Payroll for remote workers—how to support ‛work from anywhere’

May 18, 2021

payroll for remote workers

Before 2020, only a small sector of digital nomads and freelancers enjoyed a “work from anywhere” lifestyle. Many of us could only dream of packing up and relocating—to a tropical locale, the remote backwoods or even just a city with a lower cost of living.

Boy, how the tables have turned. Many people now expect the freedom to choose where they live and work.

We’re at a point where companies are starting to see the implications of inflexible, on-location mandates. There are plenty of jobs available—yet many employers are having trouble filling them. Service industries with frequent in-person contact and physical jobs like warehousing and production are steadily becoming harder to fill because of safety concerns among employees, as well as their desire for freedom in where (and when) they work.

For jobs that can be done remotely, you’ll have much better luck attracting the best talent if you’re willing to hire remote employees in a work from anywhere arrangement.

But do you know how to run payroll for a remote workforce? Take stock of both the best practices and the risks, then find a permanent solution.

What to consider when paying remote workers

Since remote workers are now a reality, what does this mean for payroll, especially when these arrangements cross borders? Global teams may already be familiar with operating in their home and host countries, but can their remote workers truly work anywhere—including yet more countries? 

Possibly, but it gets complicated. Payroll should build a strategy-based policy around these common challenges:

  • Taxes
  • Withholdings
  • Currencies
  • Pay frequency

When your company is in one location, and your employees travel to that location to perform work, figuring out what entities to pay taxes to is relatively straightforward. However, when your employees disperse around the globe to work remotely, payroll becomes a lot less clear.

Does your company have to pay taxes for operating in each of these new locations? 

The rise of remote work has many ears burning with this hot-button debate. At a minimum, your employee may need to pay state or local taxes based on their location (not yours), which means your company will have to withhold those taxes.

Best practices for paying remote employees

If you want to embrace remote working for eligible team members, there are a few ways you can ensure success—namely, choosing the right employment status for workers (especially international workers) and outsourcing payroll.

Full-time vs. independent contractor—choose the right employment status

Hiring remote employees as contractors seems like an easy solution. It moves the tax liability from the company to the individual, and in some situations, it can work. However, this trick is a big red flag for tax fraud, so you need to make sure international contractors really are contractors—and don’t fit any definition of an employee by local regulators. 

Tax authorities may want to look at how you control your contractors’ schedule, provide training and evaluate their performance to determine their legal employment status. If your tax authority doesn’t agree with your classification, expect to pay big fines and back taxes when it comes time to file.

Keep in mind too, the contractors themselves often initiate a dispute about their employment status so they can receive back pay from their employer.

Consider outsourcing payroll

One way to simplify paying your remote full-time employees and 1099 contractors is to outsource international payroll.

Paying remote employees around the world can be an administrative burden, especially for young companies. You’ll need ongoing support to navigate multiple time zones, languages, currencies and regulations.

An experienced outsourcing partner can help you stay on top of payroll processing around the world while upholding compliance with foreign governments. Many fast-growing companies rely on the expertise of a global employer of record, like GEO, to support HR and payroll for remote employees that reside in foreign countries. This partnership not only facilitates compliant payroll for remote workers, it also allows any size company to fully support “work from anywhere” without the complexity or expense of traditional global expansion.

Potential risks in payroll for remote workers

Even if you can hammer out the logistics of allowing employees to work remotely, there are still some unique risks to manage. The bottom line comes down to deciding where to make your compromise. Are you willing to invest more in addressing regulatory compliance needs to support remote work?

Timekeeping and payroll fraud

Most employees reward you for letting them work remotely. You’ll probably benefit from happier employees and increased productivity.

But a big risk for some employers is limited control over how employees track and report hours worked. These employers may find it difficult to ensure everyone is staying on task if they can’t physically see them in the office. 

A few ways to protect your company from timekeeping and payroll fraud include:

  • Limit remote working opportunities to established employees.
  • Employ the use of software to track remote workers’ productivity.
  • Add a remote working addendum of conduct guidelines to your employee handbook.
  • Ask management to routinely check in with remote employees.
  • Offer flexible hours for remote workers to discourage time theft.
  • Have employees sign a timekeeping fraud policy that clearly defines fraudulent activities and consequences.

Changes in tax structure and compliance

Allowing employees to work from any location means your company will likely have to pay taxes to new governments. 

Make sure you are clear about how different governments define tax liability and that you are taking a proactive approach to meet any potential obligations. Tax obligations may be limited only to the employee who is working in the jurisdiction—or it may extend to the employer who is potentially conducting business in that jurisdiction (that could get big, fast).

It’s time for a sound remote payroll solution

There is no way around it—the remote work trend is here to stay. People are more empowered to demand flexibility in both when and where they work. And this means attracting and retaining top talent will depend on the business’s ability to accommodate this flexibility.

We are past the point where payroll departments are patching things along until the staff returns to the office. It’s time to make a plan that addresses the legal structure of paying remote employees in whatever country they choose to work—whether that’s Canada, Cameroon or Cambodia.

Learn more about different service options for international payroll, so you can establish a successful strategy for running payroll for remote workers around the world.

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