Having employees who are based abroad brings so many benefits. You get access to the best people from around the world and they offer a foothold into new markets. Letting your existing team members work abroad is also a huge perk and makes you an attractive employer. During the coronavirus pandemic there has been a surge of people looking to do their current jobs in another country.
However, when it comes to paying remote workers who are based abroad, things get a little trickier. Here is what you need to know.
Establish your tax and legal responsibilities
The biggest headache of having employees work abroad is figuring out their tax and legal status. This will vary according to a number of factors:
- Where they are legally resident
- If there are existing double taxation agreements between your country and the employee’s host country
- How long the employee will be living and working in that country
- How the host country views their employment status (some countries will expect to claim tax on residents working there immediately, others are more relaxed)
In the UK, HMRC has a full guide on PAYE implications when staff are working abroad.
Besides figuring out whether or not you need to withhold tax from their payslips, you will also need to consider local labour law and cultural factors. For instance, most employees will expect you to meet national employment standards in their country of residence (such as the number of days paid leave) or breaks for major local holidays.
5 ways to pay employees based abroad
There are several different ways to pay remote employees based abroad. Each has its own advantages and drawbacks, and the final choice will depend largely on the kind of work being done, how many people you employ and your relationship with them.
The following are the five most common options for paying employees based abroad:
Continue with standard payroll
If the employee is a permanent resident in your country but is simply working remotely for a few months, it is usually fine to just keep paying them their regular salary as normal. This would be the best approach for short term remote working situations. For instance, a UK company that employs a Spaniard who usually lives in the UK but decides to work from her hometown during the lockdown.
However, it is important to understand how rules in the host country might affect this. Many countries will consider you to be doing business on their territory if the employee is undertaking certain activities or living there for a certain period of time. In that case, the government will expect to collect tax.
Treat the employee as a contractor
An alternative – and relatively easy option – is to simply treat the employee as a contractor. In this case, the employee would set up their own company and you pay them as a supplier. They would then be responsible for sorting out their own tax affairs.
This approach is perhaps the most straightforward, yet it puts you, and the employee, in a legal grey area. In many countries there are laws that make this kind of arrangement either illegal or which try to discourage it.
Set up a local office
This is the most ‘official’ way of paying employees abroad and will certainly be the most legally compliant. If you are hiring several people in a country, it might make sense to have an office there, and this can process all payments to staff easily.
The drawback of course is that this approach is time consuming and can be fairly expensive too.
Use an ‘employer of record’ (EOR) service
There are various companies offering EOR services for paying remote workers abroad. The employer of record will have a legal structure in many different geographies, and they become the legal employer of that individual wherever they’re living. You pay the EOR who in turn pays your employee.
Once again, this is a more ‘official’ route to employing people abroad, and it removes the headache of setting up a company. The drawback, of course, is that you have to pay the EOR a fee, and these can be hefty.
Use a trusted local partner
A final option is to come to an agreement with a business in your employee’s country whereby they employ the person to their company and manage all payroll and taxes. You then simply pay that company as if they were a supplier.
Once again, this is relatively straightforward but there are some important issues to consider. If, for instance, the employee is unhappy about something at work and wants to sue you, it puts you, and the local partner, in a difficult situation.
Use an appropriate banking method
Whichever way you choose to pay employees based abroad, you will want to avoid fees when paying their salary! It is therefore sensible to choose a business bank account which is designed to make paying workers abroad easy. Choose a bank which:
- Lets you pay direct debits anywhere in the world
- Lets you hold multiple currencies at once and move money between accounts
- Allows you to make payments in all major currencies
Business bank accounts from Xace are designed for companies with an international footprint. Our FCA licensed bank accounts support fast payments around the world at the best rate available and make payroll to multiple countries seamless. Whether you’re paying contractors in Finland or transferring money to your local office in Italy, Xace takes the pain out of payment.