How to pay overseas employees: a complete guide for UK businesses

Key takeaways

• Paying international employees involves risks like foreign exchange losses, tax and compliance obligations, and the complexities of international banking.

• With the right financial and technology partner(s), you can mitigate these risks and get more of the many upsides of hiring internationally.

• Using Airwallex, you can pay employees around the world at speed, at scale, and at some of the lowest rates possible.

When hiring internationally, the world is your talent pool. You can always ensure you’re hiring the right person for the job. Doing this, however, comes with a catch - employing someone in another country comes with admin, compliance, and legal risks. 

If you want to mitigate, or get rid of these risks entirely, then, you’re in the right place. We’ll walk you through everything you need to know about paying employees overseas, and how Airwallex is ready to help you streamline international payments without all the unnecessary red tape. Let’s get started.

How to set up payments for overseas employees

Let’s look at a simple rundown of the payments process for your global talent. Naturally, there are some things we can’t explain here – your situation is going to be unique and we can’t cover every eventuality.

Step 1: Gather employee information

• Bank details

• Tax ID

• Any country-specific data

Step 2: Choose your payment facilitator

• A fintech (like Airwallex)

• Your bank

• An outsourced partner (e.g. EOR or global payroll provider)

Step 3: Set the currencies and payment schedules

• Decide if you’re paying them in your currency, their currency, or a third currency (e.g. $USD)

• Agree the payroll schedule you’ll follow, including allowances for transfer times

Step 4: Plan for FX

• If you can, set an exchange stop-limit (i.e. automatic exchange at your chosen high and low rates) to optimise currency conversion

• If not, ensure that you know the cost and timeline of each exchange

• Either way, be clear about who pays for the cost of FX

Step 5: Check you’re compliant

• Local laws and tax policies in both countries

• Any cross-border laws or agreements

Step 6: Test and automate

• Once your payments are up and running, investigate which elements can be automated in the future to ease your admin.

• You’ll also need to double-check that your bookkeeping and payroll records are accurately reflecting these overseas payments.

How Airwallex simplifies paying overseas employees

Airwallex is a great solution for paying international employees. If you're looking to pay overseas employees without the headache of jumping through hoops and navigating around red tape, you might want to consider Airwallex. 

We're a trusted global payments and financial platform that enables businesses like yours to open domestic and foreign currency accounts within minutes and accept and send currencies in over 60 countries. 

We offer highly flexible international payments, mid-market, low-cost FX rates (where you can save up to 80% on FX fees), global expense management, and much, much more. And, we have prices starting from £0/month.

Want to learn more about how Airwallex can help your business make international payments? Find out more here.

Benefits of hiring overseas employees

Now we’ve explained how to hire overseas employees, we’ll get into the details of the benefits that hiring internationally can bring to your business. As well as unlocking the widest possible talent pool, there are plenty of other benefits, including:

• Beneficial market rates for salaries (e.g. a great wage in country X is half of a great wage in your home country) – a good deal for everyone.

• Diversity of thought and experience, feeding progress and revealing opportunities.

• A smaller physical footprint for your business, meaning lower office costs and incidental expenses.

• Round-the-clock coverage – for example, if your customer service team is spread across timezones, you can answer enquiries 24/7.

• Expanding your brand with representatives in target markets.

Challenges of paying overseas employees

Sounds like hiring overseas is the perfect way to go, doesn’t it? Well, as with most things in life and business, it’s never that straightforward. 

There are some obvious risks and challenges that come with an overseas employee, as well as some that you might not consider at first thought.

Tax and payroll compliance

Tax laws are a specialist subject and international tax laws are no less complicated. If you hire an employee in another country, you need to know if and what your responsibilities are – to them and their government.

Your payroll system will need to be able to process their salary each month, too. You’ll need to check that it can handle multiple currencies and make the correct deductions, while accurately communicating these things with your accounting system.

The cost of international salaries

Salary arbitrage (the practice of a business reducing labour costs by hiring people abroad where wages are lower) might help you save money relative to hiring locally, but it can come with hidden costs. Not only are you exposed to markup on the exchange rate, but you might also be charged a transfer fee.

If you’re paying an employee based in the Philippines £2,000 to their local account, for example, the costs would look like this:

You can solve these tax and compliance issues by hiring a specialist or using an Employer of Record (EOR). They both come at a cost – sometimes at a price that wipes out any savings you’ve made on salaries. 

This is why the right partner, like Airwallex, can be the answer with savings of ~74%, as shown in the example above.

Payment delays and administrative overheads

Sending money across borders has become relatively easy, but still comes with the occasional roadblocks. It can still take multiple days or even weeks for an international payment to arrive. That places a huge burden when you’re trying to pay salaries on-time.

Plus, as mentioned above, the solutions to some of these issues come with their own costs and challenges. Keeping your local tax specialist updated with the information they need, for example, is yet another task on your to-do list.

Local banking restrictions

Both of your bank accounts need to be able to handle these new transactions. You can probably imagine the alarms that will go off when you first try to send thousands of pounds across borders to a brand-new payee.

Depending on their location, your employee’s bank might struggle to process higher-value, foreign currency transfers. This is specific to each location and individual, which makes it even trickier to handle long-term.

Costs, conversions, and their fluctuations

It doesn’t matter who you are, if your paycheque is 10% smaller month-over-month, you aren’t going to be pleased. When you’re paying an employee in another currency, you’re both exposed to two layers of risk:

Currency conversion costs: If you pay for it, the cost of that employee is technically higher than previously agreed. If they pay for it, their salary is lower than previously agreed.

Exchange rate fluctuations: A lot can happen in the space of a month. If the exchange rate moves, each month’s wage will cost you a different amount – or your employee will receive a different amount.

In both of these cases, you need a rock-solid agreement about the terms of salary payments. Which currencies they’re in, who pays the fees, and what the fixed value will be each month.

CTA: Simplify international payments with Airwallex

Paying employees internationally might seem daunting. But, with Airwallex, it doesn’t have to. We allow you to open local business accounts in countries you’re operating in - so you can avoid all those endless hidden transactions and foreign exchange fees. It’s a simpler way to pay. We promise.

Learn more about Airwallex business accounts here

Payment options for paying overseas employees

International payments can be tricky - depending on how you choose to make them. Sometimes, it isn’t so easy to pay salaries across borders in a timely, consistent, and affordable way.

Several options are available, from a mostly DIY approach through to entirely hands-off, outsourced methods. Here’s some examples:

You’ve got a range of approaches to choose from and lots of vendors within each. This is great for competition and variety, but can feel a little overwhelming. Let’s narrow things down a little more.

Comparing international payroll payment methods

In the interest of simplifying a complex and varied topic, we’ve tried to condense your options in a way that highlights their main strength and weakness. 

You’ll need to do a lot more of your own research, but this can be a useful starting point to guide your thinking.

There is a lot more nuance to each of these options than we can explain in a single table, so it’s important that you get more information before making any decisions.

Tips for managing global payroll efficiently

Payroll can feel a little unwieldy, even when all your employees are in the UK. Adding international employees to the mix isn’t going to make it any easier.

Follow these steps to cure some of the biggest headaches with managing global payroll:

Centralise employee data and automate payments

Removing the manual work of global payroll is one of the biggest quality of life improvements you can make. An internal or external system that lets you consolidate payroll data and payments will make the whole process feel a lot more manageable.

How you source and integrate these systems is entirely up to you.

Start with and maintain clear communication

Your international staff need to be sure about their pay situation. The time you invest in setting clear terms around pay, schedules, and expectations will be well worth it.

On a moral point, it’s not right to leave them unsure about something so important, so be as communicative as possible.

Monitor FX markets to optimise your conversions

If you’re converting your money to a different currency to pay salaries, you can do that conversion at any time between pay periods. Even a small change in exchange rates could save you a lot of money.

Partner with reliable and regulated providers

The general steer of this article is towards working with partners who make international employment easier. You can do it on your own, of course, but it’s hard work.

When choosing a partner, do your due diligence and make sure they’re legitimate, regulated, and trustworthy.

With the right partner, you can hire without borders

Globalisation has done so many great things for employees, businesses, and the wider world. Finding your way to take part in it doesn’t need to be daunting. In fact, it can be an amazing step for your business as you grow your headcount and footprint.

The technical and legal aspects of the process are best left to the experts, but even then there are financial considerations that need your attention.

If you’re trying to hire internationally in the most optimal way, the best approach is the one that balances compliance with control. If you don’t have a say in how and when you’re moving money across borders, you could pay a high price – literally. The right partner will always help you keep costs reasonable, as well as compliant.

FAQs

How can a UK business pay employees working abroad?

You can pay international employees through your bank account, via an intermediary (e.g. an Employer of Record), or using an international payments platform like Airwallex.

With Airwallex, you can get local account details in 20+ countries and low-cost international transfers to hundreds of others.

What are my tax responsibilities for an overseas employee?

Your responsibilities will depend on where your employee is a tax resident, how much you pay them, and the terms of their employment.

Depending on multiple factors, you may be responsible for deductions at source (e.g. income tax), healthcare and social security, pension contributions, and international taxes.

If you want to know about a specific arrangement, you’ll need to talk to tax and employment specialists.

What’s best practice for paying international staff?

Best practice for paying your global workforce includes reducing fees and charges (by using payment platforms like Airwallex), outsourcing to a global payroll or Employer of Record provider, and clarifying your responsibilities with legal specialists.

You should also conduct regular full cost analyses, to make sure you’re getting value for money.

How do UK businesses stay compliant when hiring abroad?

You need to draft contracts and pay schemes that align with local and international laws, as well as verifying your tax responsibilities (for the business, the employee, and both countries).

You should also conduct risk assessments (financial, legal, compliance) to protect your business.

All of this can be complicated, so we recommend you work with legal and international employment specialists. It’s also important that you regularly audit and review your global workforce, so you can catch any issues quickly.

Sources and references

1 https://www.barclays.co.uk/ways-to-bank/international-payments/

2 https://www.barclays.co.uk/business-banking/business-abroad/international-payments/