When we say the words “international payroll,” what comes to mind? Extra paperwork? Compliance complications? Over-the-top transaction fees? If so, you’re not alone.
If this is your current payroll reality (or the reason you’re putting off hiring international workers), it doesn’t have to be! With a strategic, streamlined approach to international payroll, you’ll:
- Save time
- Save money
- Build stronger relationships with your international team
- Make it easier to attract new talent
Wherever you are on your international payroll journey, best practices like consolidating your tech solutions, simplifying payment platforms, and tightening up security will transform the process from complicated to simpler than you expected.
Why is International Payroll so Complicated?
If you’re used to only paying US-based employees, setting up international payroll can pose challenges every step of the way. You may find yourself juggling different banks, using multiple payment processors or e-wallets, paying hefty wire fees, and navigating local compliance issues. It all adds up to much more time spent on international payroll than you bargained for.
Why is it so time-consuming? Even though international payments are sent by 73% of companies based in the United States, it takes a lot of in-house resources and specialized knowledge in a wide range of areas to keep things running smoothly. Those are two things you might not have if you’re a startup or smaller company.
Getting things right is hard enough. But there are also repercussions for getting them wrong — especially when it comes to compliance. Without the help of a lawyer versed in local payment laws, you could spend valuable time sorting out tax and legal issues. And we’re not talking a single international lawyer, either. You’ll likely need one for every country where you do business.
Complications with international payroll can impact your employees and contractors abroad, too. While you may have a great working relationship with them, things can quickly turn sour if you aren’t properly set up to pay them for their work. Adhering to the best practices below will help you get a handle on international payroll, so it’s smooth sailing from onboarding to payment and beyond.
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 contracts, adhering to local employment laws, and employee benefits ... and then getting each of those right for every country where you’re sending payments. Could you use a different solution for each aspect of international payroll if you wanted to? Yes. But this approach can cost you a lot of time, money, and stress in the long run. It leaves much 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 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.
Trusting four vendors to handle the different parts of international payroll can cause similar stress — on an even bigger scale. A better approach? Thinking strategically about what you need and looking for a solution that incorporates all of it. Do you need to streamline paperwork? Are you concerned about compliance? Looking for a better approach to keeping track of invoices and submitting payments? Then search for a platform that ticks all those boxes.
Spend Less Time on International Payroll (yes, less)
Managing all the moving parts of international payroll can easily take multiple days of work. That is if you don’t take active steps to avoid the most time-consuming aspects.
International payroll doesn’t have to involve a constant struggle to keep up with different onboarding processes for different countries, expert-level cross-department coordination, and using multiple banks and processing solutions. But so often, HR professionals are drowning in tedious tasks like this. In fact, a study from G&A Partners found that employees in HR spend 73.2% of their time on administrative work. That doesn’t leave much room for strategy and other responsibilities that truly require the talent and experience of an HR professional. And it’s easy to see how this imbalance can cause companies (and their employees and contractors) to suffer.
Technology can’t replace a talented HR or Finance professional, but it can replace the tedious tasks that take up their time. It can also get those tasks completed faster. We recommend making a comprehensive list of the recurring administrative to-dos on your plate, grouping them into categories (payroll, recruiting, training, etc.), and then investigating what tech solutions are out there to help streamline and automate each. The time you spend on research will pay off faster than you think.
Another benefit of spending less time on the administrative aspects of international payroll? It will empower you to do the other parts of your job more effectively and efficiently: things like filling key roles, company-wide communication, problem-solving, and supporting employee development.
Be Strategic About Local Subsidiaries
Choosing the right format for doing business internationally is just as important as the actions you take once that business is set up. When you’re hiring international employees, setting up a local subsidiary is an approach many companies take, but it isn’t always the best move. It all depends on your company and its needs. Being strategic about this decision in the beginning will make things much easier long term.
If you’re new to the world of 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.
If this sounds complicated, that’s because it can be. While there are completely valid reasons why companies decide to take this approach, subsidiaries also come with significant costs and extra work for your accounting team. They also require a lot of local support (lawyer, local accountant, local HR professional). And they complicate your taxes.
If you don’t use a local subsidiary, there’s another option: an international PEO or Foreign Subsidiary as a Service. For startups and smaller companies, many times this is a better approach because it acts as your employer of record and puts your employees on their payroll. Foreign Subsidiary as a Service solutions are a good fit for companies just starting to do business internationally and figuring things out. They also make hiring faster compared to setting up subsidiaries and let you outsource the work of managing local compliance.
Keep All Your Paperwork in One (Digital) Place
Tax forms, labor laws, and even contract requirements change from one country to the next, making it hard to keep track. Hiring international employees and contractors can shake up your go-to process if you’re not taking a streamlined approach.
Navigating all that paperwork isn’t just about tackling form after form. It’s also valuable time spent by HR, finance, hiring managers, and others. The steps required to complete it can even delay when a new team member actually starts doing their job (in some cases for months).
Paperwork is inevitable. Getting bogged down by it isn’t. Taking it digital and streamlining your approach to getting it completed adds up to a significant increase in productivity. That’s especially important when you’re hiring talent abroad, and the paperwork and processes look dramatically different from the one you’re used to.
We recommend choosing a centralized, digital place for contractor forms, invoicing, expense reports, scheduling payments, and other tasks currently done on paper or managed on multiple different platforms. This makes it easier for everyone involved in these tasks to see the status of — and sign off on — each part of the process. It also leads to employees and contractors getting started on projects faster. This means your business will benefit from their work faster, and they’ll get paid faster, too.
Just Say No to E-Wallets and Wire Transfers
E-wallets and wire transfers cost your contractors money. Which means they’re actually paying to work for you. 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. Sending payments directly to your contractor’s bank account (ideally in the local currency) avoids all of these headaches and more.
E-wallets (like PayPal) add more steps than necessary to the payment process. They work like this: a contractor sends an invoice, and the company deposits those funds into a digital wallet. The money stays there until the contractor transfers it to their bank account. In some cases, they can also spend the money using the e-wallet’s debit card.
If they want to deposit that money into their bank, transferring it out of PayPal can take up to five days — unless you’re willing to pay a fee. Depending on the countries where you have contractors, you might find yourself juggling multiple e-wallets, too. E-wallet availability varies by country.
Meanwhile, wire transfers are initiated through a US bank and sent to a contractor abroad. And the fees are hefty: as high as $50 USD to send a single international wire transfer and $25 to receive one.
A much better approach for everyone: managing each part of the payment process in one place, from invoice approvals to sending that money right to the bank account of each contractor, using local currency payments and bank transfers whenever possible. With the right approach, it’s possible to have no transaction fees, no delays, and no extra manual work for you.
Tighten Up Security
When it comes to security, doing it yourself won’t actually save you any time or money. Investing in a platform that’s serious about strict security and compliance procedures will help avoid disaster.
How real is the risk of not following this best practice? In 2020 alone, there were 3,932 data breaches with 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 holes 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 data from employees and contractors: not just names, but addresses, Social Security numbers, and other identifying details. That’s why being proactive about security is important not just for payroll but all aspects of business. Not doing so can cost a company’s reputation and leave them dealing with lawsuits and more.
When you streamline and tighten up security, it frees up time for more people-based strategies for keeping data safe ... like training employees on how to spot suspicious emails. This guide from Allstate gives a helpful overview of more employee data protection best practices for HR teams.
Break Away from the Competition for Talent
Another reason to master international payroll? Talent loyalty. The competition for talent is going global. According to PwC’s 2019 Talent Trends report, 79% of CEOs said they’re concerned about finding tech talent as demand to fill digital roles increases. This demand has led many more companies to expand their possibilities beyond their home state or even their home country. Once you find great talent, wherever they live, you want to do whatever it takes to keep them around.
As more companies realize the potential 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 employee experience as your local talent.
It’s true that hiring international team members means navigating exchange rates, contracts, tax requirements, and other legal obligations. But the payoff is a bigger pool of potential candidates. Take Argentina, for example. The country has a startup culture, a strong community of ex-pats, and is home to many workers in technical fields, including engineers. Of course, doing business there is very different than doing business in the United States.
Thankfully, there are ways to make it easier on your internal team. One of the most impactful is adopting a centralized approach that accounts for local laws and compliance, streamlined administrative tasks like onboarding paperwork, and getting money into the hands of your international workers quickly and without costly fees.
Why does this matter? Because if you simplify international payroll and everything that goes along with it, it also benefits the people who work for you. After all, getting paid and knowing exactly when to expect those payments helps create a much better working relationship.
To Master International Payroll, Simplify as You Grow
International payroll is complicated. Over 600 global labor regulations around reporting and compliance were introduced in 2018 alone. When the pieces you need to get right range from reporting to contracts to security, it’s easy to assume you’ll need a whole roster of platforms to keep things running smoothly. At Pilot, we’re challenging that assumption in several big ways. What does that look like?
- Helping you every step of the way, from streamlining paperwork to sending payments — for both your employees and international contractors.
- If setting up your own local subsidiary isn’t the right fit for your business, we’ll take care of local employment law for you, so you don’t have to worry about missing something when it comes to contracts, payroll, benefits, and filings. We’ll also take on the risk of putting your employees on our payroll. Plus, all fees associated with setup, transfers, and expense reimbursements are covered in your monthly cost.
- We give HR teams and business owners valuable time back in their days. In the words of Julie Menge, HR Operations Lead at Pilot customer HelpScout: “It used to take hours to deal with monthly payments for our contractors from over a dozen countries. Now that hours-long operation takes about 10 minutes.”
- We help you dramatically cut down on administrative work with a centralized place for contractor forms, invoicing, expense reports, scheduling automatic payments, and more.
- We even pair you with a success manager who’s an expert in local compliance and give you access to a global network of lawyers to make sure contracts are airtight. We’ve seen how it’s a lifesaver for busy HR professionals and business owners.
- We support local currency payments in more than 70 countries and transfer the money directly to your contractor’s bank account. We make invoice approvals easy, too. Even if multiple approvals are needed. No wait time and no withdrawal fees in sight.
- We’re serious about strict security and compliance procedures. In fact, we’re SOC 2 compliant. That means you automatically get multi-layered security when you manage international payments with Pilot. And that will give not only your finance team but everyone who works at and for your company peace of mind.
Growing from a small, local team to officially 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. When you work with Pilot, we take a once-complicated process and make it simple so you can focus on the work you do best.
To learn more about Pilot, request a demo with one of our experts.
⚖️ 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.