Workforce needs differ across the world, but there is one universal requirement that can’t be overlooked: employees must get paid fully and on time, regardless of their location. For international companies, outsourcing payroll ensures their global payroll processes follow local laws and financial regulations.
Use this guide to discover how to pay global talent using international payroll outsourcing.
What is international payroll outsourcing?
International payroll outsourcing is the process of partnering with a payroll provider to accurately and compliantly pay foreign contractors and employees, no matter where they’re located.
The international payroll outsourcing process involves partnering with a third-party payroll provider to handle global payroll, including:
- Delivering payroll consistently and on time
- Organizing, managing, and reporting payroll taxes
- Ensuring compliance with all government payroll regulations
- Safeguarding company and client data
- Providing HR and finance support
What are the advantages of international payroll outsourcing?
Using an international payroll partner has many advantages that help save money over time, limit errors, and ensure consistency in payments. By outsourcing international payroll to a partner provider, a company can:
Reduce costs
Payroll outsourcing saves money by reducing errors and the need to pay fees or process off-cycle payments. Payroll outsourcing also eliminates hiring an internal team, reducing overall business costs.
Save time
Payroll outsourcing saves time during global expansion by removing the requirement for local entities or local payroll providers in each country. Outsourcing payroll gives companies country-specific payroll support and the option for payment automation.
Ensure compliance
One of the most important aspects of international payroll is ensuring that every part of the payroll process is compliant with fair labor standards and government regulations—from following statutory pay periods to withholding the appropriate taxes and more.
With help from an outsourced partner, a business ensures full global payroll compliance with laws and regulations in both its home country and new international markets.
What are the disadvantages of international payroll outsourcing?
Outsourcing is not a perfect solution to combating global payroll challenges. When putting payroll into the hands of a third-party provider, issues may still arise, including:
Mistakes and errors
Even with an outsourced payroll partner, mistakes still happen, which can lead to retro pay or more serious legal penalties. From typos to missed zeros, some of the most common payroll errors include:
- Miscalculating taxes and pay
- Not reporting all tax forms
- Forgetting to track overtime
- Missing information or forms
Mistakes are more likely to happen with a new and inexperienced provider. This is why it’s important to hire an outsourced payroll provider with a proven track record of accuracy and success.
Delays in payment
Most outsourced payroll partners allow for faster delivery of all payments, but there can be delays. This is especially true for international companies, in which payroll involves multiple local authorities and varying payroll rules. If left uncommunicated or unresolved, late payments can be considered a “willful” act of non-payment against an employee and may result in legal action.
Targeted security risks
International payroll platforms typically rely on cloud-based software to store data and complete payroll. While these platforms have security, including firewalls and encrypted servers, they are a prime target for cybercriminals. For payroll, relying on software can become a major issue if certain platforms are breached and employee data is stolen or corrupted.
How to pay talent with international payroll outsourcing
There are a few different solutions for global employers looking to outsource their international payroll. Selecting the best payroll solution for an international team depends on whether the business pays an employee or contractor and if the company has an established entity in the country.
Paying international contractors
When attempting to pay foreign contractors, companies face issues related to currency exchange, payment timeliness, and misclassification of a contractor’s status. If a contractor is misclassified as an employee, the employer is responsible for noncompliance penalties and fines.
To mitigate the risks of international payments and misclassification, employers turn to contractor payment and contractor management solutions. With contractor solutions, companies gain access to automated and compliant payments across the globe.
Paying foreign employees without an entity
When it comes to global expansion, many businesses test out a new foreign market to see how viable and profitable it is. To directly employ talent within this new market, companies must establish a legal business entity, which is an expensive process costing up to $20,000 and takes about two months to set up.
To bypass the need for a local entity, many businesses partner with a global employer of record (EOR). By using a global EOR, companies get an all-in-one, flexible solution for compliantly hiring and paying talent overseas. Benefits of a global EOR partner include quicker setup times, lower financial commitment, global reach, and compliant employment.
Learn more: What Is an Employer of Record (EOR)?
Paying global employees after entity establishment
To grow significantly in various international markets, businesses can establish multiple local entities and legally employ talent within each country. However, challenges still arise when it comes to processing payroll in various countries.
With a multi-country payroll solution, businesses set up automated, on-time payments, enabling accurate and consistent payroll, regardless of the employee’s location. This provides one centralized solution for processing payroll in multiple countries.
Hire your partner in international payroll outsourcing today
Growing internationally requires the right infrastructure and tools. Velocity Global’s Employer of Record (EOR) solution helps businesses quickly transition into new markets and conduct complex operations like international payroll with far less risk.
With entities in over 185 countries and a cloud-based Global Work Platform™ that connects businesses with international employees, Velocity Global has the tools to make global expansion easier. Reach out to learn more.
