"Hiring globally is the easy part. Paying globally? That’s where the fun begins"
Paying employees abroad isn’t just about hitting ‘send' — it’s about navigating a minefield of regulations, taxes, and compliance. The good news? You don’t have to learn the hard way.
Let’s take a look at the common risks of paying employees abroad and, more importantly, how to avoid them.
Let’s take a look at the common risks of paying employees abroad and, more importantly, how to avoid them.
1. Local Tax Laws
Picture this: A growing tech company sets up remote workers in Brazil, excited to tap into a new talent pool. But things take a turn when they get slapped with a $ 1 million fine. Why? Just because they missed filing some key tax forms — something their team didn’t even know was required.
How to Avoid This
Research local tax laws before hiring employees in a new country. Engage local tax experts or consult government resources to understand the requirements for payroll, social contributions, and withholding taxes. Keeping thorough records and submitting forms on time is key to avoiding penalties.
2. Misclassification
In 2022, Deliveroo was fined € 375,000 in France for misclassifying its riders as contractors instead of employees. The court ruled that Deliveroo had a level of control over the riders' schedules and work that legally classified them as employees. This fine was just the beginning, as the company also faced compensation claims and heightened scrutiny across other markets.
How to Avoid This
1) Research worker classification rules in the countries where you hire, particularly in regions with strict labor laws like the EU.
2) Draft agreements that outline roles, responsibilities, and expectations clearly.
3) Review your classifications from time to time to ensure compliance as laws or working conditions change.
4) Consult local labor law experts to confirm that your agreements meet regulatory requirements.
2) Draft agreements that outline roles, responsibilities, and expectations clearly.
3) Review your classifications from time to time to ensure compliance as laws or working conditions change.
4) Consult local labor law experts to confirm that your agreements meet regulatory requirements.
3. Data Protection
In 2019, Marriott International was fined £18.4 million under GDPR for a massive data breach that exposed sensitive information, including customer and employee records. The breach, which stemmed from inadequate security measures, highlighted the serious consequences of failing to protect personal and financial data.
How to Avoid This
1) Ensure that all payment and personal data is encrypted.
2) Limit who can access sensitive data and regularly update permissions.
3) Familiarize yourself with regulations like GDPR and ensure your systems meet their requirements.
4) Regularly review your systems for vulnerabilities and act on any findings promptly.
5) Work with vendors who demonstrate compliance with global data protection standards.
2) Limit who can access sensitive data and regularly update permissions.
3) Familiarize yourself with regulations like GDPR and ensure your systems meet their requirements.
4) Regularly review your systems for vulnerabilities and act on any findings promptly.
5) Work with vendors who demonstrate compliance with global data protection standards.
4. Double Taxation
When hiring globally, it’s easy to overlook how tax laws from different countries overlap, leaving your employees frustrated and your finance team tangled in red tape.
What’s the risk? Without proper planning, employees working abroad might face double taxation — paying income tax in their home country and the one they’re working from. Even if tax treaties exist, navigating them can feel like decoding ancient hieroglyphs.
What’s the risk? Without proper planning, employees working abroad might face double taxation — paying income tax in their home country and the one they’re working from. Even if tax treaties exist, navigating them can feel like decoding ancient hieroglyphs.
How to Avoid This
1) Research whether the countries you’re working in have Double Taxation Agreements (DTAs) and what income categories they cover.
2) Make sure employees have the right paperwork, like tax residency certificates, to claim treaty benefits.
3) Use professional tax advisors to help with compliance.
2) Make sure employees have the right paperwork, like tax residency certificates, to claim treaty benefits.
3) Use professional tax advisors to help with compliance.
5. Regulatory Changes
Regulations evolve quickly, and just when you think you’ve got it all under control, a new payroll rule can disrupt everything.
For example, in 2023, new payroll rules in France caught some companies off guard. Missing the deadlines led to fines and delays, proving how even small changes can cause big headaches.
For example, in 2023, new payroll rules in France caught some companies off guard. Missing the deadlines led to fines and delays, proving how even small changes can cause big headaches.
How to Avoid This
1) Sign up for newsletters and alerts from local tax and labor authorities in every country where you operate.
2) Use software or platforms that track regulatory changes and flag necessary updates.
3) Ensure your HR and finance departments are equipped to handle new regulations as they arise.
2) Use software or platforms that track regulatory changes and flag necessary updates.
3) Ensure your HR and finance departments are equipped to handle new regulations as they arise.
Final Thoughts
Tax laws, compliance, constant changes… Honestly? It’s a lot. Feels like you need a full-time legal team just to keep up and avoid costly mistakes. Some companies have that luxury. Others choose to delegate.
If you need help navigating the challenges of paying employees abroad, contact us. We’ll share more about our transparent fees, one-agreement-for-all approach, and compliance solutions.
If you need help navigating the challenges of paying employees abroad, contact us. We’ll share more about our transparent fees, one-agreement-for-all approach, and compliance solutions.
