How to do Payroll for an International Business

Thanks to the advancements in technology, many businesses can now operate without being limited by national borders. As the lines between international borders become blurred, it’s becoming more and more difficult to manage the HR compliance of businesses and keep up with all the different laws and regulations that need to be met in different countries.

One of the most important, but also the most difficult elements of running an international business is global payroll. While it can be tricky at times, there are some excellent guidelines you can follow to make sure that you get international payroll right!

Keep reading to find out more about how to do payroll for an international business. We’ll also be looking at some off-the-shelf solutions that your business can invest in to save crucial time, effort, and money for your entire business.

Understand Payroll

The first step to getting started with payroll for an international business is understanding what payroll is and why it’s important. In short, payroll processing constitutes the money that a business is obligated to pay to its employees for a given period. While it might seem straightforward, payroll is affected by several factors:

  • Revenue
  • Expenses
  • Tax liabilities
  • Employee type

Traditionally, payroll has been handled internally by the HR department. However, as your business expands internationally and grows in size, it becomes increasingly difficult to keep payroll processes under control — which makes it much better to outsource payroll to a third-party organization.

To set up payroll for an employee, the business needs to input the employee’s account details, contract, and tax compliance into the payroll account. The payroll account then distributes the employee’s payment (via direct deposit or check) based on the amount and dispersal date in the employee’s contact.

Read up on International Laws and Regulations

Perhaps one of the most challenging and time-consuming parts of international growth is keeping up with the laws and regulations of other countries. It can be difficult enough to ensure that your business complies with every law and regulation in your home country. Still, if you’re growing your business across borders, you also need to look up international laws and make sure that you comply with them. To set up international payroll systems, you need to make sure to check in on the following elements for each country:

  • Employees’ country tax system – Tax systems vary by country, and it’s important to ensure that the employees you hire always remain tax compliant. Some countries like Qatar don’t tax local and foreign incomes, but other countries, like the United States, do require their citizens to be taxed. Many other countries tax local incomes while abstaining from taxing foreign incomes. Understanding your employees’ home income tax codes is crucial when it comes to setting up your payroll system. You also need to ensure that appropriate tax forms are completed in a timely fashion to avoid any difficulties.
  • Exemptions In some countries, foreign employers are exempt from taxes, pensions, and contributions. Businesses that have employees in these tax havens will have a big financial advantage.
  • Registration requirements Every country is unique in this regard. For example, to set up your payroll process in the United States, you must first register your business. However, some countries only require you to register your payroll. 
  • Minimum wage – If your business employs minimum wage workers, you need to understand the minimum wage laws of your international employees’ countries. Every country has a vastly different going rate for minimum wage, so you can’t simply offer the minimum wage in your home country. 
  • Holidays – If your business offers public holidays off, or overtime/bonus pay, you’ll need to get an idea of the holidays in your employees’ countries for payroll and operational purposes. For example, while February 11 might not be an important date in the United States, it’s National Foundation Day in Japan. As a result, your business’s Japanese employees might expect time off, or bonus pays for working on their public holiday.

Setup International Payroll

With the basics of payroll in mind, it’s time to get your global payroll system up and running so you can start your international expansion. Here are the most important elements to keep in mind:

  • Employee types – There are different types of employees and each of these has a different role, contract, payment type, and payment method. Between full-time, part-time, freelance, contractors, temporary, and seasonal employees, you need to make sure that you understand the difference between each of them and pay them accordingly.
  • Pay cycles – Pay cycles will vary all across the world. Some countries pay their employees on the 25th of each month whereas others might pay on the 10th or the last day of the month. There are also weekly and bi-weekly payment cycles to consider. Whichever pay cycle you choose to use for your employees, you need to ensure that your payroll has enough funds to pay your employees on their specified pay dates.
  • Employee benefits – If your business offers various benefits to domestic employees, you need to make sure that international employees receive the same treatment. Keep in mind though that while something may be considered a benefit in your home country (such as healthcare), it might be a standard in a foreign country.
  • Payment methods – Technology has provided our businesses with a multitude of different payment methods that can be used to pay employees. From wallets such as PayPal to direct deposits into bank accounts.

Use a Global Payroll Provider like Playroll

Running an international business is incredibly challenging. Your entire team has a lot on their plate. Having to focus on payroll and HR can make their jobs even more difficult. Moreover, they’ll be spending valuable time and effort on other employees where they could be working towards generating more profit for your business instead.

Hiring more employees to handle the international payroll processes is not necessarily a viable option either. You’re going to be spending more money paying HR salaries when you’re already on the lookout for international employees to add to your team.

Instead, you can partner with an employer of record such as Playroll. Global payroll services will do all the hard work for you, keeping your business compliant wherever you might be hiring. This gives you and your team more time to focus on the tasks that matter most.

John Harper

#1 File Information bestselling author John Harper loves to dispel the myth that smart men & women don’t read (or write) romance, and if you watch reruns of the game show The Weakest Link you might just catch him winning the $77,000 jackpot. In 2021, Netflix will premiere Bridgerton, based on his popular series of novels about the Why Files.

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