An increasingly painful problem that arises with international expansion is, how to pay employees compliantly. This is one of the good problems to have when growing, but has to be managed correctly to avoid complications in the future. Deepening on where employees are located, they will fall into government regulations and company labor laws that will not be covered in international money transfers.
If the company fail to comply with local law and regulations such as pay, bonus, claims, overtime, taxes etc there would be severe repercussions which might include court cases and penalties which would also include a bad reputation. Despite the good intentions and goodwill of the company wanting to adhere to all these policies, being compliant might not be easy, as it requires a series of things for each country that needs to be adhered to. That is why outsourcing this service has become one of the most used strategies for global companies. There are two methods when outsourcing payroll to a third party to follow.
Hiring employees as independent contractors
Many think this is the easiest way forward, which could be for an assignment based job requirement. However, what most companies don’t understand is that most roles require a job that a full-time resource would do and this often leads to a company being non-compliant which becomes a major issue much later on. If an independent contractor is being treated as an employee or is visibly misunderstood by the government or other authorities that it could be an employee, then it is an issue in the long run. As long as the company adheres to the criteria that differentiates an employee and a contractor, then this is one successful method for the company.
Hiring employees as direct hires and paying internationally
To be able to pay as direct hires, firstly the company has to be established as a legal entity in the country where the employees are located. Once the entity has been established, the country’s employees will fall under the normal payroll procedure. There is a massive risk involved in this entire process, as it would take time, money and effort to establish an entity, hence it is a strategic decision if the process is worth in the long run. Although entity has given access to pay employees directly, there is a legal process involved in payroll. The company has to comply with law and regulations while managing a workforce in the country.
Both methods are not easy, that is why there are experts such as ExroAsia who can take up your burden in paying and managing payroll for international employees. Message us for a free consultation.