How to manage payroll and compliance internationally

The rise in remote work and a more globalized marketplace have led to a big jump in international hiring. Companies benefit from international hiring because it allows them to tap into a global talent pool. You can get the best of the best wherever you are. That said, international hiring also brings challenges with it. One major concern is international payroll compliance if your company brings on a team member from another country.

Let’s delve into what international payroll compliance means and the challenges it presents. We’ll also discuss some tools that can help streamline your global payroll compliance.

What is international payroll compliance?

Payroll refers to the process of paying your employees—for example, running checks on the first or fifteenth of the month. International or global payroll means you're paying employees in multiple countries.

Depending on the country and its laws, running payroll could mean calculating wages in line with labor laws, withholding the appropriate taxes, and deducting social security, pension, health insurance, or matching contributions.

Global payroll compliance is the process of making sure your payroll policies and procedures are in line with those country-specific laws. If you don't comply with the relevant legislation, you may get into hot water legally.

What are the main challenges of managing payroll compliance internationally?

Every country has legislation regarding employer-employee relationships. These regulations impact everything from how much workers are paid to what taxes they owe and how their data needs to be protected.

Understanding all these laws and ensuring that you’re following them correctly is complicated enough when dealing with one country. When you're an international employer hiring around the globe, you have to figure out all these details for multiple countries.

On top of that, global payroll means dealing with diverse time zones, currencies, and languages. Here are some of the critical hurdles to consider—plus some tips for how to overcome them.

Using the right software

Not all payroll software solutions are equipped to accommodate international employees. A global payroll solution like Oyster is the answer if you hire internationally.

This multi-country payroll software makes setting up and managing payroll in different global marketplaces easy. You can even automate your multi-country payroll, thus increasing efficiency.

Keeping records diligently

Record-keeping is an essential part of the payroll process. You need to keep track of how much you pay each worker and when, as well as details like social security contributions or tax withholding.

This protects you in case of employee disputes regarding pay. Additionally, you have a record in case of audits, for example, by the local tax authorities. A software solution like Oyster can also maintain digital records.

Understanding local rules and regulations

Every country has unique regulations regarding labor laws, tax regulations, and social security protocols. Knowing your obligations as an international employer can be confusing.

The right international payroll partner can help. Oyster partners with local experts in more than 180 countries, giving you accurate, timely information to ensure your payroll is compliant.

Being aware of employee misclassification

Requirements for worker payment vary according to how that work is classified. For example, in the United States, the Internal Revenue Service distinguishes between a self-employed person and an employee. Freelancers are responsible for their own taxes, while employers are responsible for tax withholding for employees.

Misclassification of an employee can result in penalties from the local tax authorities. Oyster has a worker misclassification analyzer that can help companies avoid the risk.

Understanding permanent establishment risk

Permanent establishment is yet another issue in global payroll compliance. This is a tax concept related to where a company owes taxes. For example, if the company is permanently established in the U.S., that's a taxable presence, and the company has to pay local taxes in the U.S.

Employers hiring globally need to understand the criteria for permanent establishment in the countries they hire in. For example, having a fixed place of business in a location can be a factor.

Protecting employee data

Employee payroll comes with inherent data protection risks. Employers can access sensitive information, like a worker's home address and bank account details, and need to keep it secure.

Rules regarding data protection vary. For example, the European Union has stringent data protection policies, which may sometimes apply to companies outside Europe. Violating such terms can result in legal issues, so being informed is essential.

As you can see, international payroll compliance offers plenty of challenges. Having a single easy tool like Oyster to address all these issues can save you time, money, and stress. Learn how this multi-country payroll solution can help you.

About Oyster

Oyster is a global employment platform that enables visionary HR leaders to find, engage, pay, manage, develop, and care for a thriving, distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve without the usual headaches and expenses.

Oyster enables hiring anywhere globally—with reliable, compliant payroll and great local benefits and perks.