How To Pay Remote Employees Globally: Compliance & Payroll Guide

With nearly 59% of companies now managing remote or hybrid teams, the challenge isn’t whether you’ll pay people across borders- it’s how to do it correctly.

Many HR leaders don’t realize their payroll system is breaking until it’s too late. What works for five remote employees often fails at fifteen leading to:

• Missed tax filings and compliance issues
• Incorrect salary calculations and withholdings
• Currency losses that eat up 8–12% of payroll
• Late payments that push employees to look elsewhere

Your first international hire is an entry into a new legal and tax system. Hiring a developer in Portugal or a designer in the Philippines means learning about local labor laws, benefits, and payroll schedules that differ from your home country.

This guide explains how to pay remote employees compliantly, explore different payroll models, and avoid common mistakes that can lead to fines or employee turnover.

What Does It Mean to Pay Remote Employees?

Paying remote employees is more than just sending money to their bank accounts. It also means following the employment laws, tax rules, and benefit requirements of each country where they work.

At its core, paying remote employees correctly involves:

• Proper worker classification as either employees or contractors
• Registering for local payroll and handling tax deductions
• Providing statutory benefits like health insurance, pension, and paid leave
• Using employment contracts that meet local labor standards
• Paying employees accurately and on time in their preferred currency

Many companies treat international payroll as a basic finance task. In reality, it requires coordination between HR, legal, finance, and operations. A single error such as misclassifying a worker or missing a tax filing can result in penalties, audits, and reputational harm.

In 2025, the U.S. Department of Labor recovered more than $259 million in unpaid wages, showing how seriously payroll compliance is enforced (source).

Remote work has made it easier to hire globally, but it has also made payroll more complex and demanding.

Remote Employees vs Independent Contractors: Why Classification Matters

Countries such as Spain, Germany, and France have strict rules to define employment status. If a company gives a worker fixed hours, company equipment, or requires them to work only for one employer, local authorities may classify them as employees even if their contract says contractor. This can result in back taxes, fines, and the need to provide benefits like paid leave or severance.

For example, a U.S. tech company hired 12 contractors in Germany who worked full-time using company laptops. After an audit, German authorities reclassified them as employees, leading to about €180,000 in back taxes and penalties.

If someone works only for your company, follows your schedule, and uses your tools, they are likely an employee under local law regardless of what the contract says.

What are the Legal and Compliance Requirements When Paying Remote Employees?

Every country has its own employment laws, and ignoring them does not make a company exempt. Compliance starts before hiring and continues through the entire employment period.

Below are the main areas every employer must manage when paying remote employees:

1. Employment Contracts

Contracts must meet local labor law requirements. For example, indefinite contracts are standard in France, employees in Brazil expect a 13th-month salary, and in India, contracts must mention provident fund contributions.

2. Payroll Registration

Most countries require employers to register for payroll taxes before hiring. Without registration, you cannot legally withhold or submit taxes on behalf of employees.

3. Tax Withholding and Remittance

Employers are responsible for calculating, withholding, and submitting income taxes and social security contributions. Each country follows its own rates, timelines, and filing rules.

4. Data Privacy and Security

Laws such as the GDPR in Europe and the LGPD in Brazil regulate how employee data is collected and stored. Violations can result in fines of up to €20 million or 4 percent of global revenue.

5. Termination and Severance

Ending employment abroad must follow local procedures. Many countries require notice periods, severance pay, and valid documentation for termination.

Accurate compliance in these areas prevents fines, lawsuits, and reputational damage, making it a critical part of managing international payroll.

Taxes, Social Contributions, and Statutory Benefits

Paying employees involves more than sending a salary. Each country has rules for tax deductions, social contributions, and mandatory employee benefits. Understanding these rules ensures compliance and keeps employees satisfied.

What Gets Deducted

Income Tax

Tax rates vary by country. Employers must deduct income tax from each paycheck and submit it to local authorities, usually monthly or quarterly.

Social Security and Pension Contributions

Most countries require both employer and employee contributions to social security or pension programs. For example, India uses the Provident Fund (PF) and ESIC, while Brazil uses the INSS system.

Health Insurance

Some countries require employers to provide health coverage, such as Switzerland and the Netherlands. In other countries, health coverage is included in social contributions, such as the United Kingdom through National Insurance.

Unemployment and Disability Insurance

Several European countries, including Germany and France, require contributions to unemployment and disability insurance funds to support workers during job loss or illness.

What Employers Must Provide

Paid Leave

Paid leave requirements vary. The United States typically offers around 10 days if provided, Europe averages 20 to 30 days, and India provides about 21 days per year.

Public Holidays

Employees are entitled to paid time off on national holidays. The number usually ranges from 10 to 15 days per year.

Parental Leave

Many countries mandate paid maternity and paternity leave. For example, Sweden has generous family leave policies, while India provides up to 26 weeks of paid maternity leave.

Severance and Notice Periods

Termination rules differ by country. France generally requires one to three months’ notice depending on tenure, while Brazil mandates severance tied to total earnings.

Statutory benefits are legal requirements, not optional perks. Failing to comply can result in fines, legal action, or reputational damage.

Common Ways to Pay Remote Employees Globally

There are three main models for paying international employees. Each has different levels of control, compliance risk, and cost.

1. Set Up a Local Entity

How it works: You create a subsidiary in the country, register for payroll taxes, and hire employees directly.

Best for: Companies with 50 or more employees in one country or with a long-term presence.

Advantages:

• Full control over hiring, payroll, and benefits
• Lower per-employee cost at scale

Challenges:

• Takes 3 to 8 months to set up
• Upfront cost of $30,000 to $150,000
• Requires ongoing legal, accounting, and HR support

2. Use an Employer of Record (EOR)

How it works: The EOR is the legal employer, handling contracts, payroll, taxes, and compliance while you manage day-to-day work.

Best for: Companies hiring 1 to 30 employees or testing new markets.

Advantages:

• Onboard employees in 48 to 72 hours
• No need to set up a local entity
• Compliance managed by the EOR

Challenges:

• Costs $200 to $600 per employee per month
• Less control over benefits and contracts

3. Hire Contractors

How it works: Engage workers as independent contractors. They invoice you and handle their own taxes.

Best for: Short-term or project-based work.

Advantages:

• Fast and flexible
• No payroll registration or tax withholding required

Challenges:

• High risk of misclassification
• No control over work hours or methods
• Can trigger audits if used for long-term work
  Warning: Misclassifying employees as contractors is a common and costly payroll mistake.

Payroll Frequency, Currency, and Payment Methods

How often you pay employees, the currency you use, and the payment method all affect compliance and employee satisfaction.

Payroll Frequency

• Monthly: Standard in most of Europe, India, and Southeast Asia
• Bi-weekly: Common in the U.S. and Canada
• Semi-monthly: Used in some U.S. states and Latin America

Local labor laws often determine payroll frequency. For example, Brazil requires monthly payments by law, while some U.S. states mandate bi-weekly pay for hourly employees.

Currency and Foreign Exchange Management

Employees can be paid in your home currency or their local currency. Most prefer local currency to avoid exchange rate risk.

Key risks:

• Currency fluctuations can increase payroll costs by 8 to 20 percent annually
• Employees may lose money if paid in unstable foreign currencies
• Hidden fees from banks and payment providers can add up

Solution: Use global payroll platforms that offer transparent FX rates and multi-currency support.

Payment Methods

• Bank transfer (wire or ACH): Standard in most countries, fees vary
• Digital wallets (PayPal, Wise, Payoneer): Fast and cost-effective, mainly for contractors
• Payroll cards: Mostly for unbanked workers
• Local payment rails (UPI in India, PIX in Brazil): Fastest and cheapest for local transfers

Key insight: Payment preferences differ by country. 

For example, Germans usually prefer SEPA transfers, Filipinos often use digital wallets, and Indians expect UPI or direct bank deposits.

Choosing the Right Payroll Model for Your Remote Team

Your payroll model should align with your company size, growth stage, and tolerance for compliance risk.

Decision Guidelines

• Hiring 1–10 employees: Use an EOR. Speed and compliance are more important than cost.
• Hiring 10–30 employees: Continue with an EOR unless you are committed long-term in one country.
• Hiring 50+ employees in one country: Form a local entity. The upfront cost pays off over time.
• Need flexibility: Contractors can work for short-term projects, but check classification carefully.

Many companies think spreadsheets are enough until they reach 15 employees. By that point, they are managing multiple payroll providers, missing tax filings, and losing money to currency fluctuations.

What are the Common Mistakes Companies Make When Paying Remote Employees?

Most payroll failures are predictable. Here's what to avoid:

• Treating all countries the same – Local laws differ. France requires indefinite contracts, Brazil 13th-month salary, India PF/ESIC.
• Misclassifying contractors – Full-time workers under your schedule and tools are usually employees.
• Delaying payroll setup – Waiting leads to compliance issues.
• Ignoring currency risks – Unstable currencies and high fees reduce pay.
• Overlooking compliance updates – Laws change constantly.

Pay Your Remote Employees Compliantly With Gloroots

Managing payroll for remote teams can be complex and risky. Gloroots simplifies the process, so you can focus on growing your global workforce without worrying about compliance.

With Gloroots, companies onboard employees in 48–72 hours, stay compliant across 140+ countries, and reduce administrative overhead by over 250 hours annually.

What Gloroots Offers:

• Employer of Record (EOR) Services – Hire employees in days without forming entities. Gloroots handles contracts, payroll, taxes, and compliance end-to-end.
• India Specialization & GCC Enablement – Set up Global Capability Centers with full support for PF, ESIC, gratuity, and statutory filings.
• Global Payroll & Multi-Currency Payments – Automate payroll, tax withholdings, benefits, and payouts in local currencies with transparent FX handling.
• Contractor Management & Conversions – Engage contractors compliantly and convert them to employees seamlessly.
• Finance Visibility & Audit-Ready Reporting – Access detailed invoices, GL mapping, and accounting exports for complete transparency.

Centralized payroll and HR operations improve efficiency and give your team the freedom to focus on growth.

Simplify Your Global Payroll Today — Book a Demo with Gloroots

Frequently Asked Questions

1. What is the difference between paying remote employees and paying contractors?

Employees require tax withholding, social security, benefits, and compliant contracts. Contractors handle their own taxes and invoice you directly.

2. How long does it take to start paying employees in a new country?

With an EOR, you can onboard and pay employees in 48–72 hours. Setting up a local entity takes 3–8 months.

3. Can I pay remote employees in my home currency instead of theirs?

You can, but currency fluctuations can reduce take-home pay and local deductions may still be required. Paying in local currency is safer.

4. What are the biggest payroll compliance risks when hiring internationally?

Misclassification, incorrect taxes, missing benefits, and data privacy violations are the main risks. Non-compliance can lead to fines and legal action.

5. When should I switch from an EOR to setting up my own entity?

Use an EOR for 1–30 employees or market testing. Once you have 30–50 employees and proven demand, forming an entity becomes more cost-effective.