Payroll compliance is a big issue lately, and as more companies turn to distributed, the challenges associated with navigating the challenges of global payroll are even more apparent. We recently spoke with Deel, a tech company offering global payroll solutions to help businesses remain compliant whilst they hire from anywhere in the world. Deel shared with us the main compliance issues that are leaving many distributed teams liable, and what you can do to avoid treading in murky waters. Let's dive in as we share Deel's take on how to manage the challenges of global payroll and what considerations to make if you plan to hire remote workers.
There's nothing new about hiring global talent, but we've certainly seen an increase in demand over the past couple of years. As the worldwide talent workforce expands, more companies are looking to hire outside their borders. The reasons for this include:
When companies opt for hiring foreign talent, they often face several challenges. Onboarding foreign workers can lead to the unintentional breaking of the local labor laws. On top of that, there's trying to handle global payroll, which is much more complicated than just sending a wire transfer. Deel aims to build a worldwide workforce without boundaries. They're transforming the once intimidating hiring process into something much more approachable with each move and feature they make. After all, every remote team should be able to grow without the burden of legal and compliance issues.
When it comes to hiring remotely, companies have two options: hire workers as independent contractors or as employees. Both solutions come with respective administrative processes and possible complications. Hiring independent contractors is a bit less complicated though than hiring full-time foreign employees, which is often why remote companies go the contractor route instead. However, there is still the potential for legal issues if the correct processes are not followed. Independent contractors, must have the proper setup in their home country. Each country has its name for this setup: independent contractor, private entrepreneur, sole proprietor, etc. Sometimes a worker must open a business entity to work with foreign companies legally. Understanding this is crucial, and it's best to consult a local expert to ensure nothing is overlooked.
Moreover, several local labor intricacies need to be addressed in an independent contractor agreement. Some of these include clauses that protect the contractor from unintentional employee misclassification.
Hiring full-time employees can be challenging since there are a lot more rules and regulations to follow. The hiring company needs to provide the employee with equal benefits and pay taxes and contributions like health insurance, unemployment compensation, etc. Understanding local labor law is even more critical since the stakes are higher than when hiring independent contractors.
To legally and compliantly hire full-time employees, companies have two options:
An Employer of Record takes care of the entire hiring process on behalf of the client company, ensuring all the administrative tasks are handled while hiring. Moreover, the Employer of Record can still run payroll and take care of any local employee benefits and contributions.
It may seem like using an EOR service takes away the relationship between the company and the employee, but that's not the case. Day-to-day management and employee experience are still the sole responsibility of the company.
When it comes to paying foreign workers, there are a few hoops to jump through. As we already mentioned, there is more to paying foreign workers than just sending money transfers. International wire transfers take a lot of time, and the fees can be pretty hefty. It's common for companies to send money to foreign workers through digital wallets like PayPal, but doing that exposes both parties to risks. Things can get complicated if a payment solution isn't available in the country of a worker.ƒ Not to mention that the process is a manual one, increasing time spent on processing payments with every new worker.
When paying foreign workers, it's essential to find a solution that works for both parties. That's why Deel created one that gives both the company and contractor the best experience possible. When using Deel, companies can pay every worker at once with a single click. On the other hand, contractors can receive their money in a currency and method that works the best for them to access their funds faster and with lower processing fees. For even more flexibility, the Deel Card was launched, giving workers instant access to their funds, enabling them to gain access to infinite global spending capabilities online or in-person.
To overcome the last challenge of working with (foreign) workers, companies need to take care of tax forms. In the US, companies need to collect tax forms such as W-9 and 1099-NEC (for domestic workers) and W-8BEN for their foreign contractors. Some of these forms need to be submitted to the IRS (Internal Revenue Service) in time to avoid potential penalties.
When it comes to accounting, each transaction should match an invoice. Independent contractors need to invoice their employers at the end of each payment cycle for the payment to be processed. This usually gets done manually, so even the slightest mistake can lead to late payments and accounting nightmares. To avoid that, Deel uses an invoicing system to automate everything, allowing both parties to streamline the entire process and focus on what matters the most instead. On top of that, companies can even integrate their favorite accounting software like Quickbooks, Xero, and Netsuite to keep their books and records accurate.
Managing global payroll is by no stretch of the imagination a walk in the park, but with the right tools and processes in your field, you should have no problems remaining compliant. At 👀Where, we believe in the future of remote, hybrid, and global teams and supporting them as they grow into high-performing teams. It's for this reason we're building a product to help connect teams better.