← Back to blog home

How should I pay my international employees?

When starting a company, navigating state and federal laws or tax regulations regarding payrolls can be overwhelming. But what if you have an international presence? How do you even pay employees or partners that are living overseas? Each country has its own payroll and employment regulations, and as a result there are some key items to consider before diving head-first to establish a presence in another country, even if it's in the form of "just" a temporary employee.

As with many other areas, business owners often weigh the costs of compliance in an international market versus the risk of cutting corners—and it can be tempting to “wing it”, especially early on in a company’s lifecycle when you just need to get someone paid. But answering a few core questions can help guide you into processes that can save expense and headache later on.

To be clear: in some cases, you may be able to pay employees from a US-based account, but this should only be used as a stopgap as you will likely need to enter these payments manually and risk additional  currency translation and wiring fees. Depending on your needs, though, this solution might be sufficient. Here are some fundamental questions that help establish whether or not you should continue to pay non-US residents from a US payroll.

  1. Are my foreign stakeholders going to act as contractors, employees, executives? Are they US citizens or citizens in their work location?
  2. How do I plan to compensate these employees—will they be paid through payroll, and if so, do they receive a salary, commission or bonuses?
  3. What type of activities will they perform and for how long?
  4. What currency do my employees or vendors expect to be paid in?
  5. Do we intend to establish a permanent presence in this locality? Do we intend to hire any more employees here?

Laws on when an employee is subject to payroll tax can vary by jurisdiction. Some countries have perfectly legal and advantageous offshore compensation schemes. If you are legally required to have payroll within the target country, you will likely need to have a legal entity established there, too, and be subject to both national and municipal licensing laws—and possibly have a local bank account and payroll system. Oftentimes, this necessitates a local citizen who is also an officer of the company.

Of course, all of this comes at a cost, but if you have a set of answers to the above questions, then a local advisor can help you navigate this process in a compliant manner that's mindful of costs and benefits.

Though the investment in legal awareness may seem daunting, consider that knowing these regulations is also a service for your employees who may not know their own tax filing responsibilities. A company on top of its additional responsibilities—and those of its employees—is far more attractive to foreign talent than one that wires money and hopes for the best.

Talk to us today about gaining access to a network of vetted, startup-focused CPAs that can help you properly establish a foreign office or talent base.

Phil is the founder of Tesseract Advisory Group, a firm that specializes in outsourced finance and accounting services for startups and small businesses. As a CPA with over 12 years of experience, including Big4 audit, e-commerce, financial services, SaaS, construction, retail and professional services industries, Phil focuses on bringing strategic value to his clients rather than just crunching numbers and filling out tax forms. He has deep expertise with Quickbooks, ERP implementation and maintenance, full-service outsourced operations management and controller services, and treasury/ cash flow management. Phil has served as a fractional CFO for companies up to $25M in revenue and works with early-stage entities to help them develop financial models and valuations and identify the best mechanisms for raising capital.  

Popular Posts

How should I pay my international employees?

When starting a company, navigating state and federal laws or tax regulations regarding payrolls can be overwhelming. But what if you have an international presence? How do you even pay employees or partners that are living overseas? Each country has its own payroll and employment regulations, and as a result there are some key items to consider before diving head-first to establish a presence in another country, even if it's in the form of "just" a temporary employee.

As with many other areas, business owners often weigh the costs of compliance in an international market versus the risk of cutting corners—and it can be tempting to “wing it”, especially early on in a company’s lifecycle when you just need to get someone paid. But answering a few core questions can help guide you into processes that can save expense and headache later on.

To be clear: in some cases, you may be able to pay employees from a US-based account, but this should only be used as a stopgap as you will likely need to enter these payments manually and risk additional  currency translation and wiring fees. Depending on your needs, though, this solution might be sufficient. Here are some fundamental questions that help establish whether or not you should continue to pay non-US residents from a US payroll.

  1. Are my foreign stakeholders going to act as contractors, employees, executives? Are they US citizens or citizens in their work location?
  2. How do I plan to compensate these employees—will they be paid through payroll, and if so, do they receive a salary, commission or bonuses?
  3. What type of activities will they perform and for how long?
  4. What currency do my employees or vendors expect to be paid in?
  5. Do we intend to establish a permanent presence in this locality? Do we intend to hire any more employees here?

Laws on when an employee is subject to payroll tax can vary by jurisdiction. Some countries have perfectly legal and advantageous offshore compensation schemes. If you are legally required to have payroll within the target country, you will likely need to have a legal entity established there, too, and be subject to both national and municipal licensing laws—and possibly have a local bank account and payroll system. Oftentimes, this necessitates a local citizen who is also an officer of the company.

Of course, all of this comes at a cost, but if you have a set of answers to the above questions, then a local advisor can help you navigate this process in a compliant manner that's mindful of costs and benefits.

Though the investment in legal awareness may seem daunting, consider that knowing these regulations is also a service for your employees who may not know their own tax filing responsibilities. A company on top of its additional responsibilities—and those of its employees—is far more attractive to foreign talent than one that wires money and hopes for the best.

Talk to us today about gaining access to a network of vetted, startup-focused CPAs that can help you properly establish a foreign office or talent base.

Phil is the founder of Tesseract Advisory Group, a firm that specializes in outsourced finance and accounting services for startups and small businesses. As a CPA with over 12 years of experience, including Big4 audit, e-commerce, financial services, SaaS, construction, retail and professional services industries, Phil focuses on bringing strategic value to his clients rather than just crunching numbers and filling out tax forms. He has deep expertise with Quickbooks, ERP implementation and maintenance, full-service outsourced operations management and controller services, and treasury/ cash flow management. Phil has served as a fractional CFO for companies up to $25M in revenue and works with early-stage entities to help them develop financial models and valuations and identify the best mechanisms for raising capital.  

Popular Posts

No items found.