Getting to grips with international payment as a small business owner

Sam Bennett, head of compliance and operations at Frontierpay, discusses what small business owners must know about international payment.

Ensuring that employees are paid in full and on time is crucial to the success of any business, especially in a smaller company where employees can be a very significant asset. However, as employing workers overseas or seconding employees on international projects continues to become more common, many companies are wrestling with the process of international payment. Often, the issue may be getting to grips with a foreign country’s financial laws and regulations, but we are also seeing some more surprising influences at work.

1. What’s in a name?

It’s not unheard of for an employee’s name to occasionally throw a spanner into the payroll process. For example, payments to employees with especially common names, such as John Smith or Mohammad Iqbal, can be held by a bank’s compliance department whilst their identity is confirmed. To guarantee seamless delivery, managers in charge of payroll should make sure they have a copy of the employee’s passport to hand. Full names and dates of birth can be required to clear banks’ compliance requests, so pre-emptively providing these details will avoid delays.

2. Home for the holidays

Banks are often closed for public holidays, and most businesses will already be aware that this can affect payroll. Where there is potential to fall short, however, is in cases where only a small team is monitoring for holidays across a number of locations, or when holidays don’t consistently fall on a set date each year. Ramadan, for example, can change depending on the lunar cycle, which can easily catch payroll managers out if they haven’t paid employees in that jurisdiction before.

Inadequate preparation can easily cause delays, especially if a business has staff in countries where they might not be familiar with the local holidays. I would strongly advise that payroll managers brush up on their international holidays and keep a close eye on the global calendar.

3. Know your global cut offs

For most of us here in the UK, payday is a monthly occurrence, but this varies all around the world. In the United States, for example, most workers are paid on a bi-weekly basis. If a business is just starting to employ staff overseas, payroll managers can therefore find themselves suddenly juggling a number of different paydays and cut-offs.

To avoid the delay of payments, preparation is key. Keeping a detailed log of when each international payment needs to be processed may seem like common sense, but when we also consider the fact that in different countries, payments will take different amounts of time to clear, it really is the best way to stay on top of your game.

4. Tax and social security requirements

It shouldn’t come as a surprise that different countries have different requirements when it comes to tax and authority payments. In Japan, for example, taxes have to be paid in person using a paper-based system. Those overseeing payroll must thoroughly research the local financial laws well in advance of making their first payment to a foreign country. For a smaller business with just a few international or seconded employees, it might be worth talking to an expert to establish the best approach.

5. The importance of local connections

In some countries, such as Italy and Spain, local regulations restrict tax payments being made from outside the country, dictating that they must instead be submitted locally. However, being in the Eurozone, it’s not always a given that a company will have local bank accounts in these countries. For businesses to therefore pay employees based in one such country, they must either set up local companies and bank accounts, or find a trusted partner that already has the ability to pay taxes, employees and social security payments within the country.

The world of international payment and payroll is complex and when you’re responsible for making payments in different currencies, at different times and to accounts in multiple countries, it can be challenging. The key to success is quite simply to plan, plan and plan some more. If your business is considering sending people abroad, read up on the local financial regulations, brief the employees who will be moving on how payroll will function while they are overseas and guide them through any action required on their part. If you know that you will need some guidance to ensure all boxes are ticked, don’t shy away from the possibility of consulting an expert.

Sam Bennett is head of compliance and operations at Frontierpay.

Further reading on international payment

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International payments

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