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How to Pay Your Foreign Employee: A Guide for UK Employers

The emerging trend of hiring employees overseas brings with it the complexity of international payroll.  You could find yourself interacting with two different payroll and tax regimes, both at home in the UK and in the host country, depending on the tax residency of the employee.  That is the main point to remember: tax and employment laws are primarily triggered by the residency and work location of the employee, not your UK company.

The Difference Between Employees on Assignment and Foreign Employees

Most HR departments in UK multinationals are used to dealing with assigning UK employees from home, and setting employment up in the foreign destination.  In those cases, employees may have payroll and tax obligations both in the UK and the host country.

But what is the process when you are hiring a foreign employee, for either remote work or to staff a local office?

How do you pay them and make sure that you meet compliance in both the UK and the foreign country?

As residents of the foreign country how do you know what employment laws must be followed in their own country?

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Can put your overseas employee on your UK payroll?

The first question you may have is whether a foreign employee can be put on your UK payroll.  It seems like it would be the simple solution to just include them along with the rest of your home employees.

But, if you consider a scenario where the foreign employee has never worked or lived in the UK, then there is really no reason to try to put them on your UK payroll.  They are not liable for UK taxes, can’t benefit from UK social security contributions, and won’t have a registered tax id number.  The foreign employee’s lack of a presence in the UK creates barriers to using the UK payroll.

The only caveat to this would be if the employee works in the UK a significant amount of time for your company, however short visits on a business visa for meetings or trainings would not bring tax residency.  This means that you are going to need a foreign payroll to take care of local tax and employment obligations in the foreign country.

Case 1: Paying your US employee from the UK

A frequent situation is where a UK company hires a US employee to do work solely in the US.

Can you put your US employee on your UK payroll?

Once again, since they are not UK residents there is no reason to put them on your UK payroll or deduct taxes.  Even if you remit their gross salary without deductions through your UK payroll, you still have to set up a payroll in the US for tax withholding.

What are the employer obligations home and host country?

To set up payroll you will need a legal entity in the US, or use a GEO service to payroll and employ your worker, as well as make all required withholding.  You won’t have any obligations in the UK for the US employee.

What about social security?

As a US citizen, your employee is required to pay a percentage of salary for social security and Medicare each month, so that will have to be withheld in the US payroll to meet compliance.  Social security payments in the UK are not required for a US employee, even if the employer is based in the UK.

Case 2: Paying your Singapore employee from the UK

What if you are paying a Singapore employee from the UK?

Can you put your Singapore employee on your UK payroll?

The answer is the same for Singapore as it is for the US, you can’t put a Singapore employee on your UK payroll if they are not working in the UK, or are not former residents of the UK. 

What are the employer obligations home and host country?

There is no PAYE system for tax deductions in Singapore, but the employer still has to run a local payroll through a legal entity.  The employee is responsible for paying and filing their own taxes.

What about social security?

As Singapore residents, they will need to make social security contributions to the Central Provident Fund, and those will be withheld by the local employer from the Singapore payroll each month. 

Shield GEO Solution

When your UK company is hiring foreign employees, most of your compliance obligations are in the worker’s country.  So, how do you go about running a foreign payroll and making all of the tax withholding and social contributions?

Short of setting up your own branch or legal entity, you will need to rely on a third party that already has a presence in the foreign country, and that is exactly what Shield GEO can do for you.  We have employers of record in both the US and Singapore that can put your employees on the payroll, with the support of our in-country experts to ensure compliance. 

Our local employer deals with host country payroll and tax laws every day, so that you can have peace of mind knowing that your foreign employees are supported in their own country.  We make international employment simple.

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