International Payroll Processing: The Ultimate Guide

Are you searching for a way to simplify international payroll, ensure compliance, and pay your global team on time? Many companies struggle with navigating local laws, tax variations, currency fluctuations, and different payment methods when operating in multiple countries.

Deel has over 2,000 experts in payroll, HR, and legal who understand these complexities and create scalable solutions. In this guide, we share practical and proven strategies. Leverage them to streamline processes, reduce administrative burden, and ensure regulatory compliance.

What is international payroll processing?

International payroll processing refers to managing and delivering payments to foreign employees or independent contractors.

Also known as global payroll processing, this method is more complex than adding foreign employees and independent contractors to an existing payroll process. You'll need to understand global employment laws, tax laws, and other financial rules in each new country where workers live.

7 components unique to global payroll management

International payroll is more complex than domestic payroll since 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. When you hire someone in a new country, you need to know the local rules regarding:

• 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 you make an offer to a foreign employee, check the local taxes and fees. This will help you provide competitive and attractive take-home pay. Read more about how to set compensation for international employees.

In addition, some countries may have unique 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 it's simply best practice in others.

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 must follow tax laws in the US and in any place you hire employees. If you miss a form or a tax, you could face penalties. Independent contractors handle their own income tax. They should know about tax treaties between their country and others. To avoid double taxation, they need to 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 can follow global tax laws by using payroll software with tax 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 constitute a crucial element of a compensation package. An effective plan can aid in attracting and retaining international talent.

In most countries, employers must provide social security. It includes paying for employees' healthcare, pension contributions, disability, unemployment insurance, and job-related injuries under workers’ compensation.

Additionally, employers must provide paid annual leave to their employees. This leave can be up to 30 days each year. Employers may also cover the first month of an employee’s maternity leave, while the government takes care of the rest.

After setting the required pay, think about extra benefits. Work-from-home stipends, wellness allowances, crypto payroll, and small perks can make your company more attractive.

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 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

In 2018, the European Union revised the General Data Protection Regulation (GDPR) to enforce more rigorous requirements concerning data privacy and protection. 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. This is a contract between the company and the payroll service. It ensures they handle data safely and follow GDPR rules and also provides legal protection in case of a data 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 your company expands, you'll quickly require a team dedicated to employee management, administration, onboarding, and additional tasks.

Alleviate HR's workload with robust automated solutions such as a human resources information system (HRIS). This allows your team to dedicate less time to monotonous tasks and more time enhancing employee experience and managing human capital.

Many comprehensive HR systems come with integrated payroll software (or can integrate with other payroll solutions), enabling your team to access real-time data through a centralized platform. 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. Partner with a global payroll provider

Global payroll 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 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 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

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

Streamline payroll with Deel: the simplest global payroll solution

Paying your global workforce shouldn’t be an obstacle to global hiring. 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 Payroll or book a 30-minute product demo with an expert today.