A guide to international payroll – Laws, regulations, and solutions

A guide to international payroll – Laws, regulations, and solutions
International Payroll | International Payroll Laws | International Payroll Regulations

Managing a global payroll demands businesses abide by a barrage of state and municipal regulations. Very few countries will share similar laws, barring a select few in the EU. If you’re looking to hire abroad, you’ll find everything from opening a bank account to registering your business works differently from what you know.

It’s essential to keep abreast of all local payroll compliance laws. Key areas, such as tax obligations, employee benefits and pension contributions, should be a priority for businesses managing payments in multiple countries.

Failure to get things right can lead to noncompliance action by a foreign government and hefty fines.

All these considerations can impact your payroll routines –  regional law can hinder or expedite sick leave, paid vacation and termination of an employee.

We’ve detailed below some legal considerations for HR and payroll teams to consider when managing the salaries of overseas staff.

Common challenges when processing international payroll payments

Managing and delivering payroll across several countries requires adhering to country-specific legislation and taxation. This is made all the more difficult by managing different banking systems and currencies.

Some of the most common issues faced when managing international payrolls are:

  • A lack of understanding regarding country-specific regulations regarding payroll payments.
  • Failure to recognise when regional or municipal law overrides state labour laws.
  • Working with different banking standards and processes. Some countries have yet to modernise their banks, and navigating these ‘legacy systems’ can cause delays.
  • Hidden fees when sending funds internationally.
  • Language barriers and different time zones.

Solving these issues can help you avoid repercussions, legal action and regulatory audits.

International Payroll | International Payroll Laws | International Payroll Regulations

Best-practice for global payroll management

Most companies have the following requirements when establishing an international payroll system:

  • Paying workers in foreign countries and comply with local, regional and international law.
  • Protecting themselves against international independent contractor noncompliance.
  • An interim payroll solution to onboard employees quickly.

Businesses must contend with the unavoidable complexities of processing foreign payrolls when hiring in new international markets. Always follow the established best practices when managing international payrolls to help solve some of the more common issues you may face.

You can either choose to manage payroll management in-house or hire local payroll administrators. Both options have benefits depending on the size of your company and number of staff working abroad:

In-house payroll management

Companies that hire a few foreign staff or operate across only a few select locations may have the resources and personnel necessary to manage all payroll considerations in-house.

At the very least, those who decide to manage international payrolls themselves must have the following:

  • A degree of in-house expertise in those countries where you operate. The staff chosen for the job must understand regional payroll laws and regulations.
  • Payroll software capable of collecting, completing and submitting employees’ payroll documentation within the deadlines for submission.
  • Well-detailed HR guidelines to help define your payroll processing procedures. These can also dictate hiring procedures and answer any questions your international staff may have regarding payments.
  • A system for the collection and documentation of payroll records. Most countries have laws requiring employers to retain employee records for a few years (even if they no longer work for you). The IRS, for example, requires businesses to keep payroll records for at least 3 years.
  • Robust data protection and security measures to protect payroll data. This has the bonus of helping you adhere to GDPR law for those who employ staff in the EU or deal with clients in the EU.

Benefits of in-house payroll management

In-house payroll management can confer many benefits for the right type of business, including:

  • Vastly reduced costs, should you already have the required staff and expertise.
  • Faster and more reliable than outsourcing payroll management if you only employ a small number of international staff.

Local payroll administrators

Many advise hiring a local payroll specialist or global payroll management solution if your business has an established overseas presence but struggles to manage errors and compliance in certain countries or regions.

Benefits of hiring a local payroll administrator

  • An experienced local payroll processing team can help you navigate complex local regulations more easily.
  • Local payroll administrators are better suited to dealing with the local bureaucracy and can solve problems faster should they occur.
  • Hiring an impartial payroll administrator can also help improve the visibility of your foreign assets, reducing the chance of fraud, theft or mismanagement.
  • Local payroll administrators can save money if you do not have the tools, staff or infrastructure to manage international payroll processing.
  • In addition, global payroll solutions can help you quickly expand and take on new staff in other parts of the globe.

International Payroll | International Payroll Laws | International Payroll Regulations

Laws and regulations to consider when managing international payroll

To help you decide whether in-house or outsourced payroll management best suits your needs, here’s a brief look at some of the labour and payroll compliance laws you might encounter should you choose to do business in a foreign country.

Payroll compliance in South America

Payroll law in several South American territories is subject to wide-ranging employment regulations, mandated at both a federal and municipal level. Companies that fail to meet legal provisions could be forced to pay compensation to employees. There are very few payroll laws which apply to all South American countries. We’ve listed a few below to show how much these laws may differ.

General payroll guidelines in South America:

  • Most South American countries have a minimum wage. Annual wage increases are required and are based on inflation rates. The minimum wage and wage increases are determined by local governments and vary from country to country.
  • Few South American countries permit employers to terminate an employee at will. Most require employers to provide adequate notice and to provide severance pay.

Payroll regulations in Mexico

  • Overtime pay: Employees are entitled to overtime pay (at 100% of their salary and 200% on bank holidays) – overtime is any period spent working beyond normal shifts.
  • Benefits: All employees in Mexico have the right to guaranteed benefits.
  • Notice Periods: Employers do not have to provide notice before termination.
  • Sick Leave: Employers do not have to provide paid medical leave. Some choose to do so at their own discretion.
  • Pension: Employees must contribute 3.15% of their salary to a pension fund, matched by the employer.

Payroll regulations in Argentina

  • Overtime pay: Employees are entitled to overtime pay (at 150% of their salary) but are not permitted to work more than 30 hours of overtime a week.
  • Benefits: Employees are entitled to several benefits, including paid time off, public holidays and maternity leave.
  • Notice Periods: Employers must provide 15 days’ notice for terminations.
  • Sick Leave: Employees with less than 5 years of employment are entitled to 3 months of paid sick leave in the vent of illness or injury. Those with more than 5 years of tenure may take as much as 6 months.
  • Pension: Employees must contribute 1.5% of their salary each month to a pension fund. Employers do not have to match this.

Payroll compliance in the EU

Unlike some of the countries mentioned here, the EU does have several collective-wide blanked policies which protect all workers in the EU.

Individual countries within the EU may provide greater employee protections should they choose, so it’s still important to observe regional laws when managing international payrolls in the EU.

Working Time Directive (WTD) legislation may vary within the EU. But the minimum legal requirements of all EU states are as below:

  • Working hours: Work time in a 7-day period must not exceed 48 hours (including overtime). Staff may opt out with their consent. Employers may face fines if staff are penalised for not opting out. In addition, workers are entitled to 11 hours of rest every 24 hours of work.
  • Paid leave: Employers must guarantee paid annual leave of at least 4 weeks per year.
  • Overtime and night work: Overtime staff and night workers may not perform dangerous work for longer than 8 hours in any 24-hour period and have the right to free health assessments.

Employees must consent to the use or processing of personal data (GDPR). This also applies to EU citizens working abroad.

Any business in the EU which hires staff to work in hazardous conditions must abide by Occupational Safety and Health (OSH) law.

Payroll compliance in Asia

Asia is home to some of the most diverse countries in the world. This diversity means it can also be challenging to manage the payrolls of foreign staff. There are an equal number of advanced economies with regulated labour laws and robust banking systems, as there are emerging economies with little to no employee protections.

Laws, relations and payroll management can vary widely depending on the territory. We’ve listed a few countries below and their respective law so you can see for yourself:

General payroll guidelines in Asia

  • When paying staff in Asia, local accountants in underdeveloped regions may lack the technical competency to comply with complex internal policies.
  • Paying staff across multiple regions will require multiple local accounting suppliers (this is often true even when paying staff in different areas of the same country).

Payroll regulations in China

  • Overtime pay: Employers must pay overtime up to 60 hours (at 125% base salary).
  • Benefits: Benefits in China are highly complicated as both central and local governments legislate social security, and laws may vary from region to region.
  • Notice Periods: Regional law may vary, but generally, employers must provide 30 days’ notice.
  • Sick Leave: All employees are entitled to paid sick leave (at a reduced salary rate)
  • Pension: China’s pension in payment scheme requires employers and employees to match contributions (for a total of roughly 6% of annual salary)

Payroll compliance in Japan

  • Overtime pay: Employers must pay overtime calculated hourly (at 150% of their salary).
  • Benefits: Mandatory employee benefits in Japan include retirement schemes, disability pensions, healthcare, long-term care, paid leave, and contribution to national healthcare plans.
  • Notice Periods: Japan’s Labour Standards Law dictates a minimum 30-day notice period before you can dismiss an employee.
  • Sick Leave: There is no legal minimum sick leave in Japan. Employers may grant paid sick leave on a case-by-case basis.
  • Pension: Japan has a wide variety of voluntary pension schemes.

Payroll compliance in the US

Complying with payroll regulations in the US requires calculating wages accurately, withholding the correct amount of payroll taxes and depositing said taxes with the relevant authority on time.

In addition to income tax, states have different unemployment tax rates, minimum wage requirements, and disability insurance costs.

Federal law tightly regulates employee benefits and payrolls in the US. In addition, employers must take note of possible state regulations layered on top:

Fair Labour Standards Act (FLSA)

  • The FLSA sets the national minimum wage, overtime rates, and payroll record-keeping laws.
  • FLSA requires employers to pay overtime at no less than 150% of regular pay. State laws can override FLSA regulations if these laws demand higher overtime pay.

Federal Insurance Contributions Acts (FICA)

  • FICA funds several US social securities.
  • Employees must pay 1.45% of their gross income to Medicare and another 6.2% to Social Security. Employers must match both contributions.

Federal Unemployment Tax Act (FUTA)

  • FUTA offers income assistance to the recently unemployed should they be terminated for no fault.
  • FUTA requires employers to contribute to the federal unemployment pool, covering those who qualify for unemployment benefits.
  • The rate of required contributions may vary.

International Payroll | International Payroll Laws | International Payroll Regulations

Global payment solutions with CurrencyTransfer

Managing an international payroll can be a risky, arduous task, even for those who choose to outsource this work and go through local experts.

Choosing CurrencyTransfer to facilitate your international payments can help alleviate many of the risks involved, particularly if you’re dealing with multiple foreign currencies simultaneously.

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Our currency providers are all certified by local financial authorities (FCA, FinCEN, etc.), ensuring all payments adhere to national and regional regulations.

Processing international payments through CurrencyTransfer saves you the hassle of dealing with multiple brokers. We’ll ensure that you get the best foreign exchange rate available on the market no matter where you send payments.

Matthew Swaile

Copywriter