How to set up and manage remote payroll

Remote work is disrupting the world of work in many different ways. Employees embrace the newly gained freedom and flexibility to move away from urban centers or even relocate to different countries. Meanwhile businesses have long since understood that they now have access to a global talent pool which allows them to find and hire the best candidates for their open roles. 

But while hiring talent globally comes with many benefits, it also creates new complexities, especially when it comes to payroll. Every country has its own tax system with different rules for taxes and deductions. The legal requirements on how often to pay employees and which benefits to provide differ from one jurisdiction to the next. Employees based overseas need to be paid in foreign currencies and benefits. And the list goes on and on.

So, how can businesses overcome all these challenges and successfully manage payroll for their remote employees who are spread across the globe? Read on as we dive into remote payroll solutions and payroll management tips for globally distributed organizations. 

Remote payroll refers to a payroll set-up that allows an organization to process payroll for their global team while respecting the payroll laws and requirements of every country where they have employees. In this context, the term is often used synonymously to global payroll or international payroll. 

Being able to process payroll for remote employees regardless of their location is crucial for organizations that want to hire talent across the world and give their team members the flexibility they need to live and work from anywhere. In other words, if businesses want to unlock the benefits of a global workforce, they need to find a way to manage payroll across different countries, which isn’t without challenges.

Processing payroll for remote teams whose members are distributed all over the globe adds an additional layer of complexity to the payroll process. Here are some of the challenges global organizations should prepare for.

Dealing with different tax rules, payroll laws and foreign authorities

The main challenge organizations with a remote payroll will face is navigating the different tax rules and payroll regulations that apply in every country. In order to ensure global payroll compliance, the business’s payroll operations must be in line with the local requirements and laws in every single country. 

This includes making sure to choose the right pay period, respecting compensation laws concerning minimum wages and overtime pay, and more. Plus, every jurisdiction has its own tax and social security authorities with which the business must liaise to set up their local payroll and fulfill monthly payroll obligations.

Making sure taxes and contributions are paid on time (everywhere)

Calculating gross and net pay is a key part of the payroll process and crucial for paying remote employees correctly. But what happens after the deductions have been made is equally important. In most jurisdictions (one exception is Switzerland), employers are responsible for reporting and remitting withheld taxes and social security contributions to the respective authorities. 

What’s more, they have to do so according to country-specific deadlines, and the payment often has to be accompanied by a matching declaration. The more countries an organization covers with its remote payroll, the more difficult it gets to keep track of all the different deadlines and avoid fines for late payments. Businesses should therefore work out a payroll and compliance calendar where important deadlines for all payroll countries are consolidated. 

Processing payroll across different time zones

Working with a globally distributed team means working across different time zones, and although asynchronous communication can help companies solve this problem in many areas, payroll is none of them. Whether it’s communicating with a local payroll service provider to correct a payroll mistake or reaching out to remote employees overseas to get them to hand in their timesheets on time, having to wait for a reply when time is pressing to wrap up the pending payroll run or to solve an issue is no fun. 

Setting salaries for remote employees 

Deciding how much to pay remote workers may not be part of the payroll process as such, but since the main point in processing payroll is to get everyone paid, setting salaries for remote workers definitely is a point worth mentioning. Businesses working with remote employees based in different regions, states or countries have to keep in mind that the cost of living differs from one location to the next, which is a valid argument in favor of location-based pay. 

However, others might argue that pay equity in remote teams means paying employees in similar roles the exact same salary, regardless of their location. And then there is the fact that, due to the different tax rates and social security levies applicable in different countries, an employee’s net salary could be quite different to the one of his or her colleagues although they all receive the same gross salary.

Paying employees in different countries and in multiple currencies

The most crucial moment in payroll is the payment of employee salaries and wages. While this is usually the easiest part of the payroll process for businesses with a local workforce, paying employees can become difficult with a remote payroll. When paying remote employees who are based abroad, relying on SWIFT payments simply isn’t an option because they take too long, transaction fees are high and the FX fees only add another minus to the equation. Not to mention that managing payments in many different currencies creates additional work for the payroll department. 

There basically are three different options when it comes to remote payroll management—four if we include the use of a global employment solution. Organizations with a globally distributed team of remote workers can either choose to process their remote payroll in-house, outsource it to local payroll providers, choose a hybrid approach, or hire employees with an Employer of Record and have the EOR process payroll. Let’s look at each of these approaches in more detail. 

Processing remote payroll in-house

Under this model, the business keeps payroll operations for its entire global workforce in-house, which means that the internal payroll team is charged with processing various country payrolls every month. Depending on the business’s global footprint and the number of already established foreign legal entities, an in-house remote payroll strategy can either take on the form of centralized or decentralized payroll.

While managing all payroll processes internally allows businesses to save money (compared to paying external service providers), it also means a lot of work for the internal payroll team who then has to find a way to navigate different tax systems and to comply with different countries’ payroll laws and regulations. Without the right resources and a good understanding of the local requirements, the compliance risks associated with this remote payroll management strategy are quite high.

Interested in learning more about payroll laws and regulations in different countries? Then check out our Global Payroll Guide, where you’ll find useful country-specific information on payroll processing, compensation laws, employee benefits, and more.

Using remote payroll services

Organizations that want to avoid the legal and compliance risks linked to processing multi-country payroll typically opt for outsourcing their remote payroll to experienced in-country payroll providers who do the calculations, deduct taxes and social security contributions, and pay the amounts due to local authorities. 

The only drawback is that, depending on the country, the payroll provider may not be allowed to issue salary payments, which means that the business would still have to find a cost-effective and fast way to pay its remote employees. Plus, managing multiple payroll vendors and consolidating payroll data which comes into the central payroll system in various different formats and via different ways can be challenging. 

Choosing a hybrid approach for remote payroll management

The third option global organizations have to manage payroll for their remote teams is a hybrid model which combines payroll outsourcing with processing payroll in-house. For instance, for countries where the organization has a local legal entity and/or a strong knowledge of local payroll laws, payroll could be managed and processed internally. In countries where the business has only a small employee population or in countries with complex payroll systems, on the other hand, payroll processes could be outsourced. 

The main advantage of combining in-house and outsourcing is that it allows companies to make the best use of their resources and better manage compliance risks. However, having different systems in place for processing payroll for remote workers in different countries also means additional work to coordinate payroll processes and keep track of global payroll data.

Remote payroll through an Employer of Record solution

Using an Employer of Record (EOR) may not be the first option that comes to mind when thinking about remote payroll solutions, but it’s definitely a good way for businesses to process payroll for remote employees in countries where they don’t have a legal set-up and only a handful of employees on their payroll. 

An Employer of Record acts as the legal employer for a business’s remote employees who are based in different jurisdictions and handles all the paperwork and admin that comes with the employment, which also includes payroll processing and salary payments. Since the EOR takes care of everything, this is a very comfortable although slightly pricier remote payroll option. 

Did you know that Lano offers a global Employer of Record solution which allows businesses to compliantly hire remote employees in over 150 countries worldwide? Read more about how to hire around the globe with Lano on our dedicated global employment solution page.

Choosing and implementing one of the remote payroll solutions mentioned above is the first step to managing payroll across multiple countries. Here are a few tips on how to successfully manage payroll for your remote team after the initial set-up phase.

Know how to classify your workers

Regardless of whether a business hires workers locally or internationally, classifying them properly is an absolute must. This means deciding whether their status is independent contractor or employee. Employee misclassification is a major legal issue businesses face when expanding internationally, but classifying workers either as employees or independent contractors also has a direct impact on payroll. Since independent contractors pay their own taxes and social security contributions, they’re not part of a business’s payroll as such. Sure, they have to be paid for their work, but there are no payroll calculations which need to be done for contractors. 

Automate as much of your payroll as possible

Processing payroll manually isn’t a viable option, not with a small team and definitely not for a remote payroll for a globally distributed team. Instead, businesses should invest in payroll software to automate manual processes. Automating payroll has numerous advantages. It saves the business time and money, increases payroll security, and makes the entire payroll process easier to handle, which is especially helpful when managing payroll across different geographies. 

Diversify your payment methods

As we’ve seen, cross-border payments and the need to be able to pay employees in different currencies are two of the main challenges businesses with a remote payroll face. Traditional payment methods like direct deposit, cash or check don’t work for remote employees based overseas. To ensure a smooth payment process and make sure wages and salaries hit employee bank accounts on time, businesses should diversify their payment options. For example, they can use a digital multi-currency wallet like our Lano Wallet, which allows businesses to quickly and securely pay their employees and contractors in over 170 countries while choosing between 28 different currencies. 

Lano offers businesses an all-in-one payroll solution for globally distributed teams. Thanks to our global network of in-country payroll providers, you can easily set up your local payroll in over 150 countries worldwide and have it processed by experienced experts. 

Our cloud-based global payroll platform is designed to unify your payroll infrastructure and consolidate payroll data from all your entities and providers in one single dashboard, which allows you to consult up-to-date payroll data whenever you want, wherever you want. And thanks to our global payments solution, paying employees in different countries and currencies isn’t an issue anymore. Book a demo to find out more.