Thanks to digital technologies, the world has become a much smaller place. And, with the shift to remote work in the post-COVID-19 era, the lines are blurring when it comes to borders. Many companies are now facing a situation where they have international employees on the payroll—whether because they hired from the global talent pool or their domestic employee decided to explore the world.
How to pay international employees is a tricky subject. It’s not as simple as cutting them a check every two weeks and letting direct deposit do the rest. Paying an international employee has new and important ramifications—including for taxation. Moreover, there are new obstacles to consider, such as a change in how international employees bank or access funds. It all culminates in a new way of thinking about global payments.
Here’s a look at what it means to have international employees and how to pay them in a way that benefits workers and the company alike.
What constitutes an “international employee?”
The term “international employee” is a complex one. In the eyes of a business, it can mean any employee not located in the same country. In the eyes of the government or tax authorities, the definition can be a bit more complex—usually involving residence. For simplicity’s sake, you can consider your business to have international employees if you:
- Hire a foreign employee who will work remotely
- Send employees overseas to work abroad (6+ months)
- Have employees in a country without a business nexus
Essentially, international employees are workers in a country where your business has no registered presence. When it comes to paying these individuals, every business needs to find a way to do so transparently and in the correct capacity. Here’s a look at some options.
Check to see if home payroll is an option
If your international employee is a globetrotter and won’t be in a country for more than six months at a time, you can likely keep them on your normal payroll. So long as an employee doesn’t establish permanent residency anywhere else, you can consider them a “home” employee.
If they do decide to settle down in another country, you’ll need to determine if there’s a way to establish home payroll in that country. There are options for “host country workarounds,” which can include foreign employer exemptions, payroll law compliance options, and foreign payrolled statuses. These options vary by country and situation. It’s best to explore these options based on wherever your international employee resides.
Register employees with local affiliates
If your business has a presence in the country, it can easily create a subsidiary in that country and use it specifically to employ workers. In many cases, this is a strategy best used if you have multiple overseas workers in the same country. You’ll register these individuals on payroll as per usual, but “second” them to the local affiliate, to ensure their wages are taxed accordingly by local tax authorities. This is often a step done before a company officially expands into a new territory.
Lease or contract employees
Leasing employees works if you have a partner company in the country your employee is living in. Your employee will is employed by you, but will do work for the partner company and get paid through their payroll. Think of it like the staffing agency model, where placed workers get payrolled by the agency instead of the organization they work for.
If leasing employees isn’t feasible or appealing, there’s also contracting to consider. Domestic companies can transition international employees to contractors or make it a stipulation that employees remain within the country’s borders for payroll purposes. This can be tricky, however, since asking contractors to perform employee duties may actually classify them as employees!
Digital payments are a next-gen solution
Regardless of how you classify and pay international employees, the question of how to pay them inevitably arises. Those with ties to the U.S. likely have bank accounts, which makes direct deposit an easy option—one you’re already likely doing. If they’ve closed up shop in the U.S. and are embracing the life of an ex-pat, digital payments become a simple pivot.
Digital payment platforms allow international employees to reap the same benefits of direct deposit—only instead of deposit into a bank account, their funds go into a digital wallet. Once landed, they can transfer to a local bank account, withdraw into a different account, or even use that wallet to make online payments. Digital payments are as borderless and fluid as the growing global workforce.
As you face the daunting prospect of how to pay international employees, keep digital payments in mind as the best way to actually transfer their hard-earned money to them. Even if payroll is a nightmare to figure out, the actual funds transfer doesn’t need to be.