The Complete Guide: How to Pay Out Remote Employees

Many employers hesitate to embrace the global hiring trend. Hiring remote employees has many benefits, including the ability to hire top talent regardless of their location. But, hiring globally is not without its challenges.

When hiring globally, employers need to navigate international payroll. This includes meeting different employment and tax laws, and other payroll regulations. All this can quickly put a significant strain on your HR team, and consequently you as an employer.

So, it is no surprise that you might be hesitant to hire someone who doesn’t live in the same country. However, that’s not to say that it is impossible or that you should avoid it. There are many ways to hire remote talent without causing yourself a headache.

Let’s cover all the ways you can pay remote employees.

Understanding employment types for remote workers

How you pay remote workers depends on the type of employment you and the worker have agreed on. Whether you’re dealing with freelancers, independent contractors, or full-time employees, each arrangement has its own rules and expectations. It’s important to know the differences before setting up payment processes.

Hiring workers as freelancers

Freelancers are self-employed individuals who typically take on multiple short-term projects. They work on a project-by-project basis and often have several clients at once. Freelancers set their own rates, and payments are usually tied to project milestones or completion. They don't expect benefits like health insurance or paid time off.

With freelancers, you typically don’t have to worry about compliance regarding taxes and payroll. However, you should be mindful of intellectual property rights and data privacy laws.

Hiring workers as independent contractors

Independent contractors are similar to freelancers but often have longer-term relationships with companies. They provide services under a contract and maintain control over how they complete their work.

Like freelancers, independent contractors don’t receive employee benefits. They’re responsible for paying their own taxes. They issue invoices for their services and typically agree on payment terms upfront. As with freelancers, you don’t have to worry about payroll compliance, but you should be mindful of IP and privacy laws.

Hiring workers as employees

Unlike freelancers or contractors, employees are officially part of your company. They receive regular salaries and benefits and are under your direct supervision. When hiring remote employees, you must ensure compliance with labor laws. You should also be mindful of tax regulations and payroll laws in their home country. Employees also expect the stability of a long-term job with added perks like paid leave and retirement plans.

How to pay your workers

Now that you understand the three most common ways to hire people remotely, it may not be as complex as before. It is important to understand what employment type would be the best fit for the role and the type of work that you need them to do. Here are your options for paying them while staying compliant.

Paying freelancers

Typically, you would pay freelancers through one of the freelance platforms. These are built specifically for freelance work. Some popular options include Upwork, Fiverr, and Freelancer.com. These platforms process the payments to freelancers.

You can also use services like PayPal, Wise, or Payoneer to make direct payments. However, if you do not go through one of the platforms, you might need to sign additional paperwork. Consider writing up the Service Agreements, NDAs, and other relevant documents. From there, direct payment services are the way to pay them. These payment methods offer flexibility and are quick to set up, making it easy to handle payments globally.

Paying independent contractors

Now, the most common way to pay freelancers is through a platform. However, as mentioned before, freelancers are usually hired and paid based on milestones and projects. The platform fees for these can pile up for longer projects. It is one of the reasons why you may opt to hire independent contractors.

Independent contractors are their own business. They typically issue you an invoice once work is completed. You can agree on the payment time and method in advance. Like freelancers, it could be a wire transfer, direct deposit, or an online payment service like PayPal. Contractors expect timely payments because they pay their own taxes and benefits. When hiring contractors, try to have clear communication about terms and schedules.

Paying employees

Hiring remote employees legally requires more steps. You can use two ways to hire and pay employees from foreign countries legally.

The first way is to establish a legal presence in their home country. Most governments require you to establish a local entity to put them on the payroll and pay taxes and benefits. Your new local entity should follow that country’s payroll laws.

This process can be expensive and take time. It will certainly pay off if you plan to hire an entire team of employees in a new country. However, for a few employees, offering them to relocate instead might be a more cost-effective way. Unfortunately, it is up to the employees whether they would like to take you up on your offer.

Alternatively, you can use an Employer of Record (EOR). An EOR is a third-party organization that handles legal and payroll responsibilities on your behalf. They already have entities established in all the countries they offer as a service. These entities hire the employee in their home country and ensure you stay compliant with local laws.

An EOR will also handle payroll, taxes, and other compliance requirements to ensure everything is by the book. With an EOR, your remote employee works for you without any added stress of managing payroll and meeting compliance requirements.

Navigating compliance and tax regulations

Hiring remote workers comes with legal and tax obligations that vary by country. Understanding and adhering to these rules is crucial to avoid penalties or legal issues down the line.

Compliance with labor laws

When you hire remote employees, you must follow the labor laws of the country in which they reside. This does not apply to freelancers and independent contractors. But, hiring employees requires you to meet the requirements of the relevant country’s labor laws.

These laws dictate everything from minimum wage to working hours and employee benefits. Failing to comply can result in fines or lawsuits, so it's important to research or consult legal experts on local regulations.

Tax considerations

For remote employees, you’re responsible for managing payroll taxes. You also have to meet social security contributions and other mandatory deductions of their country. Each country has its own tax regulations, and if you don’t comply, you could face hefty fines.

Freelancers and independent contractors usually handle their own taxes. Still, you need to ensure they are properly classified to avoid any tax liabilities.

Importance of staying compliant

Misclassifying employees as freelancers or independent contractors can lead to legal challenges. Governments often scrutinize worker classification. This is to ensure companies aren’t avoiding paying taxes or providing benefits.

To stay compliant, consider using services like an Employer of Record (EOR) to handle these complexities on your behalf.

Paying remote employees

Navigating the process of paying remote employees can seem complicated at first. However, understanding the types of employment and payment methods available makes it much easier. Whether you choose freelancers, independent contractors, or full-time employees depends on your company's needs and long-term goals.

Hiring employees offers the most stability and long-term benefits, but all options have their own advantages. In the end, choosing the right path for your remote team will help you stay compliant and ensure smooth operations across borders.

FAQ:

How to get paid for remote work?

Remote workers can get paid through various methods like bank transfers, PayPal, or freelance platforms. Payment terms are usually agreed upon upfront, whether it's hourly, per project, or on a fixed salary. The method often depends on the type of employment and the employer’s preference.

How to classify remote employees?

Remote workers are classified based on their work relationship with the company. Freelancers and independent contractors work on a project basis with more control over their schedule. Employees are directly managed by the company and receive benefits. Misclassification can lead to legal and tax issues.

How do employers track remote workers?

Employers often use time-tracking software or project management tools. These help to monitor productivity and deadlines for remote workers. Some companies use performance metrics or regular check-ins to ensure tasks are completed. Tracking methods should respect worker privacy while maintaining accountability.