International payroll processing: providers, types, and best practices

International payroll is often used as a catch-all term to describe the practice of onboarding, managing, and paying employees and contractors around the world. Depending on the person you ask, international payroll could mean something as simple as sending payments to contractors or something as complex as having another company act as the employer of record for your employees in that country.

There are three basic services offered by international payroll processing providers:

Global employment services

When you do not own an entity in the country where your employees live, you need  global employment services from a partner like Remote. Global payroll providers can employ your workers on your behalf using a model commonly known as Employer of Record, or EOR. Under this model, your employees are still your employees, but the global payroll provider acts as the employer on paperwork to allow you to employ workers in the country legally. Remote fully owns local legal entities in each country where we offer our EOR services. We act as your in-country expert partner, offering global employment services including payroll management, benefits administration, intellectual property protection, and employee share options program management.

Localised payroll processing services

International payroll providers can also handle your local payroll needs in countries where you already own your own legal entities. This is a good option for companies that have already made significant investments in a country and plan to maintain a large in-country workforce. In these cases, the global payroll provider handles local payroll and benefits administration but does not employ the workers on your behalf. You are responsible for your own in-country legal obligations and intellectual property protection where you have your own local legal entity.

Contractor payment services

In cases where your company needs to work with someone in another country but does not wish to make that person a full employee, an international payroll processing partner can help you pay contractors in other countries. For short-term arrangements and deals with individuals who prefer to remain self-employed, this can be a good option. That said, companies must be cautious to avoid fines and penalties, not to mention accidental loss of intellectual property depending on the laws where the contractor lives.Because countries have different guidelines on who qualifies as an employee, your global payroll solution acts as your first line of defence against worker misclassification. Many companies default to paying international workers as contractors because it’s easier. However, doing so can expose the company to potential lawsuits if the contractor decides to claim an employment relationship. Sometimes, companies may use different methods in different countries. For example, a company could employ workers through a global employment solutions provider in one country, use that provider’s local payroll services in another country where the company owns an entity, and use the same provider to pay contractors all over the world. Your global payroll provider can help you work out the right mix of services for your situation.

Global payroll providers usually take one of two forms: a partner-dependent global payroll service or an owned-entity global payroll service (like Remote).Both types of providers can handle payroll for companies in countries around the world. Both types also generally provide all three of the service types outlined in the previous section. However, only some providers own their own local entities, while others rely on third parties within their covered countries to provide their services for them.

Partner-dependent global employment solutions providers

Partner-dependent global employment solutions providers outsource their services to third parties within the different countries where they operate. Working with a partner-dependent service may make sense in the short term, but limited intellectual property protections and a generally poor experience for employees managed by partner-dependent providers (not to mention excessive costs) limit the utility of this option in most cases. Whenever possible, avoid this option.

Owned-entity global employment solutions providers

Owned-entity global employment solutions services provide full payroll, benefits, compliance, and tax services for employers hiring in foreign countries. Unlike partner-dependent services, owned-entity providers own their own entities in the countries they cover, so they do not have to outsource. This model provides stronger protections for IP and invention rights, as well as a significantly improved experience for employees.