The Complete Guide: How to Pay Out Remote Employees

There are several alternatives to managing payroll, depending on the location of the employee. Think of remote payroll administration, a payment to a local partner or outsourcing the payroll administration to an external "known employer". There are a number of payment solutions available for most remote workers, assuming the company does not have a subsidiary or office at the employee's location. It is not cost efficient for many companies to set up an office where every team member is located remotely.

1. Pay remote employees as independent contractors (self-employed)

Often companies use independent contractors for remote work, which can simplify the payment process. Since the contractor is responsible for its own taxes and benefits, all the company needs to do is remit payment to the employee according to the agreed terms and schedule.

Benefits

• It is relatively easy and quick to handle;
• With (one-sided) dissatisfaction you can easily distance yourself from a self-employed person;
• You only pay the self-employed person for the hours he / she works;

Cons

• Invoices from the independent contractor "must" always be checked;
• You generally do not create loyalty from the independent contractor to the company;
• You cannot offer the independent contractor any benefits;
• You run a great risk that the independent contractor falls under "false self-employment", which results in extra costs and possibly a fine for the company and the independent contractor (read more about this in our blog: False self-employment, what is it?);
• Independent contractors can also make themselves indispensable within a company, so as a company you may become dependent on the individual.

2. Pay remote employees through a local partner

As a company, you can work with a local partner or branch in the employee's country of residence. This company may be willing to place the employee on its payroll. In essence, the employee would be a legal employee of the partner and part of their wage, withholding and compensation system. The home business would continue to direct and supervise the work of the employees. This option is often a bit far-fetched, because it takes a lot of time to find the right partner.

3. Outsourcing of the payroll process for remote employees

Enabling third parties to outsource payroll is an effective solution for paying a remote employee abroad (or between states and regions in the home country).

One option is to use a local payroll administrator, but the better option is a Global Employment Organization (GEO) service, which provides full payroll and employment compliance in the employee's country. The GEO service differs from payroll in that the GEO has a legal entity that acts as the local registered employer for the remote worker. See how Rivermate handles this process here.