As a company begins to build a remote work team across multiple geographic regions, one central issue is how to pay remote workers. A remote work team might have members in several different countries, which presents a challenge in running payroll. There are various alternatives to administering a payroll, depending on the worker’s location. These include a remote payroll, payment to a local partner or outsourcing payroll to a third party ‘employer of record’ such as a GEO service.
Factors to Consider When Paying Remote Workers
There are several factors that will guide a company in selecting a method of paying remote workers.
Is the worker an employee or independent contractor?
If the remote worker is a contractor, payment is simpler due to the fact that there are no withholding or tax obligations for the company. Employees will require withholding from payroll, depending on residency and payroll location.
Are they located in another country?
An employee in another country may require a company to either outsource or run a local payroll, unless a remote payroll is permitted under local laws.
What is the base currency used to determine and pay compensation?
Sometimes a remote worker will expect payment based on their own local currency, and depending on exchange rates and currency fluctuations it can be difficult to equalize the pay rate among team members.
Is the worker full time or project based?
Full time employees can be paid on a regular basis, and once the payment method is set up it can be largely automated. Project based contractors will need to be paid on completion, requiring manual payment methods.
How to Pay Remote Workers: 4 Easy Solutions
For most remote workers, there are four payment solutions that are available, assuming that the company does not have a subsidiary or office in the worker’s location. It is not really feasible to set up an office where every remote team member is located, so one of these four solutions will be easier and more cost-effective.
1. Paying Remote Workers Through a Local Partner
If a company works with a local partner or affiliate in the worker’s country of residence, then they might be willing to place the employee on their payroll. In essence, the worker would be a legal employee of the partner, and part of their payroll, withholding and benefits system. The home company would continue to direct and supervise the employees work.
2. Paying Remote Workers on Home Country Payroll
Remote employees can be paid via the company’s home country payroll under certain circumstances. Some countries do not allow remote payrolls from a foreign company, but there may be specific laws that permit it as long as the company registers the employee. In that case, payment can be made to the employee while complying with host country withholding requirements.
3. Outsourcing Payroll Process for Remote Workers
The use of third parties for outsourcing payroll is an effective solution for paying a remote worker in a foreign country (or even between states and regions within the home country).
The first choice is to use a local payroll provider that primarily computes withholding, compensation and then issues the check. The second outsourcing option is a GEO service, that offers full payroll and employment compliance in the worker’s country. The GEO service differs from payroll providers, since the GEO has a legal entity in place that functions as the local employer of record for the remote worker.
4. Pay Remote Workers as Independent Contractors
Often companies will use independent contractors for remote work, and this can simplify the payment process. Since the contractor is responsible for their own taxes and benefits, the company simply needs to remit payment to the worker under the agreed terms and schedule.
The best tools for independent contractors include:
Third party electronic payment platforms such as PayPal or Payoneer. The transfer is instant and the contractor can then forward funds to their bank if they wish.
Traditional remittance services such as Western Union can also be used, but for frequent transfers the fees may be higher than other options.
Using freelance job platforms with a built in escrow or billable hours function, which is a good solution for newer remote contractors.
Bank wire or ACH transfer to the contractors account. International bank wires can be expensive but ACH transfers are usually free.
Tax Deductions for Remote Workers
Tax withholding can be problematic for remote workers depending on their country of residence and where payroll is being run. There are tax treaties that cover potential double taxation of employees, with tax credits and offsets available.
If a remote worker is a resident of the country, it will be necessary to withhold local taxes if either outsourcing payroll or using a local partner. If the worker is paid from the home country payroll, the home employer may have to withhold taxes even though the worker lives abroad. The worker would then have to file a claim for a tax refund from the home country as a non-resident, as well as pay required taxes in their country of residence.
Social Security and Workers’ Compensation for Remote Workers
Statutory benefits such as social security and workers’ compensation are usually offered wherever the payroll is being run. If a company is paying a remote worker on a home country payroll option, then the worker may not be able to participate in statutory benefits as a non-resident (but might have access to some social security benefits).
Both the tax issue and statutory benefits can be solved most easily by using a GEO solution to run the payroll where the worker resides. The GEO acts as local employer of record, and can handle all tax withholding and benefits for the worker, while running a fully compliant payroll. This service can be duplicated in multiple countries simultaneously for a remote work team, saving the company the time and expense of customizing payroll for each remote worker.
