If you’re paying wages for overseas employees, you need to understand the laws of the country and the best way to send money.
Today’s workforce is more footloose and flexible than ever before. Thanks to the wonders of digital technology, you can now hire people from any country in the world. It can help you broaden your talent pool and, in some cases, may enable you to reduce your labor costs. However, to do that you will have to pay them and that means making sure you abide by the laws of the country that hires them. So, if you’re paying wages for overseas employees, here are some options.
4 ways to pay international employees
First things first, you need to get the money to them. Transferring money overseas can incur additional costs through transfer fees and exchange rate changes among others. However, there are some ways to reduce the costs.
1. Online payment service providers
The rise of online payment providers has revolutionized the way we send money overseas. The likes of PayPal and Wise offer the prospect of instant payments for contractors based anywhere in the world, with the benefit of low fees, instant payment, and favorable exchange rates. Some of these are normally used by individuals looking to send money back home, but most have now set up business services in which companies can pay up to a thousand employees. It removes the fuss of paying a vendor or contractor directly. For example, using Wise’s smart tech you can ensure all contractors get their invoices paid as and when they need it.
2. Professional employer organization (PEO): A Professional Employer Organization is a great way to pay overseas employees while staying compliant with all local regulations. The PEO will share employer obligations with you and will handle all the legal and administrative challenges, that come with dealing with employees such as withholding tax, and ensuring all employees receive their entitlements. It effectively serves as your in-situ HR department leaving you to focus on your business and the working relationship.
3. Setup a local entity
The traditional approach has long been to set up a local subsidiary. This would be registered in the country with a locally based bank account from which all employees and contractors would be paid. This can help you meet your compliance requirements, but it is relatively costly to set up and, the chances are, you’ll need a locally based HR staff to handle all the payments.
If you’re just venturing into a country or only hiring a few people, this could be quite an upfront investment.
4. Employer of record (EOR)
An EOR is a much safer and lighter-touch way to manage overseas employees. These companies are specifically set up to help foreign companies handle their domestic workforce. Although similar to PEO in many ways they differ in several important respects. While a PEO will handle employer responsibilities jointly, an EOR becomes the sole employer of your workers. They will be legally liable for that employee as well as handling all the admin to support their employment. The great benefit of this is that you don’t need to establish a legal entity. You simply pay the EOR who then handles all payments and paperwork.
Which of these is the best option will depend on the individual circumstances of your company and the type of people you’re looking to hire.
Using an online payment provider is ideal if you’re handling one-off payments to freelancers and contractors. However, they may not be much use if handling regular employees. Most will have a limit for the number of employees who can be handled through their business portals. They can also only work with the payment side of employment and offer no support on legal liabilities.
Larger companies that are more established in a territory might opt to establish a legal subsidiary. This gives them full control and access to their employees but will come at a cost. Many smaller companies will have been put off this option due to the high upfront cost.
The EOR and POE paths, therefore, offer a much more cost-effective solution. They remove the administrative burden of foreign employees and will help you avoid unwittingly breaking any labor laws. They can provide full advice on every aspect of employment and may be able to help you source the best talent in that country.
An EOR, in particular, offers a low-cost option with there being no need to set up a legal entity. It’s perfect for companies with a small number of overseas workers in a particular company or those who are looking to test the waters in a new market.
Other things to consider
Aside from paying wages for overseas employees, here are a few other things you could do well to consider.
1. Local UK laws: When employing any foreign or remote workers, you need to make sure you comply with relevant legislation in the UK. If you’re hiring foreign workers coming to the UK, you will normally need a sponsorship
license to ensure they can legally work in the country. There should be no need for that when working remotely with overseas workers. However, whenever you work with remote workers you will have to make sure you meet all equality guidelines and that they are not discriminated against because they work remotely.
2. Laws in the foreign country: Because you’ll be employing people in their home country you’ll have to abide by all local laws and regulations. These can differ from domestic rules and can change. Keeping up with their demands and avoiding any unintentional non-compliance can be a full-time occupation – one which you need local help with. Having local experts in the form of an EOR or PEO can be crucial.
3. Exchange rates: When paying people in foreign currencies, it can be tricky to keep track of the true cost of your wages. Fluctuations in exchange rates between your home currency and the foreign currency can affect the true value of their wages. Any significant changes could see you paying quite a bit more in one year
Why start hiring in South Africa
The final question is which country do you wish to hire people in? When companies initially began to look at hiring staff in foreign countries the emphasis was always on cost. Destinations with extremely low labour costs such as India and China became popular outsourcing and manufacturing hubs.
However, as digital technology has grown, companies have been using foreign hires to expand their talent pool. Today, even a small company can now work with professionals from anywhere in the world. Video conferencing tools mean you can collaborate with a multi-disciplinary team in many different companies quickly and easily. Files can be shared, and documents edited by many different people at the same time.
What this means is that almost any job role can potentially be done by anyone from any country. That, and customer expectations, has seen a shift in emphasis from low cost to high quality.
Countries such as South Africa offer a perfect mix of the two. While labor costs may not be as low as in locations such as India, they are still much lower than in the West. When you factor in the wide range of incentives from the government designed to attract foreign investment that generates jobs, labor costs are even lower.
Aside from that, South Africa offers a host of benefits you’d expect from a top outsourcing destination.
• A convenient time zone for countries in Europe and the UK.
• No language barrier with English widely spoken across the country.
• High levels of diversity, and education across the workforce.
• A varied talent pool incorporating professionals in cutting-edge industries such as technology and software development.
South Africa also represents an attractive market, with a thriving economy and a growing middle class with increasing amounts of disposable income. With a culture that will blend the best of African and pan-European influences, it’s a relatively easy market for Western companies to expand into and can also serve as a gateway to the even more lucrative market of Africa as a whole.
So, whether you’re looking to optimise labor costs, expand into a new market, or widen your talent pool South Africa has everything you need. When paying wages for overseas employees, though, you need to be aware of the best options for your business, to ensure you can do so in a safe, compliant, and cost-effective manner.
To find out more about how to pay overseas workers, download our free guide today.
