How to pay international employees

Paying international employees can be as much of a challenge as the actual payroll process. Cross-border payments are very slow and expensive when issued as SWIFT payments. Plus, legal requirements make it mandatory in some countries to pay employees from a local bank account, which increases the admin work behind the payment system. 

What aspects do businesses have to keep in mind when paying overseas employees? How to pay international employees accurately, on time, and compliantly?

Many businesses with global operations are unsure about how to pay foreign employees. That’s because there are many restrictions, pitfalls and complications organizations need to work around. The challenges of paying global employees include: 

• Complying with compensation laws

• Choosing the correct payroll cycle

• Respecting the pay dates required by law

• Handling different currencies

• Developing fair compensation standards for the entire global team

• Finding a cost-effective way for cross-border payments

• Withholding the right amount of payroll taxes

• Avoiding employee misclassification

Setting salaries for remote employees based in different jurisdictions can be tricky. Compensation rules regarding minimum wages, overtime pay rates, and more differ from one country to the next, leaving organizations with a lot of research work to find out how much they are legally required to pay. 

Other than meeting legal requirements, setting pay rates is first and foremost about attracting talent. Offering just the bare minimum is usually not enough to attract the best of the best. And then there is the ongoing debate about equal pay for equal work and pay equity in global teams. Developing a comprehensive global compensation strategy is therefore the first step towards paying foreign employees efficiently and accurately.

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When thinking about how to pay employees working across international borders, one of the first questions that usually comes up is which currency to use. Unless the organization and the employee are both based in countries using the euro, they are likely to use different currencies. 

So, which currency to use for paying the employee’s salary? The one used in the employee’s country of residence, or the one that is used in the jurisdiction where the employer is based? Choosing the second approach may potentially have a negative impact on the employee’s pay due to fluctuations in the exchange rate.

What’s more, many countries require employees to be paid in the local currency, which means that employers have no choice but to pay in foreign currency. For example, when hiring a remote employee in India, the salary indicated in the employment contract needs to be given in Rupees.

The question of how to pay international employees also comprises factors like when and how often to issue salary payments. Pay periods and pay frequency vary between countries. For example, employees in Germany are usually paid once a month. 

In Ukraine, on the other hand, it’s mandatory to pay employees twice a month, with no more than 16 days in between payments. In some cases, country laws even determine on which day of the month employers have to pay their workers. 

In most jurisdictions, employers are responsible for withholding the appropriate amount of payroll tax from employee salaries. Since taxation rules and regulations vary greatly from one country to the next, safely navigating the different tax systems can be challenging.

Organizations need to know exactly:

• What payroll taxes need to be withheld

• What rates apply for the different taxes and social security contributions

• When taxes must be filed and paid to local authorities

Payroll taxes usually have to be withheld and paid in the country from where the employee works, which means that the employer needs to have a compliant payroll set-up in the respective jurisdiction. The different options employers have to set up payroll for international employees include: 

• Creating a local legal entity

• Registering as a foreign employer

• Hiring employees through an Employer of Record

• Establishing a shadow payroll

• Working with independent contractors

• Outsourcing payroll to a payroll provider who also handles employee payment

How to pay international employees is essentially a question of which payment method to choose. When paying their domestic workforce, organizations usually opt for direct deposit as their payment method of choice. 

But since international bank transfers are both slow and expensive (especially when factoring in currency conversion fees), they’re usually not a suitable option for organizations with a global workforce.

Setting up a local bank account in every country for payments to employees and local authorities isn’t a solution either because this often comes with the obligation to establish an entity—which is very costly and time-consuming. 

Organizations looking to pay international employees therefore need to search for alternative pay methods for global teams. Payment options that work well for globally distributed teams include:

• Cryptocurrency

• Payment platforms like PayPal, Payoneer, or Wise 

• Pay cards

• Employee stock options

• Digital multi-currency wallets like the Lano wallet

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