Getting international payroll right: what do you need to consider?

There’s a myriad of strategic and tactical activity needed when setting up a business or office abroad and one of the key priorities to consider is your payroll requirements, as factors like contributions and annual leave all differ from country-to-country.

If you’re not ready for the varying aspects associated with international payroll, you could risk significant penalties and fines.

To support your business, we’ve compiled the key considerations you need to make when paying overseas employees so you can ensure compliant and correct processes.

Karen Penney, Vice President of Payment Products, Western Union Business Solutions comments:

“International payroll can often be much more complex than domestic due to different local processing times, various taxation criteria and market fluctuations affecting exchange rates.

All of these factors need to be considered and properly managed to help ensure payments are made on time and in full.

Ultimately getting payroll right is crucial to your employee happiness and a successful business, highlighting the importance of this crucial business function.”

Registering your organisation

Before you start recruiting and paying international employees, you may need to register your branch as some countries require a local taxpayer ID. This can entail either registering your organisation as an overseas entity or setting it up as a new company with foreign ownership.

Essentially, starting your expansion can create far more hurdles initially than many professionals expect.

For example:

To operate in Australia, you require an Australian Business Number (ABN) to run a payroll, as it’s required for Pay As You Go (PAYG) tax purposes.

In Spain, it’s also essential to describe the company activity within the country in full detail, as this affects Tax Office and Social Security Office registrations.

Paying entitlements

While countries such as the US have no statutory minimum paid vacations, the vast majority of industrialised nations have strict requirements.

Many countries also have their own unique public paid holidays you need to be aware of to ensure a compliant payroll.

In addition to your Holiday Pay responsibilities, factors such as Sick Pay, Maternity Leave, and Paternity Leave all require attention as they’ll vary significantly.

For example:

In Germany, employees can receive a continued 100% payment throughout their sickness for up to six weeks.

In Serbia, Maternity Pay is payable at 100% of normal pay for the full 365 days of leave.

Employment contracts

Every country has a very different take on employment contracts, including working and Collective Bargaining Agreements (CBAs), which create additional challenges for those looking to expand.

These differences in contracts can create a number of potential pitfalls for organisations, especially for those that want to use a rolling short-term contract model for overseas employees.

For example:

The US has ‘at will’ employment that means employers can terminate an employment relationship without notice, for any reason, providing it’s not a violation of a protected class.

Payroll logistics

It’s crucial to bear in mind that payroll dates will differ between each country, requiring you to have a firm grip on the various logistics.

When looking to pay employees abroad, you must consider factors such as tax, conversion rates, and Social Security contributions.

Ashley Phillips, Head of Account Management UK, Western Union Business Solutions said:

“When working with clients such as FMP, we have to take into consideration all of these factors when processing international payroll.

With a team of payment specialists and compliance experts around the globe, that understand the ever-changing landscape of international payments, we can help organisations simplify and streamline this often labour-intensive process.”

For example:

Spain has a unique requirement where payroll tax is paid quarterly as opposed to monthly.

Pensions

Undoubtedly, pensions play a vital role in payroll processes across the world, creating enormous pressure on international employers to remain compliant. 

Each pension will have specific contribution limits that may be impacted by an expats worker’s presence in another country.

For example:

In Hong Kong, the Mandatory Provident Fund (MPF) Schemes Ordinance requires all new employees to be enrolled in a registered pension scheme.

Contributions

An incredibly important part of managing an international payroll is handling the various healthcare and social service contributions.

Some countries are relatively straightforward and transparent - however, others can become much more challenging when trying to ensure compliance.

For example:

The current social security rate within Australia stands at 11.5%, plus an additional 2% for Medicare Levy.

Looking for overseas support?

As global payroll is riddled with country-specific requirements, you need an international payroll solution that works for all your employees, no matter where they’re located.

Here at IRIS, we offer a range of specialised support to help you run an efficient and compliant international payroll.

If you’re looking for comprehensive payroll software that can meet your complex requirements, IRIS Payroll Professional offers a great solution.

However, if you’d rather outsource your responsibility, we’ve taken our 40 years of experience in running payroll to create our international payroll outsourcing service.

Click here to get your personalised outsourcing quote.