The logistics of expanding a U.S. business into a new country are complex; including adhering to local laws and navigating a new culture. Learning how to pay international employees is yet another learning curve. This guide outlines ways for paying international employees while maintaining compliance with local employment and payroll laws.
How Does a U.S. Company Pay Foreign Employees?
Once a company decides to expand overseas, the next step is to determine how to legally hire and pay international employees.
There are two primary ways to legally pay foreign employees overseas. First, a company can set up and incorporate a legal entity. Second, a company can use a global Employer of Record (EoR). Both options allow companies to expand their workforce, but the former requires far more commitment and risk.
Set Up a Legal Entity in the Foreign Country
Setting up a legal entity is a natural choice for companies that want to permanently establish in a new country.
For example, if a U.S. manufacturing company expands into India to open a new plant, it would likely create a legal entity in India. While it’s a costly process, it’s a worthwhile investment for companies that see long-term or permanent operations.
U.S. companies that create legal entities in other countries still face the challenge of payroll for international employees. If a company has legal entities in more than one country, payroll becomes even more complicated.
A multi-country payroll solution makes it easy for U.S. companies to pay international employees across multiple countries and mitigates the need to manage multiple payroll providers. Standard multi-country payroll offers country-compliant payroll processes, reduces payroll reruns, automates payroll for multiple countries, and integrates with other payroll tasks such as time and attendance management.
Partner With an Employer of Record
Not all companies have to set up a legal entity to do business in another country. Rather than going through the expensive, time-consuming process of establishing an entity, many companies opt to partner with a global employer of record (EoR) instead.
An EoR streamlines global expansion for companies by simplifying processes such as payroll, benefits, and onboarding. The EoR becomes the legal employer of a company’s supported employees and ensures compliance with local labor laws in each country.
For example, if a U.S. software company wanted to hire a team of workers in France to develop a new product, it would benefit from partnering with an EoR. Global EoRs have the expertise on how to pay international employees, navigate complex labor laws and ensure employees get paid on time.
Global payroll—a feature of a standard employer of record solution—takes care of paying international employees in multiple countries. If that same U.S. software company also has a team in the U.K., the EoR would manage paying employees in both France and the UK through one platform.
What Is the Total Cost of Employment for International Employees?
Hiring employees is more expensive than bringing on contractors due to payroll contribution requirements. In the U.S., it’s common for companies to make payroll contributions to their employees’ health insurance, retirement funds, and disability insurance. These extra costs are fairly straightforward when onboarding an American employee.
Hiring and paying international employees is more complex.
Calculating and managing foreign payroll contributions is challenging for U.S. companies because required contributions tend to vary at both the regional and national levels. The employer takes on more challenges and more risk when trying to determine those contributions alone.
An employer of record partner demystifies foreign payroll contributions and removes the employer’s burden of navigating this process.
Alternatives to Paying International Employees
Hiring international employees isn’t the only option if your company plans to expand. Hiring contractors is a great choice if your company has temporary needs that require international expertise.
For example, if a U.S. marketing agency needs an Italian subject matter expert to create content for a new client, an international contractor engagement makes the most sense. The company can access the talent they need without onboarding an employee and making major changes to its workforce.
Hire and Pay Overseas Contractors
Once you’ve found the international contractor you intend to work with, the next step is onboarding and paying them. This isn’t as easy as just sending a Paypal payment: Hiring contractors requires U.S. companies to understand local labor laws to ensure they aren’t misclassifying their talent.
Contractor classification solutions ensure companies correctly classify their talent as contractors or employees under local labor laws. This solution helps companies avoid fines, legal fees, business interruptions, and reputational damage that comes from misclassifying talent as contractors when local authorities see them as employees.
Paying international contractors comes with its own set of challenges. Some difficulties include needing a secure platform, fast payments, and abiding by international payment regulations. Companies that engage contractors with automated contractor payments can onboard and pay their contractors across markets with far more ease and peace of mind.
If your U.S. company has ongoing needs for international contractors, a contractor management solution (Agent of Record) manages all parts of engaging contractor talent. Contractor management is a comprehensive solution that covers classification, onboarding, invoicing, and payroll for companies.
Challenges and Risks With Overseas Payroll
Paying international employees presents a number of challenges and risks, which is why it’s important to partner with a trusted EoR.
Here are some challenges and risks when paying international employees:
- Misclassifying workers
- Dealing with complex labor laws
- Navigating payroll contributions and taxes
- Risking permanent establishment commitments
- Adhering to immigration requirements
As you can see, many of these risks revolve around compliance with local laws and employee protections. An EoR takes most of the guesswork out of the process of hiring and paying international employees so companies can focus on business operations.
Streamline Your Payroll for International Employees
U.S. companies that expand internationally should hit the ground running without worrying about payroll for international employees.
Rather than setting up a legal entity, Velocity Global’s Employer of Record solution streamlines and simplifies onboarding, payroll, and many other HR tasks for growing U.S. companies. Our integrated Global Payroll capabilities make paying international employees risk-free across multiple countries.
Contact Velocity Global today to find out how to pay international employees the easy way.