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), 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, expand the section below for a look at our top picks.
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We’ve found that Papaya Global is the best overall option for international payroll services, but in case another provider may be a better fit for you, we’ve provided a few other great options in the table below.
Starter Monthly Pricing for Global Payroll*
Starter Monthly Pricing for EOR**
Special Contractor Management Plan
Onboarding or Setup Fees
$12 per employee
$650 per employee
$30 per employee per month
(Call for a quote)
$599 per employee***
$20 per employee per month***
$599 per employee
Starts at $49 per employee per month
$699 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
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
*Pricing is based on a quote we received
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:
- 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 Business to Run International Payroll
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.
- Check for foreign employer exceptions: Check out host country workarounds that have foreign employer exceptions. According to the Society of Human Resource Management (SHRM), the UK and Thailand will allow you to hire and pay local workers without being required to make local withholdings or contributions.
- 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.
If you don’t have an office space in their host country, consider using Papaya Global’s time and attendance tracking feature.
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 adviser 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.
Tip: Learn about your employee’s country’s laws so that you can offer employees some recommendations and resources to help them stay out of tax trouble. You may start by researching the type of tax system the host countries are using.
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. An employers 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.
They’ll also handle all of your payroll processing and legal compliance legwork, so you don’t have to worry about it. They may cost a lot, though—sometimes 15% to more than 25% of your payroll.
You can also find some international payroll providers like Papaya Global that make it easy for you to offer insurance—health insurance, 401(k), and commuter benefits. 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 International Workers
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. If you’re using an international payroll provider, like Papaya Global, it should offer money transfer services as part of its payroll plans.
Another way to transfer money to your employees is by sending international ACH payments. However, take note that the Federal Reserve will only allow you to transmit funds to 33 countries, as of August 2020. (We will provide further updates as they come.)
You can also open a central bank account overseas, fund it each month, and pay employees directly from the account. This is a must in countries where you are required to remit funds for payroll taxes via local bank accounts.
The difference in currencies is another issue you’re likely to deal with when paying international employees. Keep in mind that when paying workers, consider increasing their pay rate to account for fluctuations, if possible.
Step 8. Do Research on 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
If you want to learn more about payroll before expanding into foreign markets, check out our how to do payroll e-book.
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. Either way, we recommend you consult a legal professional or an international payroll service like Papaya Global to help you.