How to Pay Remote Employees | Guide (2025)

Remote work has exploded in recent years, giving people the freedom to work from anywhere—a beach, a home office, or even a cozy coffee shop.

But with this shift comes an important question: what exactly counts as a remote employee? When considering this question, it’s important to remember that the definition of “remote employee” isn’t as simple as “someone who works outside an in-person office.”

In practice, it’s also about identifying the difference between employees and contractors with regard to their unique requirements for payroll, taxes, and benefits. Signing up to Wise Business allows access to BatchTransfer which you can use to pay multiple invoices in one go.

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Table of contents
Payroll Laws Payroll Forms Payslips and Stubs Payroll Cycles Permanent Establishment Risks Locally Relevant Benefits How to Set Up Payroll for Remote Workers How to Calculate Employer and Employee Contributions for Remote Workers Methods to Start Paying Your Remote Workers

Contractor vs. Employee
One of the core differences between contractors and employees is that contractors are essentially independent professionals who operate as their own bosses. They might take you on as a client, but ultimately, they decide how, when, and where they work. They're responsible for processing their own taxes and benefits. Companies usually pay contractors through invoices in response to services rendered, not via a regular payroll system. Employees, on the other hand, work directly for a company and are obliged to follow its policies and processes. They’re on the company’s payroll, with taxes and benefits taken care of by the employer. Where contractors may work on an independent, project-specific basis, employees typically plan to work with a company long-term.
Common Issues Around Payroll
These key differences between contractors and employees determine how and when you pay the people who work for you. But managing payroll for remote workers can feel like navigating a maze. There are so many factors to consider—laws, forms, cycles, and even the potential risks of operating in different locations.

In this section, we’ll dive deeper into the regulations that impact companies hiring remote workers.

Payroll Laws

Payroll laws vary widely depending on where your remote worker is based. For businesses hiring across borders, staying compliant with these regulations is crucial to avoid legal or financial penalties.

Minimum Wage Regulations

Every country has its rules regarding minimum wages, ensuring employees earn a baseline amount for their work. For example, the federal minimum wage in the United States is $7.25 per hour, but some states and cities have higher requirements.

In countries like Australia, the minimum wage is updated annually and calculated hourly or weekly. Businesses hiring remote workers need to determine whether the worker’s location or the company’s home base dictates the applicable minimum wage.

When dealing with international workers, it’s critical to research the local labor laws of the worker’s country. Failure to comply with minimum wage laws, even for contractors, can result in fines or disputes that could negatively affect your business.

Overtime and Work Hours

In addition to minimum wage, many countries have strict rules governing working hours and overtime. For instance, in the European Union, on average, employees cannot work more than 48 hours per week, including overtime.

In contrast, the Fair Labor Standards Act (FLSA) in the U.S. requires non-exempt employees to be paid overtime at 1.5 times their regular rate for hours worked over 40 in a workweek.

Employers must set clear expectations around working hours and accurately track remote employees' time to avoid violating these laws. Even if the employee is in a different time zone, their working hours must align with local laws.

Tax Compliance

Tax regulations are one of the most complex aspects of payroll for remote workers. Employers are responsible for withholding the correct amount of income tax, Social Security, and Medicare (or their equivalents in other countries).

In some cases, employers may also need to pay corporate or payroll taxes specific to the worker’s country. For example:

• In the U.S., employers must submit payroll taxes to the Internal Revenue Service (IRS) and report these contributions using forms such as W-2 for employees or 1099 for independent contractors.
• In Canada, employers must contribute to the Canada Pension Plan (CPP) and Employment Insurance (EI) for their workers.
• In Germany, both employers and employees contribute to social security programs, including health insurance, unemployment insurance, and pensions.

When hiring internationally, however, you must consider whether double taxation treaties apply. These agreements between countries help prevent employees from being taxed twice on the same income.

These policies can come in handy but can also create some tricky compliance considerations, especially if you’re hiring in countries without double taxation treaties or clear guidelines on this issue.

Employee Classification

Another key payroll issue is correctly classifying workers as employees or independent contractors. As previously mentioned, misclassification can lead to serious penalties because employees are generally entitled to benefits like health insurance, paid time off, and severance pay, whereas contractors are not.

Governments often scrutinize how businesses classify workers. For instance, the U.S. Department of Labor uses the "economic realities" test to determine whether someone is an independent contractor or an employee. Similarly, the UK applies an "IR35" framework to assess tax obligations based on worker classification.

To avoid compliance risks, businesses should clearly define roles in contracts and consult local labor laws for guidance on classification criteria.

Learn More: How to Collaborate Effectively with Your Remote Worker

Data Protection and Payslips

It’s also important to be aware of data protection considerations surrounding payroll. Whether you’re paying contractors or employees, payroll involves handling sensitive employee information, such as social security numbers and bank details.

However this can get especially tricky when hiring remote employees abroad because many countries have data protection laws that require employers to secure this information. For example, Europe’s General Data Protection Regulation (GDPR) mandates that employee data be stored securely and processed only for legitimate purposes.

It’s also important to be aware that, in many countries, providing payslips is a legal requirement. Payslips must detail earnings, deductions, and contributions to ensure transparency for employees. Non-compliance can result in legal disputes or fines.

Cross-Border Considerations

Many of the issues previously covered— such as taxes, minimum wage standards, and overtime— are relatively commonplace for any employer used to hiring a team, even if they vary slightly from one country to another. However, employers hiring remote workers in different countries can face unique challenges such as:

• Currency Exchange Rates: When hiring contractors in another country, payroll may need to account for fluctuating exchange rates, especially if payments are made in the employee’s local currency.
• **Payment Processing:** Paying employees or remote contractors within your own country is pretty straightforward. But when you add currency conversions and exchange rates to the mix, it can get tricky. International transactions may incur fees or delays, so businesses need efficient systems to handle cross-border payroll.
• Permanent Establishment Risks: Another core concern is that hiring remote workers can sometimes trigger "permanent establishment" rules. This occurs when a company is considered to have a taxable presence in another country due to its workforce, which can lead to unexpected tax obligations.

Payroll Forms

Once you’ve addressed the above common concerns around payroll, you can turn your attention to processing your payroll forms. Having the appropriate paperwork in place ensures this process runs smoothly.

Practically, proper documentation ensures compliance with tax laws and labor regulations while avoiding unnecessary administrative headaches. The specific forms you need will depend on your team’s location and employment classification.

For example, if you’re hiring U.S.-based employees, a W-4 form is required to determine tax withholdings, while 1099 forms are used for independent contractors.

If you’re hiring internationally, you’ll need to familiarize yourself with the country’s local equivalents of these forms to ensure you’re meeting legal requirements. Keeping these forms updated and correctly filed is essential for compliance and smooth payroll processing.

Payslips and Stubs

When processing payroll for remote employees, payslips or pay stubs are vital. They are more than just a payment record—they provide transparency for employees and are often legally required.

A clear, detailed payslip should outline a few key points of information, including:
Gross and net pay
Tax deductions
Benefits contributions
Payment period

Providing accurate payslips not only ensures compliance with labor laws but also builds trust with your employees. Workers who can easily understand their earnings and deductions are less likely to have concerns or disputes over payroll.

Payroll Cycles

Deciding how often to pay your team—weekly, biweekly, or monthly—is another vital consideration that depends on company policies and local labor laws.

Consistency is key; setting and maintaining a predictable payroll schedule helps prevent confusion and ensures employees receive their wages on time.

Some countries have strict regulations around payroll frequency, so it's crucial to align your payment cycles with local requirements.

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Pay Employees With BatchTransfer

BatchTransfer has an easy-to-use instant payments system that allows you to make multiple payments, for both domestic and international, in one go. Small businesses and enterprises can get access to BatchTransfer with no additional cost after getting a Wise Business account.

BatchTransfer’s core strengths for payroll:

What sets BatchTransfer apart is its commitment to providing the mid-market rate for currency conversions. This means that businesses get a fair and transparent deal when making international payments.

Another perk of using BatchTransfer for international payroll is its extensive coverage of over countries and currencies! With features like automatic payment scheduling and API integration, small businesses can streamline their payroll process, freeing up valuable time and resources for other important tasks.

• How can businesses use BatchTransfer for payroll?: Businesses can send up to 1000 payments with a single click with BatchTransfer. US-based business can access BatchTransfer at no extra charge.

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Permanent Establishment Risks

Expanding your remote team into new countries brings exciting opportunities but can also come with legal and financial implications. One critical factor to consider is permanent establishment—a tax status that may require your company to pay corporate taxes in a foreign jurisdiction simply because of having employees there.

Before hiring internationally, make sure you assess the potential permanent establishment risks in each country. Consulting with a tax expert or payroll provider can help you navigate these complexities and avoid unexpected liabilities.

Locally Relevant Benefits

Providing competitive benefits isn't just about compliance,it’s about attracting and retaining top talent. Employees in different countries have different expectations regarding benefits. Offering localized packages can make your company a more desirable place to work.

From paid leave and health insurance to retirement contributions and wellness programs, understanding the requirements in your employees’ country ensures you remain competitive. Certain benefits may even be legally required in some cases, so staying informed about local labor laws is essential.

Learn More: How to Manage a Remote Sales Team

How to Set Up Payroll for Remote Workers

Pick a Payroll Method

Before processing payroll for your remote employees, choosing the right method for your business is essential.

The best approach depends on factors like company size, budget, and the number of countries where your employees are located. For example:

• In-house payroll is a good option for small businesses or companies with employees in only one country. Managing payroll internally gives you complete control over the process but also requires a strong understanding of tax regulations and compliance requirements. You’ll need dedicated payroll software or an HR team capable of handling tax filings, benefits deductions, and employee payments.
• Third-party payroll providers are an efficient choice for companies managing a global workforce. These services handle payroll processing, tax withholdings, and compliance across multiple countries, making them ideal for businesses with international employees. Outsourcing payroll can save time and reduce administrative burdens while ensuring accuracy and compliance with local labor laws.
• Employer of Record (EOR) services are beneficial for hiring in countries where your business does not have a legal entity. An EOR acts as the official employer for tax and legal purposes while allowing you to manage and direct employees as usual. This method is beneficial for expanding into new markets without the complexities of setting up a local subsidiary.

Track Employee Time

Accurate time tracking is essential for ensuring fair pay and compliance with labor laws, especially when managing remote employees across different time zones and work schedules. Even if your team is salaried, having a reliable system helps track overtime, monitor productivity, and provide transparency in work hours.

Time-tracking software is crucial for hourly workers to ensure correct wage calculations and prevent payroll disputes. Many digital tools, such as Toggl, Clockify, and Hubstaff, offer automated tracking features that make it easy to record hours worked.

For salaried employees, time tracking can still be useful for managing workloads, monitoring project timelines, and ensuring compliance with overtime regulations in various countries. Some businesses opt for self-reported tracking for flexibility, while others implement automated systems that log work hours in real-time.

Pay Remote Employees

Once you’ve determined the best payroll method and tracked employee hours, the next step is to ensure that your team gets paid on time and in their preferred currency. Handling international payments comes with challenges like currency conversion, transaction fees, and tax compliance, so choosing the right system is critical.

A global payroll provider or payment platform can simplify the process by automating payments, handling tax withholdings, and ensuring compliance with local regulations.

How to Calculate Employer and Employee Contributions for Remote Workers

When calculating contributions for remote workers, you’ll need to understand their location's tax and benefit rules.

Here’s what to consider:

• Employer contributions: These might include payroll taxes, social security, and benefits. Rates and requirements vary by country.
• Employee deductions: Taxes and benefits are often withheld from the employee’s paycheck based on local laws.

Using payroll software or consulting local experts can help you easily navigate these calculations.

Methods to Start Paying Your Remote Workers

Paying remote workers can be simple if you choose the right approach. Here are some popular methods:

1. Keep Your Employee on a Home Country Payroll

If your remote worker is only abroad temporarily, keeping them on the home country’s payroll might be the easiest option. However, this isn’t always a long-term solution.

2. Set Up a Local Entity

Setting up a local entity ensures full compliance with local laws for a permanent presence in a new country. That said, it can be time-consuming and expensive.

3. Partner With a Local Company

Teaming up with a local company to handle payroll and compliance can be a practical way to manage operations in a new region.

4. Use an Employer of Record (EOR)

An EOR acts as the legal employer for your remote workers, handling payroll, taxes, and compliance. It’s a fast, efficient way to expand globally without establishing a local entity.

Save Time and Money On Overseas Payments With Wise Business

Wise Business can help you save big time on international payments.

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in currencies.

Signing up to Wise Business allows access to BatchTransfer which you can use to pay up to 1000 invoices in one go. This is perfect for small businesses that are managing a global team, saving a ton of time and hassle when making payments.

Some key features of Wise Business include:

• Mid-market rate: Get the mid-market exchange rate with no hidden fees on international transfers

• Global Account: Send money to countries and hold multiple currencies, all in one place. You can also get major currency account details for a one-off fee to receive overseas payments like a local

• Access to BatchTransfer: Pay up to 1000 invoices in one click. Save time, money, and stress when you make 1000 payments in one click with BatchTransfer payments. Access to BatchTransfer is free with a Wise Business account

• Auto-conversions: Don't like the current currency exchange rate? Set your desired rate, and Wise sends the transfer the moment the rate is met

• Free invoicing tool: Generate and send professional invoices

• No minimum balance requirements or monthly fees: US-based businesses can open an account for free. Learn more about fees here

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