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What Is a Remote Payroll?

Key Takeaways

1. Hiring employees internationally, or inter-state, introduces many new complexities to the payroll process that do not apply to a traditional payroll. In some cases, these complexities are driven by time zone differences, language challenges, labor and employment mandates, and different tax obligations.

2. A remote payroll is a system that can pay international or out-of-state employees based on the location-specific legal requirements for those employees.  

3. Advantages of remote payroll solutions include: Sourcing and retaining top talent and unlocking the benefits that come with remote working in general.  

4. The disadvantages that can accompany a remote payroll mainly arise from the potential for errors in the payroll process and a lack of knowledge of foreign labor and employment laws. These disadvantages can be largely mitigated by hiring a third party remote payroll provider. 

Many companies are looking into, or already giving employees, the freedom to choose where and how they work. This could be from different locations, both domestically and abroad, and in a fully remote capacity. However, this puts increasing pressure on companies to understand their obligations when it comes to compliantly managing and paying a remote employee: This is where a remote payroll solution might come in.

This article focuses on explaining what remote payroll means, and looks at some of the pros and cons associated with having a remote payroll solution in place.

What does remote payroll mean?

A remote payroll is a payroll system that is strategically set up to pay and manage international or out-of-state employees or contractors, based on the location-specific features of where the work is being undertaken. Where it is being applied across borders, a remote payroll is also referred to as a ‘global payroll’ or ‘international payroll’.

If a company wishes to hire employees or contractors, dispersed throughout a country or across the globe, there are a range of factors that need to be taken into account when it comes to payment. 

For example, if a company is only based in a single location, there is little need to consider:

  • Time zone differences
  • Currency conversions
  • Language differences
  • Different tax-withholding rates and amounts
  • Country-specific benefits and entitlements
  • Foreign labor laws and compliance issues.

Specific questions that arise when moving into a remote payroll or international payroll include:

  • Who does the company owe tax to when an employee is working abroad?
  • Are there mandatory benefits and payroll deductions that need to be included?
  • How are pay slips set up and allocated, or are they even required?
  • Is there a double tax treaty in place?
  • Can the company pay in the home country’s currency?
  • What is the best, most effective and cheapest solution for currency conversions if payment must be in the host country’s currency?
  • What happens if an employee moves?

There are, however, various solutions to get a compliant and effective remote payroll organized. Options include:

  1. Companies can attempt to set up and manage their remote payroll internally. This requires companies to research each different country’s labor, tax, and employment obligations: This can be a costly and time-consuming option, especially for companies that want to hire in or send employees to many different jurisdictions. In some cases, this may involve setting up a ‘shadow payroll’ to comply with obligations in another country. 
  2. Transfer the remote payroll management to an international Employer of Record (EOR). An EOR is an intermediary company that hires employees and manages their payroll in overseas locations. Technically, an EOR will act as the new employer of your foreign employees, but they will still work directly for your company. 
  3.  Remote payroll outsourcing. This option is necessary if the host country requires a company to have a local entity registered to legally hire employees: The remote payroll outsourcing provider will provide payroll services, but the client company (or its local subsidiary) will be the legal employer. 

What are the pros and cons of a remote payroll?

Advantages of remote payroll

Having a remote payroll solution can increase a company’s competitiveness, attract top talent, and create a more productive and happier workforce. More specifically, the advantages of include: 

1. Access to diverse talent

Having a remote payroll solution ready to go opens your company up to the ability to hire talent from all over the world. This means new ideas, perspectives, and directions for your company: Your company will also have the flexibility to offer existing employees the opportunity to work from wherever they want to.

2. Unlocking general remote work benefits 

Remote payroll means your company can offer remote work conditions to new and existing employees: This automatically unlocks many of the benefits that come with remote working such as increased productivity, greater employee wellbeing, lower operational costs, and better employee-employer relations.

Disadvantages of remote payroll

Potential disadvantages of remote payroll include:

1. The need to understand foreign tax structures and labor laws

Understanding the law relating to paying remote employees becomes crucial. A remote payroll will require the right type of knowledge in country-specific issues of labor and employment law. Depending on the target country, the laws can be either straightforward or complicated to navigate, especially if a company wants to set up an internally managed remote payroll.

This means some local expertise is a must or the chance of running into compliance issues increases substantially: Non-compliance can be extremely costly and creates a reputational risk to the company.

2. Managing remote compensation levels across different locations 

As cost-of-living can differ dramatically in different locations, companies need to consider whether or how to adjust their salaries and compensation packages for remote talent. Whichever choice is made can lead to resentment among staff. 

3. Working with multiple currencies

Generally speaking, employees need to be paid in their local currency. Having a remote payroll with staff based in multiple countries can make it more complicated to ensure all staff are paid the correct amount, taking into account currency conversions. 

Video: Remote payroll — the employee's perspective

Engage Horizons to manage remote payroll

Hiring remotely, and internationally, has significant benefits. But it also means managing the potential complexity of a remote payroll. Many of the potential disadvantages of having a remote payroll can be mitigated by hiring a third-party payroll specialist, such as Horizons, to ensure all employees are paid correctly. 

Get in touch with Horizons today to find out how we can ensure your global teams are paid the right amount, at the right time, in accordance with all local laws and regulations. 

Frequently Asked Questions (FAQ)

A remote payroll specialist is an expert in managing the payment of employees internationally or across state lines. The term may refer to an individual professional, or a third-party firm that sets up and manages remote payroll on behalf of businesses. 

Yes, it is possible to put in place a payroll for employees based anywhere in the world. However, in doing so, it is crucial for a business to ensure that the global team is hired and paid in full compliance with applicable payroll and tax laws. 

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