Can You Pay Your Overseas Employee Remotely?
When your company hires employees overseas the immediate question that comes up is how you are going to pay them. This is not as simple as it first appears, and the solution is going to vary depending on the type of worker, the specific country and the length of employment. Assuming that you don’t have a branch, office or registered entity to run payroll in the foreign country, then you may be considering paying them remotely from your home office. But, is it really possible for you to pay overseas employees remotely?
When your company hires employees overseas the immediate question that comes up is how you are going to pay them. This is not as simple as it first appears, and the solution is going to vary depending on the type of worker, the specific country and the length of employment.
Assuming that you don’t have a branch, office or registered entity to run payroll in the foreign country, then you may be considering paying them remotely from your home office.
But, is it really possible for you to pay overseas employees remotely?
Consider the following scenarios where you might want to pay an employee remotely:
– Hiring a foreign employee who will be working from home remotely
Example: Your US company hires a technology specialist in France for a full-time remote position
– Sending an employee from home on a six-month project abroad
Example: Your UK construction company sends a project manager to Chile to oversee the start of a new development
– Building a remote team based on skills rather than location
Example: In order to access talent outside its borders, your Hong Kong company builds a remote team across Asia
– In order to expand into a new market, you are contracting local marketing and sales reps
In each of these cases, the temptation is to just pay the employees remotely from your home payroll and treat them as though they are actually working out of your location. This can work for temporary assignments or some types of virtual remote work, but for longer engagements you may need a different solution.
The problem that comes up is that once you hire an employee in a foreign country you are accountable in two different tax and payroll systems, both at home and abroad. The result is a need for ‘double compliance’, and that is where it gets complicated.
3 Factors to Consider When Deciding How to Pay an Overseas Employee
There are a few factors that will play into the decision of how to pay the employee:
1. Type of worker (remote employee or contractor)
The use of contractors is on the rise, and it does seem to present an easy remedy to the international payroll issue because they are self-employed, and it is more of a B2B arrangement. But the problem is the risk of misclassification, where their own country actually views them as your employee based on how you structure and manage their work.
In contrast, formal employees (locals and expats alike) are entitled to a full range of benefits and labor protections in the host country, and those can’t just be ignored. At some point, you will need to find a way to comply and meet local regulations.
Fluctuations in currency can affect a foreign employee’s net pay, so you may have to fix the salary in their home currency. Another option is to have some type of currency exchange agreement to offset fluctuations in either direction, if for example an employee is paid in your home currency but is paying their expenses in another currency.
3. Tax and Social security
Because your employee is in the foreign country, they will usually have to pay tax, but your company may also have to withhold tax at home. To avoid double taxation, you will need to look into tax treaties between the two countries that allow credits to be used. Equally, the home and host countries will want to have social security contributions paid by both the employer and employee. Tax treaties also allow exemptions for this with some countries.
How can you pay your overseas employees remotely?
You have four basic options to pay your overseas employees:
1. Pay the employee on your home country payroll
For short assignments or projects overseas, you may be able to keep the employee on the home payroll. Some countries do permit this and will have special rules for remote payment, which could include some type of registration without the need for a legal entity...read more
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