Understand the intricacies of managing global payroll for your employees. Discover key considerations and best practices to ensure seamless payroll processes and maintain compliance.
We have always been strong advocates of global hiring and its benefits. In case you haven't seen it, we have conducted a comprehensive analysis of how global hiring can significantly reduce costs for US-based startups as well as tap into a diverse pool of talent from around the world. A separate analysis also showed the cost-effectiveness of building remote tech teams across various global locations. With businesses increasingly expanding their operations beyond borders, the need to employ international staff becomes crucial.
While this brings numerous benefits, it also poses unique challenges, particularly when it comes to payroll management. Paying international employees or contractors requires a thorough understanding of international payroll processes, compliance with local laws, and consideration of various factors such as currency exchange, payment methods, and more. In this blog, we'll explore the intricacies of global payroll and provide valuable insights to paying international employees. As India experts, we will also provide insights on how global companies can transfer money to employees in India and best practices for successful payroll management.
Global payroll refers to the administration and management of employee compensation and related processes across multiple countries or legal jurisdictions. It includes salary calculation, tax management, administration of benefits, and compliance with local labor laws and regulations.
According to a survey conducted by EY, approximately 33% of global companies do not have a formalized global payroll policy. The purpose of having a global payroll strategy is to ensure accurate and timely payment of employees across the globe while considering factors such as local currency, tax requirements, social security contributions, and other relevant factors. By developing a standardized payroll policy, businesses can streamline their payroll operations, maintain consistency in payroll practices, and minimize the risk of fines arising from errors or non-compliance.
Consider the amount of resources and investment required to handle payroll at your operational location. Now, multiply this requirement by the number of remote locations where your employees are situated. This represents the extent of compliance and payroll management that you must handle. Additionally, companies may have contractors working in specific locations, further intensifying the complexity.
It is highly likely that your current payroll system will prove insufficient. However, before searching for the best global payroll service provider, it is crucial to grasp the appropriate international workers arrangement that suits your requirements.
Now that you have clear expectations in mind from your payroll service provider, let us understand the important questions that you must ask every vendor as part of the evaluation process.
It is important that you assess providers' service offerings and capabilities for seamless management across countries as well as with your HR and finance systems (you don’t want to upload an Excel file every time!). The service provider should have robust measures for data security. It is also important to get transparency in overall pricing and opt for a user-friendly platform with self-service options and real-time reporting for efficient operations.
A reliable provider (e.g., an EOR partner) should proficiently handle local taxes, laws, and compliance requirements for each country of operation, ensuring adherence to diverse regulatory landscapes. They should be able to provide accurate payslips for international employees and contingent workers, ensuring transparency and compliance. It will also help if the payroll provider has a dedicated team to support your global payroll account, ensuring prompt assistance and a smooth experience.
Evaluating the technology and integration capabilities of a global payroll outsourcing provider is crucial for a modern and efficient payroll solution. Inquire about their frequency of updates and improvements to ensure they keep pace with evolving industry needs and regulatory changes. Beyond payroll services, assess the additional offerings they provide to complement your global HR requirements, such as HRIS integration, benefits administration, or workforce analytics. Lastly, inquire about the range of platforms they can seamlessly integrate with, as this ensures a streamlined process with your existing systems, optimizing overall payroll efficiency and data management.
Understand if the provider will work closely with your financial team to ensure accurate financial reporting and seamless integration with existing financial systems. As your business scales or expands into new international markets, the partner should be flexible enough to accommodate changing payroll needs and easily support your operations in new markets. This ensures that you won't have to seek a new payroll partner for each geography, streamlining your global payroll management.
Look for a provider known for being approachable and responsive, ensuring they promptly address your queries and offer assistance whenever needed. Check if they offer round-the-clock customer support or have well-defined support hours that align with your business's operating hours and time zones. Some payroll providers provide premium customer support, but at an additional cost. Additionally, inquire about the various channels of communication they provide for reaching out to their support team, such as email, phone, or live chat.
Seek references or case studies showcasing the provider's experience and the satisfaction of their existing clients, validating their ability to deliver quality services and support long-term business growth. Finally, inquire about their termination agreements, including notice period, to ensure a smooth transition of payroll responsibilities. It is always better to go with a provider with zero or no-financial risks.
When hiring overseas talent, you can either hire contractors or recruit full time employees, either by setting up a new entity or employing an EOR (Employer of Record). While we have explained the different hiring models in more detail separately, there is a fine line between employee and contractor classifications. Usually, it is dependent on multiple factors, including level of autonomy in work, entitlement to benefits, time of engagement, and liabilities arising from work-related issues. For example, contractors who have worked for more than 240 days in India have a high chance of getting misclassified as employees of the company.
Complying with local laws and regulations is paramount when paying international workers. Each country has its own employment laws, tax obligations, and social security contributions to process payroll, which employers must navigate to ensure compliance and avoid legal issues. Understanding these factors and seeking guidance from local experts, such as legal and tax advisors, is crucial to meeting all requirements.
Currency exchange plays a significant role when you pay employees overseas. Fluctuating exchange rates can impact employee payments, affecting their net income. Businesses need to consider the most suitable currency conversion methods, taking into account exchange rates, transaction fees, and timing, to ensure accurate and timely payments. There are broadly three types of payment methods to consider:
There are a lot of legal and compliance issues that companies need to account for when paying overseas employees. Some of these are:
Obtaining a FIRC can be a cumbersome process, but it is a mandatory requirement for every online transaction between an employer and an employee.
India has emerged as a popular destination for international businesses to hire talented professionals due to its skilled workforce and cost advantages. Employing international staff in India, however, necessitates understanding the country's unique employment laws, tax regulations, and social security obligations.
When paying international employees in India, businesses must consider multiple modes of transfer and their impact on employee payments. Opting for reliable and cost-effective currency conversion methods, such as partnering with banks or digital payment partners, ensures good conversion rates and timely payments. Selecting the most suitable payment method is crucial for efficient payroll management in India.
The table below provides a detailed breakdown of the final amount received after transferring USD 10,000 from the USA to India through two different channels.
Digital Payments such as Wise offer better conversion rates, a complete breakdown of the costs, and are the fastest way to transfer money. Thus, Wise is increasingly becoming a preferred payment solution for international payroll.
Employers with a physical entity in India
In India, employers with a physical entity in India must adhere to the Payment of Wages Act, which outlines rules related to salary payment frequency, deductions, and more. Additionally, the Income Tax Act governs income tax deductions and filing requirements. Employers may also need to contribute to social security schemes like the Employee Provident Fund (EPF) and the Employees' State Insurance (ESI), depending on certain criteria.
Employers without a physical entity in India
If the employer doesn’t have a physical presence, it is the responsibility of the employee receiving money to ensure that they are filing their taxes on time and declaring their income compliantly. Fortunately, India has signed a Double Taxation Avoidance Agreement (DTAA) with 93 countries, so there is very little chance of double taxation. According to tax experts, workers should:
Employers also need to ensure that their remote employees are getting statutory benefits such as:
Not providing the necessary benefits results in considerable trust loss for the brand and also results in misclassification of workers, leading to hefty fines.
FIRC as a part of making international money transfers to India
Through FIRC, India has established regulations to prevent money laundering, as was previously discussed. FIRC also functions as evidence of the purchase or sale of shares to a foreign entity. Importantly, FIRC is also used by contractors for year-end export accounting compliance. Since GST exemption applies to the export of such services, FIRC serves as an important proof of the export of services and the remittances received in lieu of them. However, for employees receiving international remittances, obtaining a FIRC can be a protracted and cumbersome process. Let’s look at the same thing in a nutshell:
Step 1: Request for FIRC Certificate or Advice
To request a FIRC certificate, the employer has to draft a letter to the bank where they are receiving foreign currency. This letter should contain the following:
Step 2: Indian Bank generates the IRM
Once the bank is satisfied with all the documents, it generates an Inward Remittance Message (IRM) on the government export portal called EDPMS. Thereafter, this IRM number becomes the FIRC number.
Step 3: FIRC is Issued
After the payment, the beneficiary bank will issue the FIRC electronically or physically.
Getting an e-FIRS: A Hassle-Free Way to get FIRC
If you are transferring money through digital payment partners such as Wise or Cashfree, the details of the FIRC will be automatically generated and sent to your email. Particularly in India, if you are a Cashfree merchant, the beneficiary's email ID is shared with the bank at the time of transfer. The bank partnered with Cashfree will issue the e-FIRS directly to your beneficiary’s email address. In most cases, it will be sent on the same day the payout is processed. However, it is important to note that these digital payment partners are just financial intermediaries providing the information; compliance is still the responsibility of the worker and the company.
As per the Cashfree website, the issued e-FIRS is in the following format.
There are broadly three types of entities to whom employers can pay money on behalf of their international employees. These are:
If the employee is engaged as a contractor, it allows for ease in the movement of money. However, the operational hassles are many, as employees need to generate invoices every month. Indian employees feel more comfortable with full time employment which is shown through proof of payslips and safety of employee benefits. Employees who earn more than 50 LPA every year will have a very high tax compliance. The biggest issue is, however, worker misclassification, which can cost the employer a lot of money in fines.
Employees can choose to form their own company, and setting up an LLP is recommended as compliance requirements are simpler than those of a private limited company. The employer will be paying the LLP on behalf of the employee. However, this will require the employee to do:
This will entail an additional Rs. 7,000 per month (~$86) with a one-time setup fee of Rs. 15000 (~$183). Although this is a viable option, Indian employees prefer full-time employment as compared to owning a company. We find this to be a subject of interest for employees who are earning more than Rs. 40 LPA while being employed with global companies, as they try to offset the above cost through incremental savings on taxes.
The most convenient and straightforward method for global companies to pay international employees is by partnering with an Employer of Record (EOR). EOR partners take responsibility for the employee's payroll, while the global company retains control over their day-to-day operations. This arrangement ensures full compliance with local laws, while the employee benefits from being associated with a renowned global brand. EORs handle various aspects, including contract management, compliant payroll processing, and fulfilling legal obligations.
For businesses focused on a specific country or region, it is advisable to engage a local EOR partner with expertise in that particular area. However, for companies aiming to hire employees across multiple countries/regions, partnering with a global provider like Wisemonk is more practical.
Working with a global payroll provider enables you to comply with local and international laws without having to establish a legal entity in any of the countries where you are hiring.
At Wisemonk, we handle all aspects of your payroll, including:
If you’re hiring workers in multiple countries, consider using Wisemonk’s global payroll system, which enables you to pay all of your overseas workers (employees and independent contractors) in one place.
Managing payroll for international employees presents unique challenges, but with proper understanding, preparation, and adherence to best practices, businesses can navigate these complexities successfully. By considering legal and compliance factors, currency exchange dynamics, payment methods, and leveraging strong partnerships, companies can ensure efficient and compliant international payroll management. As businesses continue to expand globally, investing time and resources in mastering international payroll processes is a strategic imperative.
Global payroll refers to the comprehensive management and administration of payroll processes for a diverse and geographically dispersed global workforce. It involves handling salary calculations, tax deductions, employee benefits, and other elements of compensation on a worldwide scale. To efficiently manage payroll across multiple countries and jurisdictions, companies often turn to a global payroll solution or partner with an Employer of Record (EOR). This strategic approach ensures compliance with local labor and tax regulations while providing streamlined payroll services for employees in different locations. By leveraging a global payroll solution or working with an EOR, businesses can centralize payroll operations, simplify reporting, and optimize the process of compensating their global workforce.
Global payroll offers several benefits for businesses with a global workforce and the need for multi-country payroll processing.
In summary, global payroll simplifies payroll management, ensures compliance, reduces costs, enhances data security, improves employee experience, and provides standardized reporting capabilities for businesses with a global workforce.
To effectively run global payroll for a diverse global workforce, consider these key steps:
In summary, running global payroll involves understanding local regulations, centralizing data, ensuring compliance, streamlining processes, prioritizing data security, and continuous improvement.
A global payroll company is an organization that specializes in providing comprehensive global payroll solutions and services to businesses operating across multiple countries. These companies offer expertise in managing payroll processing, ensuring compliance with local labor laws and tax regulations, and administering employee benefits on a global scale. They often serve as Employer of Record (EOR) entities, taking responsibility for legal and compliance matters related to payroll and HR services. Global payroll companies utilize advanced payroll software to streamline processes, enhance accuracy, and facilitate efficient international payroll processing for businesses with a global workforce.
When selecting a global payroll service provider, consider the following factors to ensure you choose the best international payroll service for your needs:
By considering these factors, you can choose a global payroll provider that aligns with your requirements, offers the right international payroll service, and supports your organization's global payroll needs effectively.
Yes, Wisemonk specializes in offering comprehensive solutions for managing payroll across multiple countries. With their expertise, businesses can streamline their global payroll processes, ensure compliance with local regulations, and efficiently manage payroll for their global workforce.
No, they alone will not suffice. Digital payment aggregators such as Wise and Cashfree do offer valuable information regarding foreign remittances, including the Foreign Inward Remittance Certificate (FIRC) for Indian employees. However, both employees and employers bear the responsibility of compliance and reporting. Typically, companies engage Employer of Record (EOR) partners to handle comprehensive payroll management for their international employees, ensuring end-to-end support and adherence to regulatory requirements.
Employer of Record (EOR) is a service provider that acts as the legal employer for a company's international employees. In the context of India, an Employer of Record India takes on the responsibility of statutory compliance, payroll processing, tax deductions, and other employment-related obligations on behalf of the client company. This arrangement allows the client company to focus on their core business operations while ensuring compliance with Indian labor laws and regulations. The Employer of Record India assumes the role of the official employer and manages various administrative tasks, enabling the client company to have a presence in India without establishing a separate legal entity.
Employer of Record (EOR) services play a crucial role in facilitating global payroll management. By partnering with an EOR, businesses can benefit from their expertise in various areas related to international employment. EORs help navigate complex intellectual property and international hiring regulations, ensuring compliance with local laws and regulations. They have a deep understanding of tax laws and assist in payroll tax calculations and deductions, minimizing the risk of non-compliance. EORs also handle employee benefits administration, such as healthcare and retirement plans, based on local requirements. Additionally, EORs manage employee data securely and confidentially, ensuring compliance with data privacy regulations. They are well-versed in international contractor payments, facilitating smooth and compliant payment processes. By leveraging the expertise and services of an EOR, businesses can streamline global payroll operations, mitigate risks, and focus on their core operations with confidence.
