Paying International Employees: A Complete Guide

Finn Bartram

Last updated on May 6, 2025

QUICK SUMMARY

Discover what your options are when it comes to paying international employees, what the challenges are, and how much it's likely to cost.

TABLE OF CONTENTS Challenges How Can A U.S. Company Pay International Workers? Best Practices Cost

Key Takeaways

Many options for international payroll: The best approach depends on where you’re hiring, whether the person is a contractor or full-time employee, and if you have (or want to build) a legal entity in that country.

Global payroll and EORs solve different problems: Global payroll providers help you pay international employees when you already have a legal entity in place. EORs let you legally hire in countries where you don’t — handling compliance, payroll, and local employment obligations for you.

Getting it wrong comes with real risk.: Misclassification, incorrect tax handling, or ignoring local laws can lead to penalties, back pay, and legal trouble. Working with vetted partners—whether it’s an EOR, global payroll provider, or legal advisor—can help you stay compliant while growing your team abroad.

It’s a privilege of the 21st Century to be able to tap into international talent so easily.

However, if paying workers in the U.S. isn't fiddly enough, try adding the complication of paying international employees into the mix.

New territories mean new labor laws and customs to navigate and adhere to. Then there's international banking and currency fluctuations.

Use this guide to help you understand the challenges of paying international employees and what your options are.

Challenges Of Paying International Employees

A US company seeking to hire global talent must manage the complexities of cross-border payments and taxation. Paying international employees is complex due to differing legal, tax, and regulatory requirements across various jurisdictions:

Compliance with local laws

As mentioned above, each country has its own tax and labor laws to keep track of and there are international labor laws too. Staying compliant with these requires ongoing monitoring and adaptation to these changes to avoid legal penalties.

International payments and fees

Handling payroll in multiple currencies can be challenging due to exchange rate fluctuations and banking requirements and fees.

Further, as Wendy Makinson, HR Manager at Joloda Hydroroll, highlights “Some employees around the world still prefer or have to receive their payments in cash and, although this is usually possible when using a global payroll provider, it can incur additional costs."

Time zone differences

Coordinating payroll operations across multiple time zones can complicate communication and workflow, leading to delays and inefficiencies.

Data integration and accuracy

Integrating data from various internal systems and ensuring its accuracy is crucial as errors can lead to incorrect payments and compliance issues.

Security and privacy concerns

Safeguarding employee data across different regions, each with specific privacy laws (like GDPR in Europe), requires robust security and compliance protocols.

How Can A U.S. Company Pay International Workers?

Paying international employees isn’t just about hitting “send” on a bank transfer. Every country has its own rules around payroll, taxes, benefits, and employment status. If you get it wrong, you could end up dealing with fines, tax trouble, or unhappy workers.

Here are the three main ways U.S. companies pay people overseas — legally and efficiently:

1. U.S.-Payrolled (via Your Domestic Payroll System)

This is when a company pays a worker abroad through its U.S. payroll — often treating them like any other domestic employee.

✅ When it works:

The person is a U.S. citizen or expat
It’s a short-term assignment
There’s a tax treaty in place

🚫 Limitations:

The employee may still owe taxes in their country of residence
Local authorities might view this as illegal if you’re not registered locally
No local payroll = no contributions to country-specific benefits or social programs

What I think: This option can be tempting for simplicity, but it rarely holds up for long-term international employment.

2. Foreign-Payrolled (Entity-Based)

This is the traditional route: set up a legal entity in the worker’s country and just run payroll locally.

✅ Why choose it:

Full control over HR and payroll
Complies with local labor laws
Makes sense for companies building a long-term presence

🚫 Tradeoffs:

Expensive to set up and maintain
Requires local legal, tax, and HR teams
Not worth it unless you’re hiring multiple people in a given country

It’s the gold standard for global expansion — but it’s also the most complex.

3. Payroll-Only (via Global Payroll Provider)

In this model, you already have an entity abroad, but outsource payroll processing to a provider who handles local calculations, tax filings, and payments.

✅ Benefits:

Ensures compliance without managing local payroll internally
Lets your HR/finance teams stay lean
Can centralize payroll across countries

🚫 Limitations:

Doesn’t cover legal employment setup
You still need your own entity in the country

If you already have a legal presence in another country, you don’t necessarily need an EOR—but you will need someone to handle local payroll rules, filings, and payments. I usually point people toward global payroll providers that specialize in this “payroll-only” model. It keeps things compliant without overwhelming your internal team.

But if you don’t have a legal entity in place, or want to avoid the overhead of setting one up, that’s where an Employer of Record (EOR) comes in.

4. Employer of Record (EOR)

An EOR becomes the legal employer on paper, taking full responsibility for payroll, employment contracts, tax filings, benefits, and compliance—while you manage the day-to-day work.

✅ Ideal for:

Hiring full-time employees in countries where you don’t have a local entity
Fast, compliant hiring during early international expansion
Avoiding legal risk tied to DIY payroll or misclassification

🚫 Things to consider:

You don’t “own” the employment relationship
Some countries limit how EORs can be used, especially for long-term roles

This is one of the fastest, most legally sound ways to hire international staff without the time and cost of setting up a local business.

5. Leased Employment or Secondment

This arrangement lets you temporarily assign a U.S.-based employee to a foreign partner organization or subsidiary. You keep them on U.S. payroll, but they work for another company abroad.

✅ Use cases:

Project-based assignments
Joint ventures or international partnerships
Transitions before permanent local hiring

🚫 Risks:

Can trigger double taxation
May not be legal in all jurisdictions
Poor employee experience if reporting structures get murky

This is best for short-term or internal mobility needs — not long-term hiring.

6. Engaging International Contractors

Hiring remote contractors abroad is quick and flexible. You pay them via invoice, and they handle their own taxes and benefits. This setup doesn’t involve payroll.

✅ When it works:

You’re hiring for short-term or project-based work
You don’t control how, when, or where they do the work

🚫 Watch out for:

Misclassification risk — especially in countries with strict labor laws
Back taxes and fines if authorities deem them to be employees
Limited worker protections or loyalty

This model can work well, but you need to be clear on labor law classifications in both the U.S. and the contractor’s country.

Paying International Employees: 5-Step Decision-Making Process

Choosing between going it alone or using an Employer of Record (EOR) or global payroll service depends on several factors related to your business needs, resources, and strategic goals.

Here’s a step-by-step approach to help you make a decision:

1. Assess your business needs and goals

Geographical presence: Consider the countries where you currently have employees and where you plan to expand. The legal and administrative challenges vary by country and some are much more complex and protracted than others.
Employee count: Determine how many employees you have internationally and the projected growth in these numbers.
Core business focus: Evaluate whether managing payroll internally would distract from your core business activities.

2. Evaluate your current resources

Expertise: Do you have, or can you reasonably acquire, the necessary expertise in international labor laws, tax regulations, and payroll processing?
Technology: Assess whether you have the technology to manage payroll efficiently across different countries, including compliance updates and integration with other systems.
Budget: Consider the financial implications including the cost of setting up and maintaining an in-house process versus outsourcing fees.

3. Assess pros and cons

Control and customization: In-house processing gives you more control and potentially more customization options, which is valuable if you have complex payroll needs.
Scalability: Outsourcing to an EOR or payroll service can scale more easily with your business growth, especially in new markets.
Risk management: Outsourcing can reduce the risk of non-compliance and the burden of legal penalties.

4. Long-term strategic fit

Cost: While HR outsourcing services might seem more expensive upfront, they could be more cost-effective in the long run by avoiding fines and reducing the need for specialized staff.
Business strategy: Align your choice with your overall business strategy. If rapid international expansion is the goal, outsourcing or using contractors might provide the agility you need.

5. Request proposals and conduct due diligence

Request detailed proposals from several EOR and global payroll service providers. Things to look out for besides cost and reputation:

Local expertise
Transparent pricing
Accurate employer burden calculations
Customer support levels
Long-term scalability
Partner-dependent vs owned entity providers (the latter is recommended)
Check references and reviews.

6. Make a decision

Make a decision based on your business’s capacity to manage payroll internally without compromising compliance and operational efficiency, and how well each option supports your long-term business objectives.

Paying International Employees Best Practices

If you decide to go it alone and handle the process in-house, here are some best practices to help guide you:

1. Standardize where possible

Aim to standardize processes across different countries to reduce complexity and increase efficiency. However, allow flexibility for local customization where necessary to meet specific legal and cultural requirements.

2. Stay updated on local laws

Continuously check your knowledge of local employment laws, tax regulations, and reporting requirements in each country. This may involve regular training for your payroll team or consultations with local experts.

“As a business that makes payments to over 35 countries, it means we have to make sure we are on top of local rules when it comes to data, tax, labor laws, and security. Although rules don’t change very often, we don’t want to be doing anything incorrectly or illegally so set aside regular time to check regulations and that we are compliant,” says Makinson.

3. Leverage technology

Use advanced payroll software that can handle multiple currencies, languages, and regulatory environments. Ensure the technology is scalable and can integrate with other HR and accounting systems. Try for quality-of-life technology like electronic deposit or on-demand pay.

4. Ensure data security and privacy

Implement robust data protection measures to secure sensitive employee information. This includes following international data protection laws such as GDPR in Europe and similar regulations in other regions.

5. Regular audits and reconciliations

Regardless of whether payroll is international or not, it’s good practice to conduct regular payroll audits to ensure accuracy and compliance.

6. Effective communication

Maintain clear and open communication channels with your employees regarding payroll matters. This covers providing detailed pay slips explaining any deductions clearly and being responsive to payroll queries.

7. Centralized reporting

Develop a centralized salary ledger reporting system that provides visibility into payroll operations across all countries to aid in strategic decision-making and ensure consistency in reporting standards.

8. Plan for contingencies

Establish contingency plans for payroll processing to handle unexpected situations such as technological failures, data breaches, or sudden changes in legislation.

9. Seek employee feedback

Odds are, you're probably attempting to gather feedback from employees about a variety of things, be it new tools they're using in their work, the latest company-wide meeting, or annual employee surveys, so asking about the new payroll software might seem a bit excessive.

However, you'll want to create a low-lift, open forum mechanism for feedback on this type of initiative for employees who do engage with the software to leave comments if they wish.

Costs Of Paying International Employees

To help you consider the costs associated with paying international employees, we've broken them down in a table with estimates around what each one could set you back in USD.

Category	Cost Type	Details	Estimated Cost
Software	Software and infrastructure	Initial costs for multi-country payroll software and necessary IT infrastructure.	$50,000 - $200,000
Software	Integration costs	Costs for integrating payroll system with HR and accounting software	$10,000 - $50,000
Operational	Salaries for payroll staff	Wages for payroll specialists familiar with international regulations.	$60,000 - $120,000 per year
Operational	Training costs	Costs for regular training to stay updated on technologies and legislative changes.	$5,000 - $20,000 per year
Compliance and Regulatory	Legal and Consulting fees	Fees for legal experts or consultants to ensure compliance and navigate bureaucratic processes.	$20,000 - $100,000 per year
Compliance and Regulatory	Audit fees	Costs for conducting regular audits for accuracy and compliance.	$10,000 - $30,000 per year
Outsourcing	Service provider fees	Fees for global payroll providers, varying by employee count, countries, and service complexity.	$15 - $50 per employee per month
Currency Exchange & Transaction	Currency conversion	Costs for converting currencies for international payroll disbursements.	0.5% - 2% of transaction amount
Currency Exchange & Transaction	Bank fees	Bank transaction fees for international transfers and payments.	$10 - $50 per transaction
Error Rectification and Penalties	Error correction	Costs to correct payroll errors, including back payments and interest.	$5,000 - $20,000 per incident
Error Rectification and Penalties	Penalties for non-compliance	Fines and penalties for non-compliance with payroll-related laws.	$10,000 - $50,000 per incident
Miscellaneous Costs	Project management	Project management costs for implementing new systems or changing providers.	$10,000 - $40,000 per project

Costs of paying international employees.

Don’t Let Payroll Get In The Way Of International Talent

Now you know what your options are and what to expect, don’t let something as trivial as payroll get in the way of leveraging international talent.

Key takeaways:

Paying international employees is complex due to differing legal, tax, and regulatory requirements across various jurisdictions. Key challenges include compliance with local laws and managing international payments and fees.
U.S. companies have several options for paying international employees, each with its pros and cons:
- In-house management: Provides greater control and customization but is complex and resource-intensive.
- Outsourcing to global payroll services: Reduces complexity and resources needed but offers less control.
- Using an Employer of Record (EOR): Simplifies the process and is less resource-intensive but reduces control and increases dependency on the service.
- Hiring contractors: Simpler and easier but still requires compliance with local laws and regulations.
Deciding on the best option is dependent on depends on several factors related to your business needs, resources, and strategic goals.

Country-Specific EOR Services

Are you interested in hiring talent within a specific country? If so, take a look at my lists of the best EOR services for the following countries: