What challenges does remote working bring to your payroll?

With around 14 per cent of employees working fully remotely in the UK it presents several payroll challenges for employers.

Taxation of international employees

Remote working has provided the opportunity to employ people from not only different regions of the UK but different countries entirely.

While it can be incredibly beneficial in terms of filling skill gaps that the people commuting to your office can’t, it also brings complex tax liabilities due to varying tax laws and regulations.

If an employee works abroad, the host country will generally tax the income earned from those duties, considering any existing double taxation agreements.

A Double Taxation Avoidance Agreement (DTAA) between the UK and the host country can help prevent double taxation on the same income for international employees.

Such agreements allow taxes paid in one country to offset tax liabilities in the other country, simplifying cross-border employment tax management for companies.

Therefore, if you plan to employ internationally, it’s beneficial to identify countries with such agreements.

For payroll systems, compliance with Real Time Information (RTI) reporting for PAYE is mandatory, even for payments to employees abroad.

HM Revenue & Customs (HMRC) may review your payroll practices and tax management if you have employees based in another country, so it’s essential to stay compliant with current regulations.

National Insurance Contributions (NICs)

Social security obligations, known as National Insurance in the UK, are separate from income tax legislation and must be considered independently.

Even if your employee is not liable for income tax in their overseas location, they may still owe social security contributions there, and as their employer, you might also need to make these payments.

In countries like Norway and Switzerland, employees usually contribute to the social security system of only one country at a time.

Thorough research and expert advice are crucial to ensure your international employees’ payroll is correctly set up. This ensures compliance with all relevant regulations and supports your employees abroad.

Currency exchanges

Paying someone a set salary sounds easy enough – they’re due £2000 this month, so you pay £2000 plus their benefits and any additional contributions. But with global payroll payments, it’s not that simple.

You have to consider currency exchange rates. If you’ve agreed to pay someone in their local currency, you’ll need to do the conversion to figure out exactly how much it’s going to cost you.

If you’re processing payroll in foreign currencies and encounter an unfavourable exchange rate, it could result in your employee receiving less money in their currency or you paying more than necessary, depending on how your overseas contracts are structured.

If you would like assistance with your international payroll set-up and ensuring compliance, please get in touch.

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