A 6-Step Guide For Setting Up International Payroll Operations For Your Company

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The rise in remote work opportunities combined with sophisticated technologies has allowed companies to easily collaborate with international teams and create paystubs real value. However, this has also presented some unique issues for businesses, mainly when it comes to ensuring legal and compliant global work setups. The best solution is to legally employ a remote workforce and establish international payroll processes for your company, and here is a simple guide that will enable you to do just that:

Setting up and registering an entity

Before you can pay any employee what they’ve earned, you will have to be registered as an employer in each jurisdiction or country where the employee in question is a tax resident. In most cases, that will mean setting up and registering a company with the local tax authorities. 

One important exception is the EU, where it’s enough to register a company with one of the member countries, and then register yourself as an employer with relevant social security and tax authorities. Certain countries will only have one entity for the social security and tax obligations, thus making the process much simpler. Knowing these rules well will guarantee business success.

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Collecting relevant employee data

Personal information is a crucial aspect of determining a salary. The data you will need to collect includes employees’ names, dates of birth, addresses, phone numbers, bank details, family status, as well as social security numbers or local equivalents. This information is particularly sensitive, so ensure you keep it safe and secure. 

Apart from that, you will also have to collect data on mandatory deductions such as pay rates, payroll taxes, pay frequency, salary, regular pay and overtime, bonuses, employee benefits, etc. To keep everything you’ve gathered safe, make sure to centralize personal data, store it in a secure and single location, and avoid duplicating data whenever possible.

Studying and following local laws

Each country will come with unique regulations that you have to adhere to as an employer. Many local laws will directly affect the payroll, such as including the necessary elements in employment contracts, not going below the minimum wage, stipulating paid time off and working hours accordingly, being mindful of health and safety, etc. 

But if you have employees in a number of different countries, following different yet equally complex rules can be a particularly difficult task. That is why hiring international payroll services could be of great help. An experienced company will be able to take care of tax reporting, compliance risk, and payment in different countries, helping you overcome common challenges.

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Building a strong update procedure

Once your initial payroll system has been set up, every month will likely come with new changes you will have to input. You should implement a good system that follows these changes and feeds them to the payroll provider. The manner in which data is transferred from the source to the payroll system is absolutely crucial and should be carefully considered. Smaller companies will often send these changes to their payroll providers manually, via email. 

This is not recommended, as it represents a security and privacy concern, as well as increasing the chances of mistakes happening. Instead, create processes for storing information in HR systems and platforms that communicate with payroll systems automatically.

Establishing a treasury process

Even if all processes are correct, from input to output, you should also make sure that money ends up in accounts on time before paying your employees. This is one aspect of the payroll treasury process, which is more complex than it might appear. Even though international salaries can be paid from your company’s current bank account, many countries will require employers to have local bank accounts for paying social insurance and taxes. 

But even if this isn’t a requirement, it’s still recommended to open local bank accounts for local payrolls, to avoid any legal issues. Always keep exchange rates and international transfer times in mind as well.

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Filing with tax authorities regularly

After running payrolls, you will also have to handle the tax authorities in the areas where you file on behalf of your workers. You will have to start by sending the necessary information to local social security and tax authorities online, with important data regarding the deductions you’ve made from employees’ gross salaries and the amount that’s due to them. 

Once that is finished, authorities in different countries will take money using different methods, but it will be a direct debit more often than not. You also have to ensure you have enough funds in your local bank account for the authorities to take it out.

Wrapping up

International payroll systems can be quite complicated, but the guide above will hopefully help to familiarize you with the process. Still, it’s advised to consult professionals before setting up any global operations, to avoid getting into legal trouble.