Navigating Tax Season As A Business With International Workers
Setting up payroll for international teams
Posted on 02-24-2021, Read Time: Min
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Utilizing Digital Tools to Reduce the Risk of Tax Filing Errors for Remote Teams
Being a remote company comes with many perks: you open your business to a global talent pool which gives you the ability to source the best people the world has to offer. Additionally, your team’s backgrounds and cultures offer unique perspectives that go beyond the geographical confines.
However, running a business in a global environment does come with a few challenges that every HR manager needs to be aware of. Hiring in different countries and complying with local labor laws entails having a deep understanding of the legal requirements and it’s important to ensure that you are running a risk-free business while also having your remote team set up correctly.
However, running a business in a global environment does come with a few challenges that every HR manager needs to be aware of. Hiring in different countries and complying with local labor laws entails having a deep understanding of the legal requirements and it’s important to ensure that you are running a risk-free business while also having your remote team set up correctly.
Remote Teams Come with Unique Challenges
It seems that tax season is one of the biggest pain points of every company, and a remote one is no different. When the time comes to file taxes, you want to be fully equipped with the knowledge and a streamlined process to ensure all the tax forms and paperwork are iron-clad. Missing deadlines or not collecting all the tax forms can lead to penalties and sometimes expose your company to misclassification, so it is critical to start on time.
Every remote employee comes with their own set of local labor laws and regulations. As the employer, you need to have a deep understanding of both parties’ legal requirements. Don’t assume that just because you are compliant in the US, your employee is compliant locally as well. Do a thorough research and understand what paperwork both you and the employee need to collect.
The first step would be to categorize the workers based on the type of relationship: independent contractors and employees. Each of these categories has its own set of requirements and they differ based on the country they are located in.
Every remote employee comes with their own set of local labor laws and regulations. As the employer, you need to have a deep understanding of both parties’ legal requirements. Don’t assume that just because you are compliant in the US, your employee is compliant locally as well. Do a thorough research and understand what paperwork both you and the employee need to collect.
The first step would be to categorize the workers based on the type of relationship: independent contractors and employees. Each of these categories has its own set of requirements and they differ based on the country they are located in.
US Independent Contractors
For domestic (US) independent contractors, you will need to collect W-9 and 1099-NEC forms. A W-9 form is used to collect taxpayer information necessary for income reporting. Keep in mind that non-employee compensation higher than $600 within a tax year was previously reported within 1099-MISC, the IRS reintroduced the 1099-NEC form this year.
Foreign Independent Contractors
For foreign independent contractors, you will need to collect the W-8BEN form or W-8BEN-E if the contractor is acting as an entity. This form serves as proof that the contractor is a foreign national.
Foreign Employees
If you are working with foreign employees, you are probably using an employer of record service (EOR), in which case they are likely to take care of the tax forms collecting on your behalf. It would be good to align with them to make sure that all the necessary information is collected before the tax season approaches.
Tax Season Preparation: Setting up Payroll for International Teams
Running global payroll is a lot more than paying your team at the end of the month. You need to make sure you have a file with the necessary paperwork for every person that you hire. For every person that you hire, you should collect the following:
- Signed contractual agreement - Having a written agreement is essential to protect both you and your team members from potential misunderstandings and is generally a great opportunity to align on requirements and deliverables. Additionally, you can include clauses such as NDA, non-compete, indemnification, payment schedule, and ownership of work, as again, these differ in each country, and establishing common ground is a best practice.
- Tax forms - As mentioned above, make sure to collect all the necessary information for tax reporting so you are ready on time for tax season.
- Invoices - For every payment that you make, you will need an invoice to justify it and keep your books clean. You will most probably receive the invoice from the contractor at the end of the agreed payment period.
Additionally, you can keep a record of their resume and references, but this is not a necessary compliance step.
Use Technology to Your Advantage and Automate the Process
Hiring overseas can be overwhelming, especially if your business is small and doesn’t have a payroll manager. Trying to navigate local compliance and multiple countries is never an easy process and adding payroll to that equation can only make things worse. Even the best HR managers are sometimes unsure about the local realities of their team members, and having legal and accounting experts on retainers in multiple countries is quite expensive.
Fortunately, remote working is getting more and more traction and therefore new tools are emerging to support the process and lift some of that bureaucratic weight. Processing payroll and collecting paperwork manually can be streamlined and done in just a couple of clicks. Digital tools provide features like payroll, onboarding and locally compliant contract generation, automatic invoicing, tax collection, and direct filling to the IRS, allowing remote teams the flexibility of getting paid in 150 currencies, through different payment methods, while keeping businesses compliant with local laws.
Fortunately, remote working is getting more and more traction and therefore new tools are emerging to support the process and lift some of that bureaucratic weight. Processing payroll and collecting paperwork manually can be streamlined and done in just a couple of clicks. Digital tools provide features like payroll, onboarding and locally compliant contract generation, automatic invoicing, tax collection, and direct filling to the IRS, allowing remote teams the flexibility of getting paid in 150 currencies, through different payment methods, while keeping businesses compliant with local laws.
Author Bio
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Alex Bouaziz is the Founder of Deel. Prior to founding Deel, Alex co-founded Lifeslice, a mobile app to create videos with friends, and Sarona Ventures, where he still serves as a founding partner. In 2020, Alex was named to the top spot of Forbes’ prestigious 30 Under 30 Enterprise Tech category. Visit letsdeel.com Connect Alex Bouaziz Follow @deel |
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