Your Ultimate Guide to International Payroll Processing
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- International payroll processing is the process of paying foreign employees or independent contractors for the work they perform for your company.
- Running international payroll is complex as it involves navigating foreign laws, taxes, currencies, and compliant payment methods.
- To manage international payroll, you can work with a global payroll provider, engage an employer of record (EOR), use payroll software, or send payments via money transfer companies.
Companies worldwide—from startups to enterprises—build global workforces to achieve unprecedented growth and diversity. In fact, Deel’s State of Global Hiring Report shows that 89% of contracts created on the platform in 2022 were for remote workers. But these new possibilities bring new complications, including international payroll processing.
To run payroll globally, you need a thorough understanding of local laws, taxes, currencies, time zones, and payment methods. And creating an efficient, compliant global payroll system is even more of a challenge, which is why Deel offers a global payroll solution.
Below, we cover seven unique components of global payroll and four options for tackling it, regardless of your organization’s size or approach to global expansion.
What is international payroll processing?
International payroll processing refers to the management and delivery of payments to foreign employees or independent contractors for the work they perform for your company.
Also known as global payroll processing, this method is more complex than adding foreign employees and independent contractors to an existing payroll process. You must become familiar with global employment laws, tax laws, and other financial realities of any and all new countries where workers reside.
7 components unique to global payroll management
International payroll is more complex than payroll processing domestically, as more factors come into play when paying foreign workers:
1. Local laws and regulations
Employment laws in a foreign market may differ from those in your country. This is one of the biggest payroll challenges for companies looking to expand globally. Every time you hire an employee or contractor in a new country, you have to understand and comply with the following local requirements:
- Tax rates and deadlines
- Statutory employee benefits
- Minimum wages
- Maximum weekly working hours
- Definition of employee vs. independent contractor
How does Deel ensure global payroll compliance?
Deel has the most robust compliance in the industry. We have 200+ local legal and hiring experts around the world, thorough compliance document collection processes, and localized contracts for independent contractors and employees.
Most competitors, including Remote, Oyster, and Papaya Global, do not offer the same level of coverage, document collection, or localization.
Learn more about how Deel compares to other global payroll and HR providers.
2. Employee compensation across different countries
Before operating in a new market, determine the timing, method, and amount of international payments.
- When? Countries each have unique pay periods, meaning you may have to pay international employees at different times. Prepare to process payments weekly, monthly, or even daily, based on agreements and local employment laws.
- How? The payment methods used to pay international employees may differ from the way you pay local workers. Paper paychecks, direct deposits, money transfers, and digital wallets have unique exchange fees and processing times.
- How much? Each country has unique market-standard rates and regulations (like minimum wage). Before making an offer to a foreign employee, calculate the local taxes and fees that will come out of their gross salary to ensure you offer competitive, attractive take-home pay. Read more about how to set compensation for international employees.
In addition, some countries may be very accustomed to unrecognizable payroll practices, such as giving employees a 13th-month salary.
The 13th-month salary is a type of compensation employees receive typically at the end of the year, as an addition to their 12 monthly salaries. It’s mandatory in some countries, like Greece or Argentina, while just best practice in others (mostly throughout Latin America).
Learn all about employment regulations in our global hiring guide.
3. Domestic and international tax laws
Payroll taxes are thorny, especially when you incorporate variations from one country to another. Count on every country having federal and regional income tax—but the amount can vary significantly.
Your company will be responsible for complying with tax laws in the US and wherever you hire employees: if you miss a form or a tax, you risk tax penalties. Independent contractors manage their own income tax (and should be aware of potential tax treaties between your country and theirs and fill out Forms W-BEN or W-8BEN-E to avoid double taxation).
Luckily, most countries now have digitized tax filing to simplify the process. You’ll be able to comply with multinational tax laws from your home country with payroll software that offers tax-related features. A tax-compliant payroll process is necessary for global expansion, particularly if you manage a large number of employees in several countries.
Matthew Buchanan, CEO, Letterboxd
4. Employee benefits
Employee benefits are a significant part of an employee compensation package. A good plan can help attract and retain global talent.
In most countries, social security is obligatory for the employer. It includes paying for employees' healthcare, pension contributions, disability, unemployment insurance, and job-related injuries under workers’ compensation.
Many countries require the employer to provide a paid annual leave for the employees (sometimes up to 30 days per year) or cover the first month of an employee’s pregnancy leave, while the government covers the rest.
Read more about the perks and benefits for remote workers.
5. Bank charges and exchange rates
International payroll requires sending money across borders, which involves fees. For example, if you opt for SWIFT transfers (a large messaging network between banks used for safe international money transfers), you pay around $25-50 for each multinational transfer.
Currency exchange rate fluctuations are also a challenge for international businesses. In many countries, you must pay employees in local (fiat) currency. If there are unfavorable changes in exchange rates between the currencies you and your employees use, it may disrupt your payroll budget.
With Deel, you don’t have to worry about exchange rates and bank charges.
We build it into your invoice and take into account the exchange rate on the 25th and the 30th of the month, which is called a Forward Rate.
Your provider fees will be determined by the payment method you use, and are subject to change with our available processors.
See also: About Exchange Rates And Fees
6. Data protection
The European Union updated the General Data Protection Regulation (GDPR) in 2018 to mandate stricter standards regarding data privacy. Data protection has become an important concern for companies, especially large, international workforces. Payroll data becomes visible to more and more employees, and you must comply with requirements wherever you hire.
Reducing risks means eliminating unencrypted emails and removing all redundant employee data. If you’re outsourcing payroll, a third-party service will have access to employees’ data. You need to have a tight data processing agreement (DPA) in place: a contract between the company and the payroll service to ensure they handle data safely and in compliance with the GDPR, and have legal protection in case of a breach.
Deel takes a proactive approach to data protection:
- GDPR-compliant frameworks, policies, and processes
- Okta SSO for secure single-sign-on experiences
- SSL/HTTPS to protect data transfers between systems
- Data is encrypted in transit and at rest
- System updates and penetration testing completed regularly
- SOC2 compliant
- Information security program is built on ISO 27001
Learn more about Deel’s data security.
7. Expansion of a company's human resources department
Setting up international payroll is just the first step when expanding a business. As the company grows, you’ll soon need a team for employee management, administration, onboarding, and more.
Reduce HR’s burden with powerful automated tools like a human resources information system (HRIS). Your team will spend less time on repetitive tasks and more time improving employee experience and human capital management.
Some of those larger HR systems include built-in payroll software (or integrations with other payroll software), so your team can access real-time data in a centralized tool. If you’re looking for a global-first HR software, try Deel HR.
Diony McPherson, Co-founder and COO, Paperform
4 ways to manage international payroll
Wondering if you can manage international payroll on your own? Small business payroll management can incorporate an additional country without too much trouble, but as your workforce grows, the process becomes more complex and time-consuming. Let’s take a look at the options you have when processing international payroll.
1. Use payroll software
Payroll software is a cloud-based solution that helps organize, monitor, and automatically distribute payments for workers. Most of these tools are scalable: they send payments and generate pay stubs (or payslips) to large teams in just a few clicks.
If you are interested in outsourcing and automating the process of global payroll while still maintaining some sort of control, responsibility, and oversight, international payroll software is a good option. These tools speed up the process but still leave you exclusively in charge of your payroll function.
Pros of payroll software
- Reduced possibility of manual error
- Time saved thanks to automated features
- Access to local payroll experts and customer support agents
Cons of payroll software
- In-house payroll specialists needed to operate the tool
- Paid license required
2. Choose a global payroll service provider
Global payroll service providers, such as Deel, are third-party companies specialized in handling payroll for clients. Their job is to make payments to employees, process and keep payroll records, handle payroll taxes, and more.
Before you decide on an international payroll provider, look into their payroll processing fees and testimonials, and ask to see a contract in advance of signing.
Pros of payroll service providers
- No license required
- No need for in-house payroll specialists
- Access to in-country and international expertise
Cons of payroll service providers
- Larger initial investment compared to global payroll software alone
With Deel’s international payroll solution, you don’t need to learn about the wide variety of payroll policies, payroll best practices, and regulations worldwide.
You hand over responsibility to our payroll experts, provide them with access to employee data, and they will pay salaries, taxes, and other obligations timely and accurately. Deel’s Global Payroll enables you to run payroll around the world, so you don’t need to look for a separate payroll company for each country you hire from.
How to pay international employees with Deel’s Global Payroll
After you approve your payroll package on the Deel platform, you can pay employees via 'Payment by Deel' or 'Payment by Client' if you’re paying employees directly through a local payroll processor.
The process for 'Payment by Deel' is as follows:
- Select the entity with ‘Awaiting Payment’ status to see your payroll statement.
- Select your payment method.
- Review the payment summary and confirm payment.
If you’re paying employees directly, Deel provides you with a CSV file and all necessary payment details. In the Deel dashboard, you’ll complete the following steps:
- Select the entity with ‘Awaiting Payment’ status.
- Select the ‘Payment’ tab to see the total amount due and the payment details for each employee.
- Click ‘Mark as Paid’, complete the payment from your bank, and confirm the payment is complete.
- Mark as ‘Done’.
Watch the video below to see the process in action.
3. Outsource payroll operations to an employer of record (EOR)
An employer of record is a third-party company that enables you to engage employees without setting up local entities in each host country. Employers of record, such as Deel, handle payroll as well as payroll taxes, employee contracts, timesheets, employee benefits administration, and more.
Without an EOR, you have to open a foreign subsidiary to hire global employees. This process is time-consuming and expensive for expansion into one country, let alone worldwide. EORs offer a faster, more affordable solution for teams looking to hire international employees. And some companies that serve as EORs also offer services to hire international contractors (including Deel).
People sometimes refer to an EOR as a PEO (professional employer organization), but these services are not the same. You enter into a co-employment relationship with a PEO and hire employees with them, sharing legal employment responsibilities—but these services do not unlock international hiring. (That said, international PEO actually does mean the same thing as EOR.)
Pros of EORs
- Possibility to outsource the entire payroll and hiring process
- Possibility to hire people anywhere in the world
- Reduced compliance risks by allowing experts to handle contracts
Cons of EORs
- Larger investment than payroll software because of additional HR services
Deel is a leading EOR provider with over 20,000 active employees under 95+ entities, which are solely owned and managed by Deel.
Each entity leverages in-country payroll and HR experts to ensure a great employee and client experience alike, with no outsourcing to third-party providers.
1. Go to the ‘Payments’ tab on your dashboard to enter the payment processing workflow. Select the team or person you want to pay.
How to pay your team using Deel’s EOR model
2. Select your payment method. For bank transfers and digital wallets, there will be some extra steps in the workflow.
3. Review your payment summary and automatically generate an invoice to download as a PDF or CSV. Then, click ‘Confirm Payment’ to pay your team.
4. Send money via money transfer companies
Money transfer companies are organizations that enable you to transfer money internationally, usually with affordable fees and across many currencies.
If you only want to find a solution for the issue of international money transfer, use services like PayPal, Payoneer, Revolut, Western Union, and Wise.
However, money transfer companies only solve a small part of the puzzle. They don’t actually handle actual payroll (including tax withholding and employee benefits administration) and don’t guarantee compliance with local laws. So, for companies serious about international hiring, money transfers aren’t the best option.
Pros of money transfer
- Competitive exchange rates
- Great global coverage
Cons of money transfer
- No payroll processing
- Lack of tax and compliance support
With Deel, you can pay with a manual transfer from your bank, Wise, or Mercury account, link a payment method for ACH, SEPA, BACS, PAD, Brex, credit card, and debit card payments, or even send a cryptocurrency transfer through Coinbase.
You can add a new payment method easily on the Deel platform. All you have to do is select the payment method you want to add, enter the corresponding details in the next window, and save the payment method for future use.
Common international payroll processing questions
Still have questions? Find more information on payroll processing below.
How do you calculate payroll?
You can easily calculate payroll manually based on workers' hourly wages and the number of hours they work per month. Simply multiply the wage by the total number of hours worked to get their monthly pay. For salaried employees, calculate payroll by dividing their annual salary into weekly, bi-weekly, or monthly pay periods.
However, as the number of workers increases or you start hiring globally, manual calculations become near impossible. To avoid errors in calculating hours and wages, using payroll software is highly recommended.
Global payroll software automatically calculates payroll taxes, salaries, and bonuses. It’s critical to get familiar with tax rates and other employer obligations when hiring internationally so you don’t miscalculate employees’ wages or taxes you need to pay.
If you’re only exploring a new market, use our employment calculator to learn how much hiring an employee in a desired country would cost.
What is multi-national payroll outsourcing?
Multi-country payroll outsourcing is the business practice of delegating global payroll to a third-party service provider. This payroll provider handles payments and taxes for international teams.
How Change.org saves 300 hours on payroll admin each month
Finding Deel was a game-changer for Change.org, the world’s leading tech platform for driving people-powered social change.
With a presence in over 25 countries, Change.org faced significant challenges in managing payroll across various vendors, dealing with multiple processes, and utilizing numerous platforms. The operational complexity was a major time-consuming issue.
To address these obstacles, the team turned to Deel. Implementing Deel’s Global Payroll solution resulted in them saving over 300 hours per month on administrative tasks.
Thanks to Deel’s seamless integration into its operations, Change.org has been able to streamline its processes, enhance efficiency, and focus more on its core mission of empowering people-driven social change.
What do payroll processing fees include?
Payroll processing fees vary depending on the provider, where workers are located, and how many workers are on the payroll. Some global payroll companies offer tier-based pricing based on the country and number of workers you have in a location. Your provider may require a one-time account set-up fee or a flat monthly fee.
Streamline payroll with Deel: the simplest global payroll solution
Paying your international workforce shouldn't be an obstacle to global hiring. Figuring out the best payment method or how to handle different currencies and bank charges is overwhelming on your own, which is why the best solution for most companies is a service like Deel.
Deel makes paying your team simple:
- Pay your entire team in one click
- Pay workers in their local currency through their preferred payment methods
- Offer workers a Deel Card to receive and spend funds without sending money to their bank accounts
- Access additional local payout options to simplify the international payroll process
Daniel Aksioutine, COO, Divbrands