Going Global: Challenges of Paying Employees Overseas
Modern technology has made it possible to recruit and work remotely with employees across the globe. Gone are the days when all your employees had to be stationed in the same office to work on a project.
Today, you can use video conferencing software and project management tools to facilitate coordination and communication in a team that’s spread across multiple locations. Consequently, a global workforce is gradually becoming the norm for companies, irrespective of their size and niche.
This isn’t surprising considering the awesome benefits that global recruitment and remote work offer. To begin with, it introduces cultural diversity and multiple perspectives in your team. This can go a long way to encourage innovative thinking and creative problem-solving among your employees.
It’s crucial when you want to break into new markets and expand your business internationally. Also, when your employees work remotely from the comfort of their homes, it can increase their productivity and efficiency. Recruiting employees in certain countries can even be more economical than hiring from your home country.
Having said that, building a global workforce comes with its own set of obstacles. From managing multiple time zones to ensuring complete transparency - you need to overcome various hurdles.
However, the biggest challenge of recruiting employees across the globe is managing payroll. From compliance issues to payment delays - you’re likely going to face various problems while paying international employees.
In this article, we’ll discuss some of the most common challenges you’ll have to overcome to pay employees overseas. But let’s first take a closer look at the different employment models you can use to build a global workforce.
How to Build a Global Workforce
Typically, if you’re looking to recruit international employees, you’ll likely use one of the following employment models:
This is a common choice for small and mid-sized businesses. Instead of recruiting full-time employees, you hire freelancers on a contractual basis. It saves you the trouble of providing any benefits, bonuses, and other incentives. When hiring contractors though it’s important that they are contractors to avoid the risk of misclassification.
From compliance issues to payment delays - you’re likely going to face various problems while paying international employees.
In this model, you recruit part-time or full-time employees from a foreign country and make them a part of your global payroll. This requires you to keep a tab on the taxes and labor laws in their host country. You will also have to establish a legal entity in the host country before you can directly recruit international employees. This is known as the global payroll model, to distinguish it from the contractor and global PEO models even though all 3 global workforce models require paying and a ‘payroll’ to your overseas hires.
The global PEO or professional employer organisation model allows a company to use a professional services company to hire and become the employer of record for the employee in the overseas country. The global PEO is responsible for handling all employee-related responsibilities, including payroll processing, tax management, benefits management, etc. Recruiting through a global PEO simplifies the overseas talent acquisition and onboarding process enabling you to hire overseas without having to first open a local entity.
Challenges of Paying International Employees
Unless you have partnered with a global PEO who will undertake the payroll and ensure that your employees’ salaries are in accordance with local payroll taxes, you’ll have to manage payroll for your international employees. Even if you have recruited freelancers, you will still need to ensure that they’re paid the right amount at the right time.
Here are a few common challenges you’ll encounter when paying employees overseas:
1. Compliance Across Multiple Jurisdictions
Every company has its own set of labour laws and tax legislation. Even if you’re establishing a legal entity in a foreign country, you’ll need an expert to guide you through the local laws.
If you fail to adhere to these regulations, your company might be liable for financial penalties. That’s why compliance is the most common problem you’ll experience when paying international employees. This can become particularly challenging when you need to keep a track of multiple laws across various jurisdictions.
Hiring independent contractors doesn’t exempt you from the purview of compliance. This is because if you exclusively work with a freelancer for a long period, it could potentially make them look like full-time employees in the eyes of the local jurisdiction.
2. Manual Processing Across Multiple Payroll Calendars
If you’re working with many contractual employees across the globe, they’re likely going to follow diverse payroll calendars. Monitoring these calendars and making manual payments in a timely manner can be excruciatingly difficult.
Also, when you’re paying employees in different countries, you need to account for various processing delays. While in some countries, the bank processing time is only a few hours, others can take days or weeks to complete a transaction.
You need to factor in these delays in your payroll calendar to ensure that your employees get paid on time, irrespective of where they’re located.
3. Moving Money Across Borders
Wiring money to different countries isn’t the same as making a bank transfer in your home country. You need to consider various factors, including the currency exchange rate and processing fees.
Manually tracking these details on a regular basis is going to be challenging. Also, depending on the number of overseas employees, you might end up spending a lot of money on processing fees.
Wiring money to different countries isn’t the same as making a bank transfer in your home country.
Global Payroll is the Solution
If you’ve had any experience in hiring and paying overseas employees, you’re likely be already familiar with the concepts explained here. For those taking their first steps in hiring abroad, this post should give you an idea about some of the complexities involved.
What steps is your company taking to simplify the process of paying overseas employees? Share your tips in the comments section below.