The payroll management is already complicated enough when all the people involved are sitting in one office, right? But then what when your team involves non-resident employees who are scattered in different countries or simply operate remotely from a foreign country? I mean to say that things can get a bit… messy.
Suppose, a brilliant developer has been hired, and he or she is based in a different country from your company. How do you ensure that their taxes are done rightly? Do you have local tax laws or your own to be responsible for? Then there is treaty, social contributions or withholding obligations? These are the type of questions that could keep founders and finance people up at night.
Why is Non-Resident Payroll so Complicated?
To put it simply: different countries, different rules. Non-resident employee is taxed depending on where he or she works, where your company is registered and any tax treaty between the two. Confused already? You’re not alone.
The below are some of the fundamental challenges:
Varying tax laws: Every nation has individual requirements involved in filing, contributions, and stipulations of taxable income.
Permanent establishment risks: Recruiting an employee in a foreign country may establish for your company a “permanent establishment”, which would lead to the local tax liabilities.
Double taxation: Unless the issue of non-resident employees is managed well there is likelihood that they may end up paying tax twice, first in their country and then in yours.
Withholding errors: Penalties, audits, and unsatisfied employees are also some of the consequences of miscalculation of tax withholdings.
What is then the best way to avoid those pitfalls and stay focused on the business you are running?
Get the Basics Right
First of all, the status of residency of each team member; know whether they are present on a temporary basis or on a permanent basis. That a person is an employee of your company does not make him or her a tax resident in your premises. There are variations in countries’ definitions of “tax residence,” usually on the number of days or ties, like property, family, among others.
Then, evaluate the nature of the employment:
1. Are they contractors or full-time staff?
2. Are they employees on a temporary or permanent basis?
3. Do you have any entity in their country?
Each of the scenarios can alter your legal and tax priority. A Date measure is a lot to track? Yes.
This Is Where Experts Step In
In the process of attempting to solve this on your own? Risky move. That is why many companies, and particularly those in the growth mode, turn to the payroll compliance services. Such experts are aware of taxations worldwide, and they ensure that your filing, deduction, and payments are accurate and on time irrespective of where you have your employees based.
When you hire the services of payroll compliance, you are not simply outsourcing the admin work. You’re gaining:
1. High levels of specialization in international regulations of payroll.
2. Support with regards to double taxation and permanent establishment problems.
3. Assistance with tax treaty navigation.
4. Peace of mind in terms of knowing that filings are being done correctly and in time.
It is like having a GPS in a tax jungle, you can just drive, and they will help you to avoid all the curves.
Don’t Forget About Communication
Perhaps one of the main concerns of the non-resident employees is not knowing where they stand. Are their taxes deducted without any problem? Should they do something by themselves? Will their society contributions be appreciated back in their own country?
Proper communication at the right time gets you a long way. Let your employees know:
1. How is their pay structured?
2. What taxes are being withheld
3. Whether they are required to do any paperwork on their side.
4. People to whom they should discuss any issues.
It is essential to have an internal resource or external payroll partner that can help them in this process.
Tools That Can Help
Thankfully, it is not necessary to do all this stuff manually. Those are payroll platforms such as Remote, Deel, Oyster, that specialize in assisting companies working with distributed teams in compliance. Quite a number of them have integrated payroll compliance services and even have an EOR model for countries where there is no entity.
These platforms automate:
1. Tax calculations.
2. Local filings.
3. Pay slip generation.
4. Benefit administration.
And they get all of this done as they stay abreast of changes in the international law, something that would consume your team hours each week to keep up to date.
Final Thoughts
Payroll for non-resident employees is not a nice to have; it is an absolute necessity if you are planning to create a remote first or a global team minus stepping in the legal quicksand. The good news? You are not alone in the efforts as far as you have to try it out.
Whatever your case is, if you’re going to expand your business to new markets or simply hire remote workers from all over the world, investing in the right tools and expertise is what will keep your team, and your company, on dry land, legally speaking.