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Can You Pay Your Overseas Employee Remotely?

When your company hires employees overseas the immediate question that comes up is how you are going to pay them.  This is not as simple as it first appears, and the solution is going to vary depending on the type of worker, the specific country and the length of employment.

Assuming that you don’t have a branch, office or registered entity to run payroll in the foreign country, then you may be considering paying them remotely from your home office.

But, is it really possible for you to pay overseas employees remotely?

Consider the following scenarios where you might want to pay an employee remotely:

– Hiring a foreign employee who will be working from home remotely

Example: Your US company hires a technology specialist in France for a full-time remote position

– Sending an employee from home on a six-month project abroad

Example: Your UK construction company sends a project manager to Chile to oversee the start of a new development

– Building a remote team based on skills rather than location

Example: In order to access talent outside its borders, your Hong Kong company builds a remote team across Asia

– In order to expand into a new market, you are contracting local marketing and sales reps

In each of these cases, the temptation is to just pay the employees remotely from your home payroll and treat them as though they are actually working out of your location.  This can work for temporary foreign assignments of home country employees, but for longer engagements you may need a different solution.

The challenge that comes up is that once you hire a resident employee in a foreign country, is that you are now accountable in two different tax and payroll systems. You already know how to comply with your home country laws for your employees, but how do you meet foreign regulations if you are new to hiring in the host country? Here are the factors you will need to consider when paying overseas employers.

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3 Factors to Consider When Deciding How to Pay an Overseas Employee

There are a few factors that will play into the decision of how to pay the employee:

1. Type of worker (remote employee or contractor)

The use of contractors is on the rise, and it does seem to present an easy remedy to the international payroll issue because they are self-employed, and it is more of a B2B arrangement.  But the problem is the risk of misclassification, where their own country actually views them as your employee based on how you structure and manage their work.

In contrast, formal employees (locals and expats alike) are entitled to a full range of benefits and labor protections in the host country, and those can’t just be ignored.  At some point, you will need to find a way to comply and meet local regulations.

2. Currency

Fluctuations in currency can affect a foreign employee’s net pay, so you may have to fix the salary in their home currency.  Another option is to have some type of currency exchange agreement to offset fluctuations in either direction, if for example an employee is paid in your home currency but is paying their expenses in another currency.

3. Tax and Social security

Employees who are residents in the host country will pay tax and social security just like any employed citizen, at statutory income tax rates.  Those amounts will need to be calculated correctly and withheld in the payslip. Home country employees on assignment abroad will usually have to pay tax in the foreign location, but your company may also have to withhold tax at home. Tax residency for expats is usually triggered when any stay exceeds six months To avoid double taxation, you will need to look into tax treaties between the two countries. Equally, the home and host countries will want to have social security contributions paid by both the employer and employee.  Tax treaties also allow exemptions for this with some countries.

How can you pay your overseas employees remotely?

You have four basic options to pay your overseas employees:

1. Pay the employee on your home country payroll

For short assignments or projects overseas, you may be able to keep the employee on the home payroll.  Some countries do permit this and will have special rules for remote payment, which could include some type of registration without the need for a legal entity.

But, if you are hiring a local they will need to have a payroll in their own country for tax and social security purposes, and they won’t have a tax id or presence in your home country regardless. It may be possible for expats, but then you have to deal with two separate tax systems if they are staying abroad long term and become tax residents.

2. Ask a local partner or third party company to place them on their payroll

If your company has existing business relationships in the foreign country, then you could ask them to payroll your employee locally.  The third party becomes the ‘employer’ for payroll administration, and your company remits the salary through them for withholding and required contributions.

3. Outsource payroll to handle your remote employee

There are two ways to do this, either through a payroll provider or a GEO service.  Payroll providers are really only administrative, and cannot function as a legal employer, so that is a limited option.  The GEO is a more complete solution, that offers a local employer of record that is already incorporated and in place to hire, payroll and withhold taxes for your employee.  This is far preferable to the remote home payroll option, and avoids non-compliance issues altogether.

4. Pay them as independent contractors

This can work well for certain types of positions or projects that are more self-starting and where the company does not exert control over the worker’s time or methods.  For example, sales people working on commission could be safely hired as contractors, as well as hourly specialists such as lawyers or accountants.

Compliance When Paying Overseas Employees

When you are reviewing these options for hiring and paying employees overseas, your priority should be compliance with foreign tax, employment and social security laws. Primary compliance concerns include:

  • Offering employees all statutory entitlements
  • Following labor laws on notice periods, just termination and severance
  • Making correct employer social contributions
  • Avoiding misclassification penalties if hiring contractors
  • Taking the easy route of attempting a remote payroll

Shield GEO Solution

If you are facing the task of finding a way to pay overseas workers, you can see just how problematic it can be.  So, the question is how do you set up payments if you don’t want to take the risk of running a remote payroll from home?

Even if you find a legal way to pay your employee remotely, you are still subject to the foreign country’s labor laws, including statutory contributions, leave, notice periods, justifiable termination and severance.  So, in the end it is better to find a more complete payroll and employment solution.

Shield GEO offers a comprehensive international employment solution for our clients in over 50 different countries, and we can help you find the optimal way to payroll and employ your staff overseas.

Looking to pay your overseas employee remotely? Get in touch.

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