What is international payroll outsourcing?

International payroll outsourcing is the practice of hiring a third-party service provider to manage and administer payroll processes for a company's employees located in multiple countries. This service ensures compliance with local payroll regulations and tax laws, streamlining global payroll operations.

3 ways to outsource international payroll

Outsourcing international payroll can be done in a few different ways, each with its own advantages and considerations. Here are the three most common ways to outsource international payroll:

1. Contractor management solution

A contractor management solution helps companies manage and pay their international contractors. This approach is ideal for businesses that rely heavily on freelance or contract workers. The service provider handles contractor payments and ensures compliance with local labor laws.

2. Employer of Record (EOR)

An Employer of Record (EOR) service provider becomes the legal employer of your international employees. This solution is best for businesses expanding into new markets that don’t want to establish a legal entity in another country. The EOR handles payroll, tax filings, benefits, and compliance with local labor laws, allowing companies to focus on their core operations.

3. Global payroll software

Global payroll software integrates with your existing HR and payroll systems to streamline and automate payroll processes across multiple countries. This software helps your business comply with local regulations, manages currency conversions, and provides real-time reporting and analytics. While payroll software isn’t technically the same as outsourcing payroll (it can still be managed by an in-house team), it often allows you to streamline or even automate much of the payroll process, which comes with many of the same benefits as outsourcing.

What do payroll outsourcing services include?

What you get from a global payroll service will vary greatly depending on the type of global payroll solution you choose, whether it’s full-service or self-service, where your global employees are located, your business needs, and other factors. With that in mind, though, below are some of the common services international payroll service providers often offer:

• Multi-country payroll processing: Calculating and distributing employee salaries, wages, bonuses, and deductions.
• Tax compliance: Filing and payment of payroll taxes in accordance with local laws and to the correct local entities.
• Benefits administration: Managing employee benefits for your global workforce, including health insurance, retirement plans, and other perks.
• Local compliance: Ensuring adherence to local labor laws and regulations in different countries.
• Reporting: Providing detailed payroll data reports and analytics for internal and external use.
• Multinational payments: Handling currency conversions for international payments in employees’ local currencies. 
• Employee support: Acting as payroll experts and working with your organization’s human resources to provide assistance and support for employee payroll inquiries, solve problems, keep records of pay stubs and payslips, and more.

What to consider before outsourcing international payroll

Before outsourcing international payroll, consider the following factors:

• Provider expertise: Make sure any global payroll provider you consider has experience and expertise in managing payroll for international teams in the countries where you operate, as well as any new countries where you may expand your global team in the future.
• Compliance: Verify that the provider stays up-to-date with local tax laws and payroll regulations.
• Technology: Assess the provider's technology—can they integrate with your other systems and tools, like HR software or CRM?
• Pricing: Evaluate the cost of outsourcing compared to maintaining an in-house payroll team.
• Data security: Make sure the provider has robust data security measures to protect sensitive employee information.
• Service Level Agreements (SLAs): Review the provider's SLAs to understand their commitments regarding accuracy, timeliness, and support.

How to outsource payroll

To outsource payroll, follow these steps:

1. Assess your needs. Determine your payroll management needs and objectives, including the scope of services required and the countries involved.

2. Research international payroll processing providers and solutions. Identify and evaluate potential payroll outsourcing providers based on their expertise, reputation, and services offered. Consider all your options, from an EOR to cloud-based payroll platforms.

3. Select a provider. Choose a provider that best meets your needs and budget.

4. Implement services. Work with the provider to onboard and implement their services, including system integration and data transfer.

5. Monitor their performance. Regularly review the provider's performance against the agreed SLAs and address any issues as needed.

Frequently asked questions about international payroll outsourcing

How much does it cost to outsource payroll?

It depends on the provider and your business needs. Outsourcing can be cost-effective, particularly for small to medium-sized businesses, as it reduces the need for in-house payroll staff and infrastructure.

What are the main benefits of international payroll outsourcing?

The main benefits include compliance with local tax regulations, increasing efficiency by streamlining workflows, reducing costs, and providing scalability for global expansion. This also helps improve the overall employee experience by ensuring that payroll is processed accurately and on time.

How does an Employer of Record (EOR) service work?

An Employer of Record (EOR) acts as the legal employer for your international employees, handling payroll, taxes, benefits, and compliance with local labor laws, while you manage their day-to-day tasks. This is particularly useful for small businesses looking to expand globally without establishing a local entity.

What is the difference between an EOR and a PEO?

An Employer of Record (EOR) becomes the legal employer of your international employees, managing all aspects of payroll and compliance. A Professional Employer Organization (PEO) co-employs your workforce in the US, sharing employer responsibilities and managing HR services, including payroll, benefits, and compliance. Both solutions help streamline payroll and improve employee experience during global expansion. Learn more about the difference between an EOR and a PEO in our article.

What data security measures should a payroll provider have?

Providers should implement robust data security measures, including encryption, secure data storage, regular security audits, and compliance with data protection regulations. This helps protect sensitive employee information and ensures secure payroll processing.

How do payroll providers comply with local laws?

Payroll providers stay updated with local tax regulations and employment laws, often employing local experts and leveraging advanced software. This ensures that payroll processes adhere to local legal requirements, providing peace of mind for employers.

Can I still control payroll processes if I outsource?

While specific processes are managed by the provider, employers can maintain oversight through regular reporting, audits, and clear communication channels. 

How do I handle payroll for employees in multiple time zones or countries?

Outsourcing providers can manage payroll for employees in multiple time zones and countries, ensuring compliance with local regulations and timely payroll processing. This helps streamline global payroll operations and improves the employee experience.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.