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The 101 Guide to Remote Payroll
Martha Torices
November 22, 2022

The 101 Guide to Remote Payroll

Sourcing top-tier global talent is the first step toward building a strong team and getting the right employees for your specific needs. A flexible company that embraces talents from all over the world has a competitive advantage over those that only hire locally.

However, managing international workers can be challenging, especially when it comes to payroll and taxes. You must accurately pay employees in their respective currencies, protect their sensitive data, and stay up-to-date on compliance requirements.

To stay ahead of these challenges, it's critical to get a remote payroll solution to help you manage payroll and taxes for the entire international workforce. This guide aims to help you navigate the remote payroll and reveal the best solution to help you manage it efficiently and compliantly.

Types of Remote Workers

There are three major categories of remote workers based on their relationship with the employers. Each of these categories has different requirements in terms of tax payment and benefits offered. Let's look at how they work.

  • Full-time remote worker: Works like any other full-time employee and receives the same benefits like healthcare and allowances. Sometimes the company hiring them may have to open a physical branch in their location, which must comply with the local laws. Here, the employer withholds and pays income and taxes.
  • Sole-proprietorship remote worker: One of the most straightforward ways to hire remote employees. Here, employees establish their own company, offer services to their employer in another country, and issue an invoice. The main challenge of this category is setting up a company, as it can be very costly in some countries. It is also the responsibility of the company to pay taxes.
  • Contractor: This is a remote worker that works on a project-to-project basis. They can be paid per hour or per project based on the agreement. Most companies seeking to hire employees from other countries prefer contractors as this saves them from dealing with taxes. Contractors are responsible for paying their taxes.

Note that the US and most other countries have strict rules on when a worker should be classified as a contractor or a full-time remote worker. You could pay some huge penalties if you misclassify an employee.

So, choosing the right relationship with your employee requires researching and understanding a company's rules and regulations. A good example is California's Assembly Bill 5 (AB5), which made it harder for employers to classify remote workers as contractors.

Understanding Remote Payroll Requirements

A remote payroll should build a strategy-based policy based on five factors:

  • Laws
  • Currencies
  • Taxes
  • Withholdings
  • Pay frequency

When you run a company in the US, for instance, you will be responsible for paying the state and federal taxes related to having international workers. Although the taxes vary by state, in most cases, they include unemployment insurance taxes, workers' compensation insurance, and temporary disability insurance.

If the leading company is based in the US and there are branches in other countries, you will pay these taxes to their government. They prove employment compliance, offer social security benefits and provide unemployment protection.

As an employer in a foreign country, the government requires you to meet the same obligations as any other employer. That means you cannot put all the remote workers under your payroll. Every country requires you to put employees on their domestic payroll for an equal footing, which can be overwhelming.

In a country like Portugal, you must comply with tax laws, including income tax, VAT, social security costs, corporate taxes, and withholding tax. In most cases, you will be required to withhold taxes in the country or state where your remote worker comes from. For example, if your company is located in Georgia and your employee works from Michigan, you will pay state unemployment tax and withhold income tax in Michigan.

The best approach is to consult an expert before hiring any global talent to stay compliant with all taxes relating to remote payroll.

How to Pay Remote Workers Based on their Country's Laws

The salary, overtime pay, and pay frequency laws vary in every country. Before deciding how much you should pay your remote employees, you must research the country's laws thoroughly. Ensure you learn about their cost of living, the salary range for the specific skill set, working hours, and overtime.

For instance, the weekly working hours in Portugal are capped at 40. If an employee works at night or on weekends, they need to be paid double the hourly rate. In France, the weekly working hours are capped at 35. There should be an increased rate for any additional hours worked by an employee.

When deciding the monthly salary, you should also consider other factors such as whether the employee will be working from home or they will be traveling to an office. Another essential factor to consider is the payment frequency for each country. In the Netherlands, you only need to pay employees at least once per month. However, some states in the US demand employee payment at least twice a month.

Understanding the laws of each country can be overwhelming, especially if you have workers from many different countries. But with an effective remote hiring solution, you can manage employees from over 100 countries hassle-free.

Paying Employees and Handling Currency Exchange

The currency exchange rate can cause fluctuations in the salaries of your remote workers. Your aim as an employer is to ensure that all employees, both local and international, are paid fairly. It is best to ensure that they are not worried about the amount they will receive in the next month.

Luckily, it is possible to pay remote workers the same amount in their currency every month by investing in an Employer of Record (EOR). It allows you to receive one invoice from your entire global workforce regardless of their location. You will pay this in one currency, but the amount will vary each month due to the fluctuations in the currency.

This solution saves you the headache of having to calculate and convert currencies every time you are making payments. It also gives you a perfect opportunity to hire remote workers from many countries.

Ensuring Privacy and Data Security for your Remote Workers

Ensuring that the sensitive data of your remote employees remains secure is very critical. It is one way of complying with international data transfer laws. For example, all companies in the European Union must comply with the 2018 General Data Protection Regulation (GDPR). This is a legal framework that provides guidelines on how the personal data of people living in the European Union should be handled.

You can keep both your company's and employees' personal data through the use of encryption technology. It ensures that such information is free from access by unauthorized parties. But every country has laws and regulations regarding data security, and knowing what each country requires can be a lot of work.

With a remote payroll solution, you don't have to worry about all these because it ensures you comply with the laws of every country.

What are the Pros and Cons of a Remote Payroll?

Pros

  • Helps you attract the best talents for your company from all over the world.
  • Provides a perfect chance to take advantage of diverse, unique skill sets that may not be available in your region.
  • Gives you a competitive advantage against your competitors, especially those hiring just within their vicinity.
  • No need for office space since most remote employees work from home.
  • Cost-effective since some employees come from countries with a lower cost of living, meaning their minimum monthly payment is lower.
  • You don't need to spend much time and money setting up a subsidiary.

Cons

  • Need to understand the labor laws and the foreign tax structures.
  • Changes in tax structures and compliance.
  • Need to manage remote compensation levels across many countries.
  • Working with multiple currencies.
  • Global bank transfer fees can be expensive.
  • Heavy fines if your company is not in compliance.
  • Some country’s laws only allow local employment contracts.

Overcome Every Remote Payroll Challenge with a Single Solution

Streamlining global employee management can be challenging, especially if you decide to align HR, legal, and IT on your own. Partnering with a remote payroll service provider covers everything, including:

  • Ensuring employment compliance by meeting the requirements of every country regarding salary, taxes, benefits, and more.
  • Offering a single payment source for employees from different countries. This ensures that you only make a single monthly payment in one currency, regardless of how many global employees you have.
  • Providing accurate and timely payments to the employees, along with customer support where they can ask any questions regarding their paycheck.
  • Ensuring maximum data security for the company and employee personal information. They achieve this by staying on top of changing global standards and utilizing industry-leading privacy practices.

With the rise of global remote work, there are so many opportunities to hire great talent from anywhere in the world. You can hire and manage employees in other countries in an affordable way via an Employer of Record (EOR) like Remofirst.

The Key Take Away

There are many benefits to outsourcing international payroll — you have a team of experts who can handle all the administrative tasks involved in processing your payroll, leaving you to focus on running your company.

Want to learn more about how to hire and manage a global team with an easy-to-use HRIS platform? Request a demo today to learn how Remofirst can help you easily manage your global remote payroll system.