Payroll and tax rules change from country to country, each with its own specific regulations. This means with employees in different countries, you will have to calculate different payroll rates and tax deductions. 

Fail to comply with relevant regulations and you can breach labor laws and seriously hinder your expansion plans. To help, we have created a checklist you can use to ensure you pay overseas employees correctly. 

• Are you up-to-date with relevant tax information?
• Do you plan to pay them on your existing home country payroll?
• Have you effectively planned payroll cycles?
• Have you factored in relevant payroll logistics?
• Is there 13th month pay?
• Are pension contributions in place and accurate?
• Have you checked currency conversion rates?

Are you up-to-date with relevant tax information?

US organizations with overseas employees should recognize how higher or lower tax brackets can impact monthly payments to staff. Federal Tax rates in the US vary from 10% to 39.6% — however that is not always the case elsewhere. 

For example, in the UK, the minimum rate is 20% which rises to 45% for the highest earners. There can also be additional taxes at local and regional levels, so it is so important to stay up-to-date.

Two employees who do the same role in different countries should be paid equally. By understanding the relevant tax levels, you can make sure there are no discrepancies that could cause problems. 

Do you plan to pay them on your existing home country payroll?

If your employees are only spending a short amount of time overseas, then you might be able to keep them on the home payroll. This is possible without establishing a legal entity in some countries so you will have to determine if the country they are in allows this. 

If the employee is there for the long haul, or you have hired someone overseas, there are different rules and regulations that apply.

Have you effectively planned payroll cycles?

You will already have an established payment structure in place in your organization. Whether payments are made monthly or every two weeks is up to you. However, you should think about how that structure will work for employees overseas. 

Is there a particular time of day employees receive their salary? Consider the different time zones your employees work across and how that might impact them. No one should ever feel overlooked just because they are working in a different country. 

Have you factored in relevant payroll logistics?

As you would expect, payroll is managed differently around the world. Certain countries have specific payroll dates you need to consider if you have US employees working there. 

Take Spain, for example. Employee payroll tax is paid quarterly (by the 20th of the respective month). All employees must pay social security contributions which are processed by their employer. Would these dates impact your existing payroll plans? 

Is there 13th-month pay?

13th-month pay is a salary benefit that can either be required by law or customary in the countries that participate. If you hire international employees in a country where 13th-month pay is normal, you will need to comply. Otherwise, you could breach national labor rights. 

Typically, to work out 13th-month pay, you take an employee’s monthly salary, multiply it by the number of months in the year they have worked and divide this figure by 12.

As your organization expands worldwide, you should always be aware of a country’s 13th-month pay policy.

Are pension contributions in place and accurate?

Pensions such as IRAs and 401(K)s have specific contribution limits and rules that may be affected by a US employee’s presence in another country. There are unique tax challenges relevant to pension payments for anyone working abroad. 

Have you checked currency conversion rates?

It might seem an obvious point, but you would be surprised how many problems can arise for organizations when accurate exchange rates are not considered. As a currency fluctuates, an overseas employee’s net pay can shift along with it. You may have to fix the salary in their home currency.

Payments that cross multiple borders could be subject to various rates so it is important you stay updated so employees receive the amount they are expecting. 

Managing Employees Working Overseas

Payroll, taxes, pensions - it all should be carefully calculated for any US employee you have that is working in another country. Many key labor and payroll laws are not universal and can change from country to country. 

It can be a challenge to stay up-to-date with all of the different regulations, particularly as they can evolve and be updated at any time. That is why many global organizations turn to external support to ensure that nothing slips through. 

To learn more about the support that is available, view our free resource.