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7 Best Practices to Master International Payroll

International payroll can be a real headache to manage for sure but fear not — these international payroll best practices will help.

Dollar bills in a mini-trolley beside an open laptop to symbolize international payroll

Pilot Team

Published on September 23, 2022

Best practices to master international payroll 🌏

Do the words “international payroll” strike fear into your heart? International payroll can be a real headache to manage for sure, from maintaining accounts with different banks and payment processors to paying hefty wire fees and navigating compliance issues. It takes a lot of in-house resources and specialized knowledge to keep your international payroll running smoothly — two things you might not have if you’re a company just beginning to scale and hire abroad. Without these things, you’ll likely spend precious time managing your international payroll.But fear not — international payroll doesn’t have to be a struggle for your HR team or the reason you’re hesitant to hire international workers. Pay your international employees and contractors regularly and easily by taking a strategic, streamlined approach to international payroll. The seven international payroll best practices below will help you optimize how you pay your workers, from onboarding to payment and beyond. The more reliable your payment process is for paying employees and contractors, the more efficiently your business as a whole will operate.

1. Trim down your third-party solutions ✂️

If you’re bracing yourself for a roster of different third-party solutions to cover all your bases, here’s some good news: simplifying everything in one place is likely a better and more cost-effective approach.It’s a common misconception that managing international payroll requires multiple solutions, and it’s easy to see why. After all, payroll isn’t just about sending payments. It also involves drafting contracts, adhering to local employment laws, and managing employee benefits ... and then getting each of those things right for all the different countries where you have workers. Could you use a different solution for each aspect of international payroll if you wanted to? Sure. But this approach can cost you a lot of time, money, and stress in the long run. It leaves more room for error, too.It’s helpful to think of third-party solutions like this: Imagine you’re booking a vacation with three friends. You book flights. One friend books the hotel. Another one books a rental car. And another plans the itinerary for each day. Each of these requires a lot of back and forth. Plus, everyone prioritizes different things (optimal flight time vs. best price, for example). Nobody feels like they have control over the trip. Meanwhile, travel agents are trained to do all these things in far less time.

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Trusting multiple vendors to handle the different parts of international payroll causes similar stress, but on an even bigger scale. A better approach? Think strategically about what you need, and look for a solution that incorporates all of it. Your international payroll solution should be like a well-versed travel agent for your company. It should act as a concierge for automating your international payments and helping you navigate the local laws of every country where you’re looking to hire. Do you need to streamline contractor paperwork? Are you concerned about compliance? Are you looking for a better way to keep track of invoices and automate payments? If so, search for a platform that ticks all those boxes.

2. Outsource payroll management 💻

Managing all the moving parts of international payroll can easily consume entire days or even weeks of work. Oftentimes, HR professionals drown in tedious tasks like payroll administration. According to West Monroe, 59% of managers surveyed indicated that they spend 3 or more hours a day on administrative tasks. That doesn’t leave much room for strategy and other responsibilities that truly require the talent and experience of an HR or Finance professional. Reallocate their attention and time to more urgent matters by outsourcing payroll tasks and harnessing the power of technology via automation, which can complete simple, repetitive tasks faster than a human could.Empower your team to do the other parts of their jobs more effectively and efficiently by freeing up their time from the busy work of payroll. They should instead focus on more strategic initiatives, like filling key roles, improving internal communication, and supporting employee development.Make a comprehensive list of the recurring administrative to-dos on your plate. Group them into categories (for example, payroll, onboarding, benefits, etc.). Then, investigate what tech solutions are out there to help streamline and automate each. Prioritize solutions that can handle multiple needs so you limit the number of third-party tools in use. Finally, implement these new tools and integrate them into your workflows.

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3. Use caution before opening local subsidiaries 🏢

When you’re hiring international employees, setting up a local subsidiary is an approach many companies take. If you’re new to the world of foreign subsidiaries, they’re essentially companies owned by your company. A subsidiary is a different legal entity from your company. In the case of international subsidiaries, each one needs to follow local laws and tax regulations.If this sounds complicated, that’s because it can be. While there are completely valid reasons why companies decide to take this approach, like global expansion into new markets, subsidiaries come with significant costs and extra work for your accounting team. They also require a lot of local support, so you’ll need to consult with a local lawyer, accountant, and HR professional at the very least.Meanwhile, subsidiaries also tend to complicate your company’s taxes. You’ll need to file taxes twice — in your own country (for the parent company) and in the foreign country (for your subsidiary). That’s twice as many opportunities for tax compliance issues to pop up.As you can see, opening local subsidiaries isn’t always the best move. Don’t rush to open a local subsidiary just because you think it’s the only way to hire international employees. Think strategically about this decision. Does opening a local subsidiary align with your company’s long-term needs? Fortunately, there are other options for hiring international employees and contractors that you can explore as an international business.One of the better ones is partnering with an international PEO or an Employer of Record (EOR) in your target country. This means your hiring partner is already set up to hire and pay workers in foreign countries, placing your international employees on their local payroll on your behalf. The global payroll services offered by these partners are ideal for companies just starting to do business internationally. They also cater to companies that don’t yet have the time or money to invest in opening and maintaining foreign subsidiaries before hiring internationally.

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4. Keep all your paperwork in one (digital) place 🏦

Organization and standardization are key when hiring international employees and contractors in different countries. Tax forms, labor laws, and even contract requirements change from one country to the next, making it hard to keep track. Navigating payroll paperwork isn’t just about making sure international hires check all the right boxes and fill out their W-8BEN form. It also involves ensuring that employment contracts are compliant with local laws and signed by all the relevant parties.Paperwork is inevitable. Getting bogged down by it isn’t. Taking your paperwork digital results in greater visibility into what’s been done and what hasn’t. It also gives your paperwork a single location to live instead of dozens of files distributed across individual employees’ hard drives. Giving your forms a single place to live online (like Google Drive or Dropbox) makes it easier for everyone involved in these tasks to see the status of — and sign off on — each step of the process.

5. Avoid paying through e-wallets and wire transfers 💱

Despite their popularity for sending international payments, e-wallets and wire transfers can cause several problems — among them, fees for you, fees for your contractors, lack of flexibility for your company’s approval process, and delayed payments.E-wallets like PayPal add more steps than necessary to the payment process: 
  • Step 1: A contractor sends an invoice.
  • Step 2: The company deposits those funds into a digital wallet. 
  • Step 3: The contractor transfers the money to their bank account. In some cases, they can also spend the money using the e-wallet’s debit card.
If your contractor wants to deposit that money into their bank, transferring it out of PayPal can take up to five days unless they’re willing to pay a fee. Depending on the countries where you have contractors, you might find yourself juggling multiple different e-wallets, too. E-wallet availability also varies by country.Meanwhile, wire transfers are initiated through a US bank and sent to a contractor abroad. he fees are hefty. They can go as high as $50 to send a single international wire transfer and $25 to receive one.Paying contractors directly with as few transfers and delays as possible is a much better approach for everyone. Everyone likes to see their paycheck direct deposited into their bank account. With the help of a local payroll processing partner like Pilot, you can pay each contractor or employee directly through their bank account in their local currency. These local partners help you avoid hefty wire transfer fees, time-consuming delays, and extra manual work.

Legal Disclaimer:

The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.

6. Choose tools that ensure security 🧰

When it comes to security, doing it yourself won’t actually save you any time or money. Investing in payroll software that’s serious about strict security and compliance procedures will help avoid disaster.How real is the risk of not prioritizing data security? In 2020 alone, there were 3,932 data breaches reported and over 37 billion records exposed. There’s no denying that hackers are out there looking for companies with weaknesses in their security. You don’t want to be an easy target.An international, multi-platform, many-step payroll process comes with especially high security risks. And if you’re not an expert at international compliance, you could be setting yourself up for a messy situation.The problem? If you’re a smaller company, hiring internal resources for this might feel near-impossible. But that doesn’t mean security threats are inevitable.When you’re looking for a platform to manage international payroll, you’ll want to prioritize SOC 2 compliance. That means you’ll automatically get multi-layered security protocols and the peace of mind that comes along with them.HR handles a lot of sensitive data not just names but also addresses, Social Security Numbers and Individual Taxpayer Identification Numbers, and other identifying employee information. That’s why being proactive about security is critical not just for payroll but for all aspects of a business. Not doing so can cost a company’s reputation and leave them dealing with lawsuits and more.

7. Prioritize your workers 👷

On paper, the goal of payroll is simply to compensate your contractors and employees properly and on time. In practice, payroll is a huge part of employee satisfaction, so make sure to prioritize your workers in your payroll operations. A worker-focused payroll experience means your employees and contractors always know when they’ll be paid and how much to expect per paycheck. It’s essential to creating a healthy working relationship. In contrast, a poorly designed payroll experience means that contract workers don’t know whether they’ll be paid on time and how much of their paycheck they’ll lose to transfer fees.As more companies realize the benefits of hiring international team members, make sure you’re creating a great experience for both international employees and contractors. They’re part of your team, too, and deserve the same positive employee experience as your local talent.

Pilot simplifies international payroll for scaling teams 👥

Growing from a small, local team to becoming a company with an international presence is a milestone worth celebrating. The never-ending nuances of paying employees and contractors who live abroad shouldn’t put a damper on the excitement. At Pilot, we exercise all of these best practices while handling your international payroll for you, so you can focus on doing your best work and growing your business.We offer a centralized all-in-one solution for all your international HR and payroll needs. You don’t have to set up a local subsidiary to hire internationally and compliantly.We help you hire and pay international employees in over 100 countries and contractors in over 240 countries. Compliance is a non-issue for our clients and their contracts, who all have access to a skilled support team that is knowledgeable in local tax laws and payroll compliance for your target countries. For small and large businesses alike, Pilot is the perfect partner to streamline your international hiring processes, paperwork, and payroll.Book a free demo to find out how we simplify the once-complicated process of international payroll.

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From startups to large corporations, US companies of all sizes use Pilot for international payroll, benefits and compliance.

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