to pay employees in their local currency. That's because paying employees from a foreign bank account is illegal in certain countries.
For example, Croatian employers must pay their staff from domestic bank accounts, and Brazilian law prohibits paying employees in foreign currency — salaries must be paid in Brazilian Reals.
This means you'll likely need a business bank account in every country where your employees are based to process payroll efficiently and meet legal requirements.
Opening a local bank account typically requires establishing a legal entity in that country, along with documentation like tax registration numbers, proof of address, and corporate formation paperwork.
If you'd rather skip the hassle, you can work with an EOR, which will manage all employee and contractor payments.
Step 5: Choose a Global Payroll Setup Model
Next, you need to figure out how you plan to manage the logistics of running payroll for your workers.
- Will you handle payroll in-house with your own HR team? This gives you complete control but requires expertise in each country's regulations, significant time investment, and ongoing monitoring of legal changes.
- Partner with a local payroll provider? This reduces compliance risk but means managing multiple vendors across countries, which can become complex and costly as you scale.
- Utilize payroll software? Global payroll platforms can streamline processes, but still require you to have legal entities and maintain compliance knowledge for each jurisdiction.
Or, you can partner with an EOR to manage your international payroll operations. An EOR will manage all of this backend work for you, ensuring employees are paid accurately, on time, and in their own currency. The EOR will also manage all necessary tax withholdings for social program contributions.
Step 6: Set Up Ongoing Payroll Processes
There are lots of little details you'll need to manage when it comes to running payroll. In addition to choosing the correct payroll frequency, you’ll also need to consider the timing of when payments actually reach employees, since time zones, varying bank holidays, and international processing delays can all impact when the money reaches an employee.
Now it’s time to choose a payment method (Check? Direct deposit? Bank transfer? Digital wallet?) and what currency you'll pay employees in.
You'll also have to figure out how to manage currency conversions and exchange rate fluctuations to pay employees accurately, as well as determine the process for issuing payslips and tax documentation.
Good news: If you work with an EOR, they will tackle all those details for your company.
Step 7: Monitor Compliance and Stay Up-to-Date
After all of THAT, you'll also need to keep up with any local legislation and policy changes.
Tax rates, social contributions, and labor laws change frequently. For example, Germany typically updates social insurance contribution rates annually, while India began overhauling its entire labor code system in 2025. Missing these updates can result in penalties and the potential for unhappy employees.
Oh, and you need to ensure the safety of employee data, which is strictly regulated in certain countries, including those covered by GDPR. Violations of GDPR policies can result in fines up to EUR 20 million.
Or, you can partner with an EOR, since the EOR assumes all of the risk and maintains compliance with all local payroll regulations, including any updates. The EOR will also ensure compliance with relevant data privacy laws.
Don't Forget About 13th-Month Pay
Many countries, particularly in the LATAM region, mandate an additional annual salary payment known as 13th-month pay (aguinaldo), which needs to be paid by Christmas. Some go even further. For example, Guatemala and Honduras mandate both 13th and 14th-month payments, effectively increasing annual labor costs by approximately 16.7%.
In Europe, several countries, including Portugal, Greece, and Italy, require 13th-month or 13th and 14th-month pay, which are typically paid in June and November. Even where not legally required, many European employers provide these bonuses as standard practice.
These payments must be budgeted for and paid on specific dates. Mexico requires the Aguinaldo to be paid by December 20, while Panama splits its 13th-month pay into three installments throughout the year. Missing these deadlines can result in penalties and employee claims.
Manage International Payroll for Global Employees With RemoFirst
RemoFirst helps companies employ and manage a global workforce in 185+ countries, with pricing starting at just $199 per employee per month.
This includes ensuring compliance with all local employment laws and global payroll processing. We handle everything from calculating the correct payroll taxes to ensuring employees receive their mandatory 13th-month pay on time.
We also help create compliant contracts, onboard employees, ship equipment, manage employee benefits — including health insurance — and ensure all documentation meets local requirements.
Our platform processes payments in local currencies through compliant channels, manages varying payroll cycles, and stays on top of changing regulations.
With RemoFirst as your EOR partner, you can focus on growing your business while we handle the complexities of international payroll compliance, tax filings, and statutory benefits across every country where you have team members.
Ready to simplify your global payroll and ensure compliance across borders? Schedule a demo to see how RemoFirst can transform your international workforce management.
