How to Pay International Employees: All You Need to Know

With so many businesses adopting remote or hybrid models, it has also meant that the workforce has become increasingly global. As a result, paying individual employees abroad and handling payroll have become more complex. In this article, we will make this process a little clearer for you.

We’ll also discuss how Wise Business could be a great option for you to send quick payments at low cost.

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How to Pay International Employees

There are many options available for paying overseas employees overseas depending on the size of the business, plans, and current needs.

Let’s look at some of the most common methods companies are using for paying overseas employees overseas, the benefits and potential drawbacks for each.

1. Online payment service providers

Several options are available for online payment services, when the question arises: how to pay international employees. Although they may have different rules and regulations.

Wise Business

Wise Business has various features to make paying wages to overseas employees simple and easy.

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in 40+ currencies. You can get major currency account details for a one-off fee to receive overseas payments like a local. You can also send money to 160+ countries.

Pay employees
with Wise Business

Feature	Description
Wise Payroll	Get your people and employees paid around the world for less fees with Wise Business — wherever they work.
Hold 40+ currencies	Businesses can pay in different currencies using seamlessly and at the mid-market rate.
Cash Flow Management	Plus, Wise Business comes with additional features, including cash flow management, invoicing, and multiple user access to accounts.
Instant Payments	Quick payments (0-2 business days) ensure that businesses save time on admin.

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PayPal

Businesses can use PayPal as a potential solution for payroll for international employees.

For employees with existing PayPal accounts, money can be sent directly, although fees will be incurred for the transaction itself and there are invoicing features available.

For employees that do not have a PayPal account, Businesses can use services like PayPal’s Xoom for local bank transfers.

However, it’s crucial to compare exchange rates and fees as PayPal may be more expensive than other options.

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Payoneer

Payoneer is another option for paying international employees, especially foreign contractors.

Payoneer offers multi-currency accounts, manages requested payments, and other features that could potentially streamline payroll.

However, exchange rates and additional fees may make Payoneer a less feasible option compared to others.

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Bank Wire transfers

Bank wire transfer such as SWIFT payments are another option for paying foreign employees overseas.

However, this method is often slower than the others mentioned. Additionally, there may be higher exchange fees associated with bank transfers and any fees that banks apply to the transactions on their side.

Before opting for SWIFT payments, check with local banks whether it can be used for business purposes and how fees are calculated.

2. Professional employer organization (PEO)

A professional employer organization (PEO) is an organization companies work with to establish local employment relationships.

The PEO contract and responsibilities will depend on the organization’s need, but the PEO will serve as the ‘employer’ and provide employees to the company as needed.’

The PEO essentially works to provide employers with employees from local markets but takes care of payroll and human resources on their end. Instead of the company handling foreign payments to overseas employees, the PEO takes care of payroll administration, taxes, and benefits on their end.³

3. Partner up with a local business

Many businesses have partnerships with local companies within the industry based on strategic goals.

Partnering with local businesses enables companies to scale faster and build their footprint in new markets without opening their own branches.

Companies will work with an established local business, leveraging their employee recruitment and payroll resources if they do not have a subsidiary present.

4. Set up a local branch

For rapidly growing companies, it’s worth considering setting up a local branch.

It’s an easier answer to the question of how to pay international employees, while helping the business enter new markets.

Setting up a local branch can be worth it if you plan to expand overseas and grow the team. A local subsidiary will make administering payroll easier and give you more control as a US company paying overseas employees.

5. Employer of record (EOR)

An Employer of Record, known as EOR, helps global employers handle the processes around hiring and paying international employees. Most notably, they help these employers remain compliant locally.

Here are some of the things they employers with:

• Tax filing
• International payroll
• Creation and maintenance of employment contracts
• Onboarding
• Termination of contracts
• Workers’ benefits and compensation, such as health insurance and pension funds

Having an EOR makes international compliance a simple process. But your business will still be responsible for managing employee performance.

International Employee Payroll for US Companies

Certain types of employment, such as employees on assignments, can be on international employee payroll and US citizens living overseas.

When you’re thinking about how to pay international employees, In each of these situations, specific considerations need to be taken into account, such as:

• Employee nationality and where they are living
• Where the company is headquartered
• Tax obligations for both the company and the employee

For employees that are US citizens, overseas payroll for international employees needs to consider any taxes and treaties that may be in place. Payments to US citizens and resident aliens who are outside the United States are generally subject to both Social Security and Medicare tax if the employer is headquartered in the United States.¹

For employees that are not US citizens, international employee payroll would only need to consider the cheapest options for paying international employees, but those employees would not be subject to US taxes.²

The primary consideration for these overseas employees would need to be saving costs on foreign transaction fees that may incur.

A US company conducting payroll for overseas employees will also need to think about solutions that could help navigate local currency exchange based on how the employees would like to be paid.

Overseas payroll management for international employees can be tricky business. With each country having its own set of unique requirements, keeping track of everything can get complicated. To add to the challenge, things like exchange rates and language barriers make the process feel like a never-ending maze. Here are some key things to keep in mind when managing overseas payroll:⁹

1. Compliance with government laws and regulations
2. Exchange rates and currency conversions
3. Payment methods and frequency
4. Work visas or permits
5. Taxation requirements and deadlines
6. Benefits and compensation packages
7. Keeping track of employee hours and schedules
8. Communication and language barriers

Looking to save while conducting your overseas payroll?

Do Payroll with
Wise Business

What to Consider as a US Company Paying International Employees?

Local and foreign taxes

Tax needs to be a significant consideration for both the company and the employee when setting up payroll for international employees.

US citizens or residents are subject to US federal income tax withholding, although there may be some exemptions.³

However, for non-US employees, companies need to look at tax obligations they may have as an employer.

• Countries such as Bermuda offer a one-year residency certificate for employees working remotely for employers overseas to make it easier for workers without as much of a tax burden.⁴

• Other countries, such as Belgium, may have tax treaties that provide exemption on Belgian income tax if the contracting company is based in the United States. However, if they stay past a certain amount of days, they will become a Belgian resident for tax purposes and may have to pay income tax. Depending on the nature of the work the employee is carrying out and interaction with the market, the business could be taxed as a Belgian establishment, although post-COVID-19, it may be less of a consideration.⁵ ⁶

Because local and foreign taxes will differ, especially as more countries look to attract digital nomads and overseas employees, it’s crucial to work with a tax professional in the country the company is headquartered in.

Some countries may change their obligations, while others may have treaties for tax exemptions with certain countries. However, tax obligations for both employers and employees will need to consider the company’s headquarters and their tax rules for paying overseas employees.

Laws in the foreign country

Different countries have laws around what constitutes residency and when an employer must provide benefits in line with other employers in the country.

Much of this will depend on where the employee pays taxes, where the company is headquartered, and the local laws in relation to workers’ rights.

For example, some countries within the European Union, such as Spain, require companies to offer minimum terms of employment when hiring employees.⁷

This needs to include the minimum number of paid holidays for full-time employees, which is 30 calendar days.

Exchange rates

Another challenge that often comes up for businesses wanting to ​​pay international employees is the most cost-effective way to pay in local currency.

Determining the best foreign exchange rate is important, as businesses stand to lose a lot of money otherwise in fees and costs.

So identifying the best exchange rate is critical, as is tracking the rates to ensure you’re paying at the best rate possible to save money.

Save on conversions
with Wise Business

Paying International Employees in Europe

After the process of hiring your international employees in Europe, you will need to pay them.

You will find that there are multiple ways to do this and a few key parts to consider.

• What currency does your employee get paid in? (USD, EUR, GBP, or another European currency)
• How quickly do you need to transfer the money to them?
• Is it a one-time payment or a regularly occurring payment?
• What are the charges for the transfer?

All the options are available for you to make payments in Europe, such using online payment service providers, PEO, EOR, or setting up a local entity in the country in question.

You will want to consider the scale of your European operations when doing this. A simple online payment service provider can help you get the job done. But, if you’re looking at paying a team and establishing a local presence there, you may want to combine some listed options. This could include relying on companies with payroll offerings or an EOR to ensure you’re compliant with local regulations.

Send Money with Wise Business
Wise Business is a useful tool for US businesses to pay their employees or invoices in Europe. Why? Because Wise Business offers the mid-market rate, which is transparent with no hidden fees. After getting an account, you can exchange money between currencies and send them quickly to your desired recipient.

Paying Employees in US Dollars

If you’re paying employees in US dollars, this is a specific item that you can look for in the money transfer service or other providers you use.

Your team wants to be paid in US Dollars

For instance, if your employees prefer to paid in US dollars as a preference to their local currency, there are ways for them to receive and hold money in USD. This will be more simple for you potentially, as you can send USD from your business account, and they can use their account to transfer money between currencies.

You want to pay (or need to pay) your team in their local currency

Another scenario may be that your team wants or needs to be paid in their local currency. It’s possible through services, such as Wise Business, to hold multiple currencies on your account and then switch currencies to pay your team in their local currency.

Similar to the above section, you can send US dollars to your Wise Business account, then you can shift the money between currencies for a small fee if needed.

Or choose between fast, easy, or low-cost payments in the same currency. If your employee also have a Wise account, then there's no additional fee for the transfer.

Bottom Line: How to Pay International Employees

Hiring international employees is one of the best ways to scale and bring on diverse new talent to businesses.

While local and international laws and taxation can make that challenging, working with professionals in the field can help navigate these issues and streamline hiring.

Tools like Wise Business offer several features that make it feasible for businesses to keep and retain local talent.

These financial tools such as multi-currency accounts, exchange rate trackers, invoice management, and mid-market exchange rates.

Pay employees
with Wise Business

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Sources:

1. IRS.gov - Social Security and Medicare tax
2. IRS.gov - Federal income tax withholding
3. SHRM - What is a PEO?
4. Gov.bm - Government Launches Work From Bermuda One Year Residential Certificate
5. IRS.gov - US - Belgium income tax convention
6. OECD - Updated guidance on tax treaties
7. Your Europe - Terms of employment
8. Citizens Advice Bureau - What is the minimum holiday entitlement for employees in Spain
9. https://www.creative.onl/payrollindex/international-payroll/