Your Ultimate Guide to International Payroll Processing

Are you looking for a way to simplify international payroll processing while ensuring compliance and timely payments to your global team? Many companies struggle with navigating local laws, tax variations, currency fluctuations, and different payment methods when operating in multiple countries.

With global payroll expertise and 200 in-house legal experts, Deel understands these complexities and has developed solutions that cater to worldwide payments. In this guide, we outline actionable strategies and proven solutions you can implement immediately to streamline your international payroll operations.

The result is a seamless, efficient process that reduces administrative burdens, ensures regulatory compliance, and keeps your workforce paid accurately and on time, no matter where they are based.

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

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.

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.

Once you determine the mandatory compensation, move on to perks: work-from-home stipends, wellness stipends, crypto payroll, and other small bonuses make your company a more attractive place to work.

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.

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 and payroll software, try Deel.

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.

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

How to pay your team using Deel’s EOR model

1. Go to the ‘Payments’ tab on your dashboard to enter the payment processing workflow. Select the team or person you want to pay. 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.

See also: How to Pay Different Types of Remote Workers in Multiple Countries

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.

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.

See Deel's pricing for Global Payroll, EOR, and more.

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

Learn more about Deel’s Global Payroll solution or book a 30-minute product demo with an expert today.