How to Keep Your Business Costs Down When Paying Overseas Workers

Business knows no boundaries in the digital age, as two indomitable forces continue to open new markets and forge the potential for new business models: technology and globalisation. These seismic shifts have expanded participation in the global economy beyond the wealthiest countries and multinational corporations. Today, even small-scale operations in provincial backwaters can achieve a global reach via digital platforms, transforming their business into micro-multinationals: SMEs that take advantage of the latest innovation to expand internationally early in their business lifecycle.

From increased revenue potential and entry into new markets to competitive advantage and greater access to talent, the benefits of operating internationally are compelling. Increased connectivity typically dominates the discussion about the exponential growth of international business and the benefits available, but none of this would be possible without a mobile, tech-savvy, multinational workforce.

The opportunities abound for businesses that employ international staff, but there is much to consider when expanding your workforce globally - from different employment laws to international payroll.

Benefits of employing international staff

Hiring globally is a vital step on the path to achieving successful growth across industries - from manufacturing, shipping, and travel, to agriculture, textiles. Businesses that expand internationally open the door to a wealth of benefits that are underpinned by technology and globalisation.

Foreign language and knowledge

Businesses that operate in a specific international market need employees who speak the language and understand the business landscape. By hiring people from the market in question, who can communicate effectively with clients and understand the cultural nuances, they will be well-placed to gain a firm footing there.

Talent pool

Global expansion allows a business to transition from a local or national talent pool into a global one. This creates greater access to skilled and experienced workers, enhancing their ability to recruit an innovative and productive workforce. Businesses that employ an international workforce not only have a better, more hands-on grasp of the international market, they’re also more agile.

Creativity and different perspectives

Creativity can become stifled if a business's entire workforce hails from the same background. By employing people from different countries, the organisation will benefit from a new perspective and a fresh approach to business. The blending of ideas and experiences from different parts of the world fosters a culture of creativity and innovation that can drive a business forward.

Enriched workplace culture

An international workforce can also engender a more fulfilling workplace for all involved. The amalgamation of different experiences and ideas will broaden everyone's perspective, leading to improved morale and a positive reputation culturally - welcoming conditions that can help to attract better talent.

Managing international payroll

One of the main challenges employers face when hiring international staff is understanding how to pay them. Different employment laws, compliance regulations, and currencies mean there is much to consider when paying an employee in another country. If global payrolls are neglected, they can become time-consuming and costly to manage - especially when paying employees in multiple locations.

A range of factors must not be overlooked when managing international payroll:

Taxes and other obligations

You may be subject to a double taxation regime, meaning you could pay tax both at home and where the employees are located. To avoid this, research if there is a tax treaty between the UK and the one you are hiring in. Some tax treaties allow exemptions to financial obligations like social security payments, so check the types of exemptions you might be eligible for.

The income tax and Social Security requirement for a UK resident working in the UK is simple: both PAYE and National Insurance Contributions must be paid on their earnings. If a person recruited overseas is employed by a UK company directly, UK tax obligations must be considered in the first instance.

If an employee recruited overseas is not resident in the UK, PAYE is typically not relevant, unless they perform duties in the UK which are more than incidental to their overseas work. Incidental work in the UK generally means those days which are subordinate or ancillary to overseas work, such as training in the UK or general meetings.

The regulatory environment

Take the time to research and understand the regulations of the country, state, or province your international employees work in. Laws pertaining to taxation, social security, overtime, holidays, and parental leave will differ depending on where they are located. Failure to understand and adhere to country-specific laws could result in your business facing fines and legal penalties.

Type of employment

When hiring in another country, you must determine what type of employment your company requires. Your global payroll requirements will vary depending on whether you hire contractors or full-time employees. So, establish a talent acquisition strategy that fits your goals - are you filling short-term needs or building a team for the future?

Hiring contractors can seem like the best option because any complications that arise from global payroll are offset by their self-employed status. However, they may be viewed as remote employees by your home country, depending on how you provide and structure their work. Remote employees are eligible for the benefits and protections that are obligations within your country.

Payment method

You must determine the best way to pay your international employees. This can be done in several ways.

• Pay them as contractors: An unstructured relationship, where the employee manages their own time and methods, allows you to pay them as a contractor. This could include salespeople working on commission or those paid hourly such as lawyers or accountants.
• Pay through your home payroll: If your employee is being transferred overseas for a short period, there’s potential to leave them on the home payroll. Make sure you research any specific regulations regarding this in the country they are working in. However, if you are hiring an employee in another country, they will need a payroll in that country for tax and social security purposes - and they won’t have a tax presence in your home country. It may be possible for expats to be included on the home payroll, but you must deal with two separate tax systems if they become tax residents overseas.
• Work with a third party: If you have an existing relationship with a business in the country your international employees work in, you could ask them to payroll them locally. That third party would become the employer for payroll administration, while your business remits the salary through them.
• Outsource payroll: There are two ways to outsource payroll: through a payroll provider or an employer of record service. Payroll providers are restricted because they are only administrative, so cannot function as a legal employer. An employer of record is a more comprehensive option, offering a local employer of record that’s already incorporated to hire, payroll and withhold taxes for your employees - avoiding non-compliance issues.

Compliance

Compliance with overseas tax, employment and social security laws should be a top priority when paying international employees. Compliance considerations include:

• Offering employees comprehensive statutory entitlements
• Adhering to employment laws on notice periods, termination and severance
• Making social contributions
• Avoiding misclassification penalties if hiring contractors

Currency risk

Currencies are traded around the clock - 24 hours a day. Therefore, the value of the pound against other currencies is constantly changing - not just daily but by the minute.

Why do currencies fluctuate in value? Currencies strengthen and weaken each day because banks and investors purchase huge volumes in response to political and economic news. Positive news about a country typically causes the value of the currency to rise (“strengthen”) while bad news causes it to fall (“weaken”).

We know when they might move because we often know when political events will occur that might influence them and the economic calendar shows us when influential data will be released. However, there will also be news that happens without warning - anything from a US president tweeting late at night to a fall in the price of bauxite.

What we cannot predict – and no one can – is whether they will move up or down or by how much. Even slight fluctuations can make a big difference to the cost of your international payroll and can cause your final wage bill to vary month to month - with international transfer fees adding further to the cost.

Setting up an international payroll

There isn’t a one-size-fits-all solution for setting up international payroll because every business has a unique set of requirements and circumstances - from the number of currencies needed to their level of exposure to currency market risk.

There are several options available when setting up an international payroll and executing currency payments internationally:

• International payroll services: This allows a business to outsource international payroll, reducing the burden on in-house resources. However, it does mean a higher cost of delivery.
• In-house payroll function via a UK bank: This traditional option can prove costly and inefficient because of the unfavourable exchange rates, admin costs and clunky services offered by banks.
• Currency specialist: These experts - like Clear Treasury - understand that effective payroll management for international employees requires a fast and cost-effective global mass payment solution; one that guarantees employees receive their salary on time via an automated hub.

Clear Treasury

Clear Treasury are experts at providing corporate decision-makers with the knowledge and tools they need to grow a successful international business. Against the backdrop of a global pandemic, this guidance and expertise are more crucial than ever. Our relationship-focused approach achieves long term success and is underpinned by our dedication to excellent customer service.

We understand how technology is at the core of how businesses operate in the modern digitally-enabled world. This has allowed us to develop a technology platform that seamlessly integrates our products and services into your ecosystem - removing the complexity and risk involved in making international payments.

Using our comprehensive mass payment solution, you can create, track and manage your business’s international payroll payments across multiple currencies from a secure online account. Forget manually inputting endless streams of individual employee payment data; simply send your payment instructions to your dedicated account manager and we’ll do the rest – saving you time and improving productivity.

This invaluable finance tool adds real value to your business:

• Saves time on admin
• Improves productivity
• Saves money by providing access to competitive exchange rates
• Guarantees secure payments

Your dedicated account manager can also help you to plan and establish a proactive hedging strategy. There’s no hard and fast approach to protecting your finances from the threat of currency risk. Therefore, a bespoke hedging strategy that aligns with your requirements, commercial context, and risk appetite will allow your business to execute effective solutions that sync with its aims. This dedicated expert can provide guidance and support on tools to track, target or fix exchange rates for currency transfers to hedge against currency risk when paying your overseas employees.

Our knowledge and experience allow us to provide our clients with solutions and guidance that help their business thrive when engaged in international trade - both through our team of experts and our innovative technology.