Most Effective Ways To Pay Your Remote Employees Based In Different Countries

Introduction

Breaking away from the traditional office setup and working with globally distributed teams is seeing an upward trend, especially when the world is forced to work remotely. Many organizations now see merit in working with remote employees spread across the globe.

Why Consider A Remote Work Strategy

• To Save Cost: Working with remote teams/employees means organizations can save costs in different areas – employees' salary, real estate, allowances, benefits, etc.
• To Get Best Talent: You can’t always get top talents for every role locally. Some countries are hub spots for certain kinds of expertise.
• To Increase Diversity and Promote Inclusion: Working with remote employees promotes the inclusion of racial, ethnic, or religious minorities, people with disabilities, working mothers, single parents, or any other marginalized segments of the society. It also brings different perspectives, insights, and opinions to the table and can contribute exponentially to the growth of the business.

However, one of the biggest questions that the companies face before they hire remote employees is – How to pay my remote employees in different countries?

There are different aspects to be taken into account when understanding the payment model for overseas employees.

Different Scenarios When You Hire Remote Employees

• When you hire a foreign talent for a specific role working from his/her native place. They can be a full-time/part-time employee or even a contractor.
• When you build a team that is primarily skill-based and not location-based. E.g., many organizations hire remote tech teams in South-East Asian countries.
• When you send an employee to a different site for a time-bound project.
• Another reason why an organization employs remote workers or sets up a remote team is to expand.

Now the question that arises – why is it complicated to pay your overseas employees? One might think the easiest way to pay them will be through their company payroll. Well, that is possible in some countries and some scenarios and setups.

However, when you think about long-term arrangements, pay scales, salary structure, taxations, compliance, etc., it becomes a tricky business. You have to take cognizance of tax systems and employment laws of two different countries for each employee. Imagine your employees are located in five other countries. You will have to ensure all kinds of compliances are taken care of in all six countries (including your organization’s location).

Challenges Employers Face When Deciding Remote Workers' Payment Model

• First challenge an employer faces before deciding on the mode of payment is the pay scale of a remote employee. It is highly critical to get the compensation part right, but there is a dearth of market data to evaluate how much to pay a remote employee.
• Maintaining a pay parity between remote and non-remote employees doing the same job can be a big challenge for employers.
• Some employers/organizations aren’t confident enough to take a call on the compensation part. For instance, an organization may think an employee located in a metro city will be more expensive than those they might find in a suburb or a smaller city, irrespective of their experience and expertise levels.
• Salary and scope of work are among the top factors to influence an onsite employee who agrees to work for an organization. These, however, may or may not affect remote employees. While some may decide to take a pay cut to avail themselves the comfort of working from home and save on commute costs, others may refuse to compromise their paychecks. They only consider the level of experience and skills they bring to the table.

Factors To Consider When Deciding How To Pay Overseas Employees

• Type of remote employee: First and the foremost factor is the type of employment. If it is a contractor, it becomes an easy model for the employer to work with. They can avoid (or evade) the complexities around international payroll setup. But one has to be very careful how they structure and manage their jobs, as the local authorities may get involved and consider the contractors as their employees and can land them in legal trouble.

On the other hand, if you have employees (full-time or part-time) formally onboarded, they are eligible for all kinds of employment benefits and are protected under the labor laws of the land. In this case, the employers have to ensure all legalities are adhered to.

• Currency & Exchange Rates: It is another tricky factor. Should you pay an overseas employee in their local currency or your currency? The fluctuations in the currency exchange rate can affect the net salary of the employee. Therefore, an arrangement must be made to take care of such fluctuations that may affect any party.

Fluctuations in currency can affect a foreign employee's net pay, so you may have to fix the salary in their home currency. Another option is to have some currency exchange agreement to offset fluctuations in either direction if, for example, an employee is paid in your home currency but is paying their expenses in another currency.

• Local Taxations & Compliances: Overseas employees have to pay taxes in their home country, while as an employer, even you may have to withhold taxes, which leads to the scenario of double taxation. Similar situations may arise concerning social security and benefits to both employer and employee. Some countries have signed tax treaties, but most do not have such arrangements.

Factors To Consider When Deciding How To Pay Overseas Employees

• Type of remote employee: First and the foremost factor is the type of employment. If it is a contractor, it becomes an easy model for the employer to work with. They can avoid (or evade) the complexities around international payroll setup. But one has to be very careful how they structure and manage their jobs, as the local authorities may get involved and consider the contractors as their employees and can land them in legal trouble.

On the other hand, if you have employees (full-time or part-time) formally onboarded, they are eligible for all kinds of employment benefits and are protected under the labor laws of the land. In this case, the employers have to ensure all legalities are adhered to.

• Currency & Exchange Rates: It is another tricky factor. Should you pay an overseas employee in their local currency or your currency? The fluctuations in the currency exchange rate can affect the net salary of the employee. Therefore, an arrangement must be made to take care of such fluctuations that may affect any party.

Fluctuations in currency can affect a foreign employee's net pay, so you may have to fix the salary in their home currency. Another option is to have some currency exchange agreement to offset fluctuations in either direction if, for example, an employee is paid in your home currency but is paying their expenses in another currency.

• Local Taxations & Compliances: Overseas employees have to pay taxes in their home country, while as an employer, even you may have to withhold taxes, which leads to the scenario of double taxation. Similar situations may arise concerning social security and benefits to both employer and employee. Some countries have signed tax treaties, but most do not have such arrangements.

How To Pay Remote Employees Located In Different Countries

• Pay them through company payroll: On the face of it, it appears to be the simplest way to pay your employees (remote or non-remote). This setup works best for small companies with a small workforce and only a handful of remote employees. As the number of employees increases and they are more distributed across the globe, the complexities increase manifold.

This also works best for short assignments or small projects. Some countries have rules around remote payment, which do not require the companies to sign up as a legal entity in a foreign country.  

• Pay them as contractors: As explained earlier, paying contractors is easier if you are careful about how their scope of work is defined and managed. E.g., the Services of Content Writers can be availed based on the length of the articles they write, or a web designer employed on an hourly basis. But should you treat your employees as contractors to evade the complexities? Absolutely not, as it can land you in legal trouble in most countries.
• Pay through the payroll of a local partner: Many organizations, who have existing business relationships with local entities and companies, ask to put their employees on their payrolls. Is it the best route? Yes and No!

Why go for a local partner: The partner has the local expertise. They can assure complete compliance. And benefits like social security & compensation are in sync with the law of the land.

Why not go for a local partner: It can be costly. There can be language and cultural barriers. Different local partners for other countries can lead to too much dependency and coordination.

• Outsource payroll to an Employer of Record (EoR): This is the safest and most effective way of managing the payroll of your overseas employees. There are payroll providers too, but they can only take care of the administrative part and have no authority to be a legal employer. An EoR, on the other hand, is the local employer of your employees. It can hire, pay and manage the entire employee lifecycle while taking care of the local regulations, country compliances, taxations, benefits, and other complexities.

Skuad Has You Covered!

Skuad, for instance, has an automated and unified platform to take care of Employee Lifecycle Management and have you legally covered in the location of your remote employee/team.

Organizations can use all the ways mentioned above to pay their remote employees, but you must pick the right option for the right scenario!