Outsourcing overseas: 7 things to consider when paying an international workforce

The good news is that hiring foreign employees has numerous benefits – it's cost-efficient, provides access to new skills and expertise, builds diverse teams and can help SMEs expand into new markets.

However, setting up an international business also comes with challenges. From navigating employment laws to choosing the right payroll system, there are several hoops to jump through when recruiting workers from another country.

Since Covid-19 and Brexit, Norfolk's food and farming industry has had to employ overseas workers to make up for labour shortages (Image: valio84sl)

Below, international transfer specialists, Clear Currency, share seven things to think about when managing an international payroll.

1. Classify your employees correctly

One of the first decisions you’ll need to make when recruiting an overseas workforce is whether to hire permanent staff or contractors. The way you classify employees will determine your international payroll requirements and can have legal implications, so it’s important to get it right.

Think about whether you need to fulfil immediate needs or build a long-term workforce to grow your business. Contractors are classed as self-employed, which alleviates many of the complexities that come with an international payroll. Permanent staff, on the other hand, are usually eligible for the work benefits and protections of your home country.

2. Set up an international payroll

Choosing the right payroll can help to save you time and money, and ensure that you are complying with local laws and regulations. How you do this will depend on the specific needs and circumstances of your business. The main options are:

• International payroll services – outsourcing your payroll means you won’t have to rely on in-house resources but it can be expensive and time-consuming.
• In-house payroll via a bank – this option can work well if you have enough internal resources to take care of payroll admin, but it can end up being costly and inefficient due to unfavourable exchange rates and slow services from banks.
• Currency specialist – using a specialist provider like Clear Currency can offer a time-efficient and cost-effective global payment solution.

3. Decide on a payment method

There are several methods you can use to pay your international workforce:

• Through your home payroll – if you are sending an existing employee abroad temporarily for work, it might be possible to leave them on your UK payroll. However, you may still be required to pay tax in the country they are working from depending on their rules.
• Establish a foreign arm of the parent company – setting up a local entity abroad could be the best option if you plan to hire multiple full-time employees or have business interests in another country. You’ll need to make sure you abide by the country’s legal requirements to do this.
• Work with a trusted third party – if you already have a partner or relationship with a business in the country your international employees work from, you could ask them to pay your staff on your behalf. Legally, they become the employer and manage payroll, while your business transfers the worker’s salary through them.
• Use an employer of record (EOR) – working with an EOR who can hire employees on your behalf and manage your payroll can help you avoid non-compliance issues.
• Hire contractors – this is often the most straightforward option, but it’s important to make sure you classify your workers properly to avoid issues with legality. Depending on your agreement, you can pay them per hour or per project, and in most cases, contractors are responsible for paying their own taxes and insurance.

4. Tax liabilities

The tax liabilities for employing remote workers full-time can be complex. It’s likely that you will have to pay both tax at home and in the country your employees are based in, unless there is a tax treaty between the two countries which provides exemptions. Depending on the country in question's tax laws, you may be liable to pay income tax and corporation tax if your business is deemed to be permanent.

It’s worth consulting a tax advisor to make sure you’re aware of the rules and to register with the relevant tax authorities.

5. International laws and regulations

It’s important to be aware of the legalities and regulations of the country and local area to avoid fines and penalties when hiring staff. Different countries have varying laws and customs for paying salaries, tax, social security and statutory entitlements.

You’ll also need to sign a foreign worker employment contract that complies with relevant employment laws; including holidays, overtime, parental leave, pension contributions, notice periods and termination. A specialist in employment law will be able to offer legal support with overseas requirements.

6. Currency risk

Currencies are traded 24 hours a day, which means values can change by the second. Major political and economic events can also have a significant effect on exchange rates, with even the slightest fluctuation influencing the cost of your international payroll.

While no one can predict when they will move up or down in value and by how much, a currency specialist can help you find the best tools to protect against unpredictable exchange rates and mitigate risk. When you join Clear Currency, you’ll be assigned a dedicated account manager who can help you lock in a favourable exchange rate today for up to 12 months in the future; so you'll always know exactly what you’ll be paying.

7. Currency transfers

Brexit and Covid-19 have influenced the value of the British pound, and if you plan on doing business within the EU, it's wise to shop around for a currency provider, as many high-street banks charge high commission fees. Working with the right international payments specialist can ensure that your overseas workforce gets paid in their local currency, accurately and on time.

Clear Currency makes the process hassle-free with instant access to exchange rates and speedy transfers. Our currency specialists can also help your business save money on cross-border payments with bank-beating exchange rates and no additional fees.

You’ll also have 24/7 access to our payments platform, allowing you to easily manage your payments every step of the way. This way, you and your workforce will have peace of mind that their salaries will be received safely, which can help to ensure job satisfaction, retain hard-working staff and in turn, boost your bottom line.

Clear Currency is FCA regulated and has a 5* Trustpilot rating.

To find out more about safely moving your money from A to B, visit clearcurrency.co.uk.

Call +44 (0)20 7151 4871 or email edp@clearcurrency.co.uk for more information.