If you work in or have hired a remote team, then you are probably already aware about the beauty of a remote team. In this digital day and age, with the world at your fingertips, you now have access to a global talent pool.
Instead of limiting yourself to local talent, you can now connect with skilled professionals from all over the world to get the best for your business. By working together online, you diminish geographic barriers and build cross-cultural relationships to help strengthen your company.
There are various alternatives to administering a payroll, depending on the worker’s location. These include a remote team payroll, payment to a local partner or outsourcing payroll to a third party ‘employer of record’ such as a GEO service, and etc.
While we can go on and on waxing poetic about the numerous advantages to hiring a remote team, there is one sore spot you can’t run away from — payroll and taxes. If your remote team consists of numerous professionals from all over the world, then this can get more than a bit tricky for you.
But before we dive headfirst into the possible solutions, one very important thing to be aware of is the classification of your team members. They can generally be divided into two categories: a full-time employee and an independent contractor.
Yet paying independent contractors is far different than paying your employees.
For our purposes, the main difference between the two are as follows:
- Full-time employee — the employer withholds income tax, social security, and medicare from the employees salary
- Independent contractor — the employer does not withhold tax, passing on this responsibility of tax payment to the contractor; other benefits are also not received
While most companies hire independent contractors to pass on the responsibility of paying taxes to them, the risk of misclassifying a contractor for an employee can be a costly one, especially in countries that have rigid rules when it comes to these classifications.
That aside, how do you manage to pay your remote team legally, complying with all the requisite local laws in place? Here are a couple of ways…
1. Keep your employee on a home country payroll
If you hire employees from your home country (the country where you and your company are based), the easiest thing to do would keep them on a home country payroll. This will usually also still work if your employee is transferred overseas for a short period of time or temporarily moves abroad.
However, it would still be best to double check your local labor laws to validate this, as your employee may require a special working visa while overseas or could even be required to pay taxes abroad, depending on the tax residency status and laws of the country.
2. Set up a local entity
For you to hire an international employee directly, the most straightforward, by-the-book method would be to establish a legal entity in the country where the employee is located. However, that being said, it is also one of the most difficult ways given the amount of time and money needed to do so, not to mention having to navigate through cultural and language barriers in the process.
If you’re looking to employ more than 25 people from the same country and are also looking to expand your business there in the future, then this solution might just be worth it. This solution also makes sense if it is imperative for you to invoice your customers in their local currency.
However, if you have less than 25 employees from that country or have employees scattered around the globe, then this might not be the most effective solution for you.
3. Partner with a local company
Let’s say you have a client or partner company in the same country as your employee. One option would be to have an agreement between the client or partner and yourself where your employee would be employed by your client or partner but fully financed by your company.
Essentially, the funds to pay your employee will come from you, but the client or partner will handle the payroll and compliance of the local labor laws from their end. Of course, this would only work in very specific situations, with clients and partners you trust, but if your employee happens to be working directly with a local client or partner, then this would be an easy and highly beneficial option.
Like the first option, this is also disadvantageous if your remote team is spread across different countries. The likelihood of finding a client and partner in each country is small, and the overall maintenance and back and forth can be time consuming.
Another disadvantage of this option is that this might cause a conflict of interest between you, your employee, and your client or partner, and can result in a position where your employee will have to choose between you and your client or partner.
4. Outsource payroll to a third party
One of the easiest ways to pay your remote team legally is by working with a PEO. A Professional Employer Organization (PEO) acts as a local employer of record (EOR) and can provide full payroll and employment compliance services in your employee’s country.
Instead of setting up a local entity or partnering with a local company, the PEO already has an established entity in place to hire, pay, withhold taxes, and provide benefits for your employee. PEOs like Multiplier enable companies to hire and manage anyone anywhere with just a few clicks, by providing local compliance, global payroll, and international payments.
So if you’re looking for the most stress-free way to pay your remote team legally, outsourcing compliance would be a good way to go. You can leave all the stress and headache of payment, taxes, and compliance with a third party and focus on your day-to-day operations instead.
You’re probably wondering, “Is the stress and hassle of hiring a remote team still worth it?” The answer: Yes. Yes, it is. Solutions to payroll and compliance are available — with multiple options for you to choose from — but the skillset of a valuable team member is irreplaceable.