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The remote workplace services market is estimated to increase at a CAGR of 23.8% from $20.1 billion in 2022 to $58.5 billion by 2027. There is no doubt that every company now has a remote worker. Although, remote employees have become commonplace, paying globally distributed remote employees is still a challenge, factored by:
- Compensation laws
- Employee misclassification
- Standardizing benefits and compensation
- Standardizing payroll cycles
- Currency & exchange rates
- Local Taxations & Compliances
- Banking problems
Further, some countries restrict remote payment, requiring companies to register as legal entities in a foreign country. In such cases, paying your remote workers as contractors is easier. If you are careful about how their scope of work is defined and classify them as contractors legally, you can pay them accordingly.
You can set up an in-house payroll team to pay your globally distributed remote workers - when you are a small company with limited remote workers. As the number of international workers increases, the complexities increase.
If you face the same challenges and want to set up a clear-cut process to pay remote employees, this article is for you.
Paying Remote Employees Locally Vs. Internationally
For example, if you hire remote workers who live and pay taxes in the same country as their employer, the pay system and currency will be similar to regular in-office staff. But in the case of international remote workers, things become complicated as employees file taxes in a country other than their employer.
There are some significant differences between paying remote employees locally and internationally.
Challenges of paying international employees
Complying with compensation laws
When dealing with remote workers from different parts of the world, setting up a process to pay in adherence to the compensation laws of each country is challenging. Every nation has unique regulations regarding minimum wages, overtime, and other benefits that must be accorded. Staying up-to-date and compliant with these diverse laws is challenging.
Ensuring the correct classification of international remote workers is crucial for employers. Misclassification of employees is an unlawful act that can lead to penalties and fines for the employer. Hence, it is important to understand every norm for classifying a worker as an employee or contractor.
Distinguishing between full-time employees and independent contractors is essential to comply with local law and compliance guidelines.
Benefits and Compensation Variances
Customizing benefits and compensation packages to suit the norms and expectations of each country while maintaining equity and fairness across the team is a challenge.
Choosing the correct payroll cycle
Synchronizing the payroll cycle across different time zones and cultures is hectic. Adding to these challenges are specific legal requirements regarding payroll frequency in each country. For example, some countries mandate a monthly pay cycle, while others allow bi-weekly or weekly payments. Ensuring compliance with these regulations is essential to avoid legal penalties. Considering local conventions and preferences, you must choose the right frequency—monthly, biweekly, or project-based.
Currency & exchange rates
The fluctuating nature of foreign currency exchange rates also introduces complexities in international payments. Businesses need to forecast and budget for payroll expenses. Fluctuations in exchange rates can make this difficult, as the actual cost in the business's base currency can vary significantly from month to month. So, you must be careful about the current conversion rate to pay your international employees the exact amount they deserve.
Finding a cost-effective way for cross-border payments
It is a challenging task to find cost-effective methods for cross-border payments to ensure that the process remains economically viable. International money transfers can be complex, slow, and costly due to bank fees and processing times. Additionally, some regions may have less reliable banking systems, making ensuring timely and secure payments challenging.
You must look for reliable and transparent remote payment methods to minimize unnecessary expenses.
How do you Formulate a Remote Work Pay Policy?
When developing a remote pay policy for your international workers, you must balance employee expectations with regard to preferred currency, pay-off dates, cut-off dates, and what makes financial sense for the company. When making decisions about pay, it's important to think about:
· Fairness and equality within the workforce
· Financial benefits and limitations of remote work
· International compliance
Here are four techniques that are helpful in formulating effective policies for paying remote workers:
Salary benchmarking: Pursue thorough research on pay ranges and packages in similar industries, job roles, experience levels, and benefits to determine an appropriate package for remote positions. Many companies such as Hays, WTW, publish yearly reports benchmarking salaries by designation and industries. It will help you to provide appropriate remote work compensation as per the local employment market. You can also use Gloroots’ salary calculator to understand the cost of employing full-time employees in various countries.
Surveying: Similarly, you can conduct surveys and qualitative interviews to determine what your employees expect from you. This gives you a general idea of expectations to compare with salary benchmarks.
Consider financial viability: While the above-mentioned procedures help you manage your employees' expectations, matching your budget for paying remote employees and profitability is also critical.
Look for in-house expertise: When planning to hire and pay remote employees, ensure that any global compliance expert is there who can help you with foreign payroll laws and develop a pay structure.
Payroll errors can be costly for both your business and your employees. In case of non-compliance with the payroll laws of the remote worker’s state or country, you may have to face severe penalties. Similarly, underpaying your remote workers damages your brand reputation and increases layoffs.
Therefore, running an internal audit of your payroll teams is wise. If this is not possible, consider partnering with EOS providers like Gloroots to easily run global payroll.
How do you calculate employer and employee contributions for remote workers?
When paying your remote employees, employer-employee contributions to social security are too important. Employers need to ensure that they deduct contributions based on the payroll laws of the employee’s home nation. In general, employers deduct contributions for the following:
· Healthcare contributions
· Pension fund contributions
· Social Security contributions
· Unemployment payment contributions
· Additional cess for education and government initiatives
· Voluntary contributions
Employers must thoroughly review laws in each jurisdiction to pay compliantly. Each area has its own rules for taxes and required contributions. And employers need to contribute to remote employees according to local regulations.
Countries like South Korea have relatively high contribution requirements. Here the employer needs to contribute 4.5% for National Pension, 1.05% - 1.65% for Employment Insurance, 0.73% - 18.63% for Worker Accident Compensation Insurance, and 3.43% for National Health Insurance. Employees have to contribute 4.5% for National Pension, 0.8% for Employment Insurance, and 3.43% for National Health Insurance.
On the other hand, countries like South Africa have much lower contribution requirements. Certain countries, like Australia, have specific national standards. However, specific regions or provinces within a country might have rules for how much employers and employees need to contribute.
There are also intranational laws to ensure that contributions are paid correctly. For instance, the EU provides specific guidelines for benefits and contributions that are applicable to employees who work across borders.
What Is Income Tax for Remote Workers?
The employer's responsible for paying income tax for their remote employees in the country where they live and work.
In some cases, remote employees have to pay more than one form of income tax. For instance, the United States has a federal income tax., Apart from that, some states and localities of the country have implemented additional income taxes. So workers have to pay both taxes.
On the other hand, countries like Bangladesh allow their employees to file their income taxes themselves before a year-end deadline. Generally, an employer deducts income tax from an employee’s pay package and pays it to the respective tax authority.
To ensure that remote workers’ income is taxed correctly, you have to impose each employee’s applicable tax codes, brackets, or rates. If you fail to pay the appropriate taxes, your business may face legal actions and penalties.
Read More: Cost of an employee vs. cost of a contractor
Which Currency Should You Use to Pay Remote Employees?
When you and your remote employees are co-located, you can pay your remote workers in the local currency. But when you work with remote workers from different countries, you have to look for remote payment options and check if any legal requirements are there from your employees’ home country.
Some countries, like Indonesia, Vietnam, Brazil, etc., have employment laws that require you to pay your remote workers in the local currency. For instance, you must pay your Brazilian remote worker in Brazilian Reais (BRL), irrespective of your company’s primary location.
Certain countries and regions have relaxed currency regulations. So, employers are free to select currency and include that within the employment contract. In this case, employers can choose a non-local base currency or allow a fixed exchange rate to ensure payment stability for both the remote employee and the employer.
Exchanges of foreign currencies fluctuate and may result in financial losses for your remote employees. However, employee unhappiness is not a good sign for any business, particularly in a remote work environment. It is wise to look for suitable remote payment options, like home currencies or cryptocurrencies, to keep your workers happy.
How to pay remote workers in their home currency? Partnering with Gloroots can help you pay your remote employees across 140+ countries in their local currency.
Paying remote workers compliantly
It is crucial for globally operating businesses to have legitimate ways to pay employees and an efficient remote work payroll management system compliant with local and international laws.
You can partner with a trusted global payroll provider like Gloroots for a smooth-running international payroll system. Partnering with Gloroots can make your administrative tasks super easy. We not only help with the remote work compensation process but also help you to stay compliant with every local and international tax rule.
Gloroots offers you an amazing global payroll solution and allows you to onboard talents from 140+ countries. It makes paying remote employees simple, cost-effective, and compliant. Gloroots also provides advice on salary benchmarking, tax calculation and management, paying workers with their preferred currencies, and helping to mitigate risks.
If you want to try Gloroots, get in touch for a free consultation today.