Expanding operations overseas can be a complex process, especially when dealing with international payroll and taxes. For instance, you’ll need to decide if your business is establishing an in-country presence where your employees will be working and what types of overseas employees you’ll be handling.
These determine what payroll laws apply (both in the US and outside of it) when paying international employees, including any payroll taxes employees owe, any currency translation you may have to perform, and acceptable payment methods. You must also decide whether you will use a domestic or global payroll provider to handle your employees’ pay and benefits across countries.
Use these eight steps as a guide on how to pay international employees—or, if you prefer a payroll service to handle most of the heavy lifting, check our comparison of the top international payroll services.
Step 1. Consider the Type of International Workers on Your Payroll
To establish the best payroll process for your business, first, evaluate the type of international workers you have or need and then determine whether you are handling remote employees or contractors.
Are your employees:
- Temporary workers?
- Existing employees who recently moved overseas?
- Native international employees hired to do work strictly for a US company?
- Native international employees hired to work at an international branch of a US-based company?
Step 2. Set Up Your Global Employer Status
Once you do a complete evaluation of the type of international workers you’ll have on staff, you can better assess how you need to set up your global employer status.
- Do in-country payroll: Establish a presence in your employees’ host country by registering and applying for a tax ID number. You’ll have to withhold and pay money for taxes, Social Security, and other required payroll expenses per the host country’s law.
- Partner with an in-country affiliate: This involves working with a company that’s already registered in the employee’s host country. It’ll add the employee to its payroll and pay them accordingly; in turn, you’ll pay the affiliate the total payroll amount and usually an additional fee for using their resources.
- Register in-country as payroll-only: Some countries offer an alternative option that will allow you to register solely for payroll purposes without having to go through the tedious process of establishing your business there. You will be able to process local payroll legally but will still need to deal with local tax and social security payments.
- Add employee to home-country payroll: This is as simple as adding a new domestic employee to your payroll. However, it’s usually done if an employee is transferring overseas for a short period. If they stay too long (check local laws), their place of employment will shift to that country, and you’ll have to find another way to process their payroll.
Remember, the options you have when it comes to running payroll for international employees depend on the type of workers you have and the circumstances surrounding their employment.
Step 3. Choose a Pay Cycle
As you do when paying domestic employees, you need to choose a pay period to govern how often you’ll pay your international workers. If you have both domestic and global payroll, you may opt to align the pay periods. The most common ones are semimonthly (twice a month) and biweekly (every two weeks), although some companies pay employees monthly.
When choosing precise pay dates, consider making the last payday for the month at least a week before month-end. This allows time for processing and payments to be cut before the next month begins, simplifying accounting.
If you’re required to comply with a foreign country’s labor laws, be sure to check if there is guidance on how often you should pay each employee. You don’t want to be found paying each employee monthly when their local labor laws require you to pay them at least biweekly.
Step 4. Track Work Hours
You’ll need an effective way to track employee work time if you’re paying any employees on an hourly basis. This could be a simple spreadsheet with all hours logged. Or, you could use a more technologically advanced method, such as time and attendance software or a project workflow system—check our roundups of the best time and attendance software or top-recommended project workflow system for some options.
Whatever way you decide to track employee hours, make sure you are keeping accurate records. This will ensure your payroll records match the employee’s entered hours and safeguard your company against any legal implications.
Step 5. Familiarize Yourself With Taxes on International Payroll
Taxes are a large part of what makes payroll complicated. Many countries have similar taxes as the US, although they may have different names. Income taxes are standard on a national, regional, and sometimes local level. If you’re required to withhold taxes for employees, be sure you have a good grasp of how the tax system works. Some have a few flat rates based on income brackets, progressive rates (like the US), a single flat rate, or even regressive tax rates.
Many countries require their employees to contribute to Social Security and pension funds. You’ll have to know which agencies need to be paid so that you can send the money accordingly. Your business may also be responsible for paying payroll taxes on the income an employee earns. We strongly recommend you speak with an international tax advisor or payroll provider before proceeding.
Meanwhile, those with international independent contractors likely won’t be responsible for handling any tax withholdings or benefit deductions. The contractor usually has to register themselves as a business and pay taxes per their country’s guidelines—meaning that it’s unlikely for any errors to fall back on your business.
Step 6. Decide on Employee Benefits to Offer Global Workers
Determine whether you want to offer employee benefits like life and health insurance. If so, you’ll need to find a provider that can offer you decent rates. Check our guide to global employee benefits for some inspiration on what to offer employees.
An employer of record (EoR) is great for companies that want to offer their international employees the best rates since it pools employees from all businesses they represent to drive down costs. It will also handle all of your payroll processing and legal payroll compliance legwork, so you don’t have to worry about it. It may cost a lot, though—sometimes 15% to more than 25% of your payroll.
You can also find some international payroll providers that make it easy for you to offer insurance—health insurance, 401(k), and commuter benefits (see our provider comparison table below). You’ll also have to ensure employee contributions and any funds you agree to pay are credited to the benefits provider.
Step 7. Choose How to Pay Foreign Employees
Aside from taxes, how you’ll pay your workers is probably one of the most important issues. They’re overseas, so cutting a paper check won’t work. You also will not be able to provide direct deposit services through traditional payroll providers, as funds typically must be deposited to a US bank account.
There are, however, still ways to send international payroll payments.
Step 8. Research International Payroll Laws
Payroll laws vary depending on the countries in which your employees live. We can’t possibly cover all of the circumstances and potential situations that will determine the laws applicable to your business. Instead, here’s a list of common topics you should research for each country in which your employees reside (if you’re required to comply with their laws) in case it impacts your payroll:
- Minimum wage
- Overtime limits and pay
- Annual leave
- Employment contract laws
- Social Security programs
- Pension contribution requirements
- Taxes
Best International Payroll Services Compared
We’ve found that Papaya Global is the best overall option for international payroll services based on its price and features. Papaya Global allows you to process and pay employees by direct deposit in over 160 countries. It also acts as an agent on record to provide all payroll and HR compliance services.
However, another provider, such as Rippling or Deel, could be a better fit for you. We’ve provided a few great options in the table below and compared them by cost.
Starter Monthly Pricing for Global Payroll* | Starter Monthly Pricing for EOR** | Special Contractor Management Plan | Onboarding or Setup Fees | ||
|---|---|---|---|---|---|
 | $25 per employee for global payroll | $599 per employee | $30 per employee monthly | Onboarding fees (Call for a quote) | |
 | $599 per employee*** | $20 per employee monthly*** | ✕ | ||
 | Custom-priced | $599 per employee | Starts at $49 per employee monthly | ✕ | |
 | Custom-priced | $599 per employee | $29 per contractor monthly | ✕ | |
 | ✕ | $599 per employee | Starts at $29 per worker monthly | ✕ | |
 | Starts at $20 per employee | $400 per employee | $40 per worker monthly | ✕ | |
 | Custom-priced | Custom-priced | Starts at $49 per contractor monthly | ✓ (Setup fees included in quote) | |
*Global payroll only includes pay processing tools **EOR covers international hiring and payroll services ***Pricing is based on a quote we received | |||||
You can also learn more about how some of the above providers compare in our best employer of record services guide. Or, visit our versus articles below:
Frequently Asked Questions (FAQs)
Yes. For hiring and paying international employees, you must either set up your company as an entity in that country or hire an employer-of-record to handle your affairs.
Federal employment laws, including provisions of the Fair Labor Standards Act (FLSA) which govern minimum wage and overtime laws, generally only apply to employees in the United States. However, the following does apply to employees in other countries, as well as the US – Title VII of the Civil Rights Act and the Age Discrimination in Employment Act (ADEA).
Bottom Line
Learning how to pay international employees is tricky and depends on different factors, like the circumstances surrounding your entry overseas and the country you’re planning to expand into. Ultimately, you need to figure out if your situation will warrant that you comply with your employees’ host country’s laws or if you can legally bypass the complexity.
