Payroll Concerns When Hiring Remote Employees

Payroll Concerns When Hiring Remote Employees


The COVID-19 chapter has indeed transformed the way India works. The Work-from-home practice which was enforced on Indian Inc. in compliance with the safety measures issued by the government during the lockdown phase has turned out to reap unknown benefits for many companies, which is why a lot of them have decided to add the work-from-home policy into their work policies for good. While it has proved to be a game-changer for many, not all sectors have gone gaga about it because of their own limitations.

Studies have reported that 4.3 million workforces from the ITBPO sector have already been transitioned to a WFH model during the ongoing lockdown, wherein a majority of them have planned to continue this pattern for a long term or make it functional for at least 20-30% of their employees even after things normalise.

Additionally, hiring remote employees from different geographies allows you to have a dynamic pool of talented people working for you from across the globe promising productivity, innovation, faster growth, etc. But, having said that, the employment of a remote workforce comes with its own sort of ugly challenges. Amongst all, conforming to the payroll and tax laws across the boundaries while paying your employees might be a painstaking errand. Why? Let’s discuss this further down below.

Classification of workers

The relationship that exists between your business and the remote workers hired has a lot of significance in determining the type of taxes that both you and your employees will be liable for. Stating the different categories of workers below.

  1. Formal Worker: These workers can be locals or expatriates who are working on a full-time basis and are entitled to a full range of benefits and labour protections in the host country.
  2. Contractor: These type of employees are self-employed and are responsible for handling their own taxes and which is why it seems to be on-demand.

However, it is very important for you to consider the proper categorisation of your employees, failing which you will fall prey to hefty fines and penalties. Also, its advisable to go through the tax treaties between both the countries, so that you can avoid double taxations and be aware of any kind of exemptions.

Another such factor that must be considered while deciding pay for your remote workers is Currency. The rapid fluctuations in currency rates might keep impacting the net pay of the employees which can pop up confusions and frustrations. Hence, a currency exchange agreement must be made in order to counterbalance such instability on both the sides.

Paying your Overseas Workers

Issuing payment to remote workers placed across different geographic regions, where you do not have an office can be carried out in four different ways. They are:

  • Through a local partner: If your company has had an existing business relationship with the foreign country where your employees reside, you can simply ask a local partner or a third party company to consider your employees under their payroll. If they agree to partner with you then those employees will be considered as their legal employee and will be a part of their payroll, withholding and benefits procedure.
  • On the basis of home country payroll: Employees can be paid on the basis of the company’s home country payroll under certain criteria’s. Different countries might be against such a notion of remote payroll from any foreign country companies but might be given permission under certain specific laws, keeping in mind that the employees are registered with your company.
  • Outsourcing payroll: Outsourcing the payroll operations to a third-party service provider can help you ease your workload extensively. You can choose to outsource your payroll from two alternatives viz, a payroll provider or a Global Employment Outsourcing (GEO) service.

When outsourcing to a payroll provider, you can be offered of administrative services such as withholding, compensation and issuing checks but it ceases to perform as a legal employer. On the contrary, GEO services act as Employer of Records(EOR) which have the legal responsibility for labour compliances when operating in a country wherein you do not have a local entity. The services offered by a GEO are payroll and tax administration, employee benefits, currency exchange, in-country money movement, insurance, employment contracts, local laws, immigration or visa/work permit processing.

  • As independent contractors: This approach can be adopted for positions where the nature of the work is free-standing and needs no supervision in terms of time and the method of working.

Therefore, when choosing the best resort, it is essential for you to consider the option which upholds the tax, employment and social security laws of the foreign country.

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