One of the challenges companies face when hiring international employees is figuring out how to pay them. With all the different local labor laws, regulations, and currencies, paying an employee in another country can be a complicated process. However, understanding these five important things about setting up global payroll and how to legally pay international workers will make the process easier.
1. Local laws and regulations are different everywhere.
It is important to learn and understand the regulations of the country, state, or province the employee resides in. Laws pertaining to taxation, social security, overtime, paid vacation, and parental leave differ depending on where your employees are located. Understanding and adhering to each country-specific law will prevent your company from facing fines and legal penalties.
2. The type of employment matters.
When hiring employees in other countries, you must determine which type of employment your company needs. Whether you decide to hire short- or long-term remote employees or contractors, it is crucial that you establish a talent acquisition strategy that is most beneficial for your organization.
Depending on whether you hire contractors or full-time employees, your global payroll needs will change. Which is the best fit? Consider whether you’re filling short-term needs or building a team you want on board for the future.
3. Know that local salaries don’t include the full cost of employment.
Conducting local salary research is crucial to offer your talent a compensation package that aligns with their skills and is equitable with the costs of living in their location. This will also allow your company to determine whether you can afford to expand to a certain destination.
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However, in many locations, there are additional charges that the legal employer is responsible for that can quickly increase the total cost of employment. While local salaries might present cost savings, you should still make sure your company conducts research into the details before going forward with an offer.
4. Take currency fluctuations into account.
Currency conversion rates fluctuate and can affect your employee’s net pay. For example, if employees are paid in the currency of the country the company is located, but their expenses are paid in their home country’s local currency, it is important to have a currency exchange agreement. Another option is to set a fixed salary in their local currency to avoid these fluctuations.
5. Double taxation could be a factor.
As for international payments, taxes are another key factor to consider. Companies may be subject to a double taxation regime, meaning they could pay tax both at home and where the employees are located. To avoid this, you need to find out if there are any tax treaties between your country and the one you are hiring in.
What else should you know about paying an employee in another country?
There are many factors to consider when it comes to international expansion, and how to pay your talent in local markets is one of the most important. As an Employer of Record (EOR), Globalization Partners can help you manage payroll for all your employees, regardless of their location.
Read more about global payroll and get your questions answered here.