International Payroll Guide and Best Solutions in the UK

Looking to expand your global team with international hires? While the online world makes it easier than ever, getting them on your payroll and ensuring compliant payroll operations may be challenging. We show you what compliance matters you need to take into your hands when hiring online and considering different payroll solutions.

What Is International Payroll?

At its core, international payroll refers to compensating a globally distributed workforce across different countries while adhering to local regulations. Key elements include:

• Multi-country tax calculations: Withholding income taxes and social contributions correctly in each jurisdiction. This includes understanding PAYE (Pay As You Earn) obligations in the UK and equivalent systems elsewhere, crucial for multi-country payroll.
• Compliance expertise: Understanding and implementing region-specific local laws around benefits, time tracking, and filings.
• Cross-border payments: Paying international employees and contractors globally via optimal payment methods, typically in their local currency. This involves efficient global payment processing.
• Foreign currency management: Converting payroll amounts to local currencies (like from GBP to EUR or USD) and mitigating FX volatility.
• Data protection: Securely storing and accessing sensitive employee information, including details necessary for payslips, across locations, adhering to regulations like the UK GDPR.

For UK companies, international payroll in Europe was simplified pre-Brexit by alignment with EU regulations and freedom of movement. Post-Brexit, however, firms must independently track requirements in each country where staff members are based. This fragmentation significantly increases operational workload for in-house teams.

International payroll involves more variables, stakeholders, and complexity than domestic UK payroll. But the risks of non-compliance also rise substantially when processing payroll across borders. Effective international payroll processing is therefore paramount.

Why International Payroll Is Critical for UK Businesses

Global payroll used to be a consideration reserved for large multinational corporations. But for UK companies of all sizes, it’s now a strategic priority essential for growth. Key factors driving this trend include:

• Regulatory divergence
• Global talent demands
• Operational scalability
• Financial and legal risks

Regulatory Divergence

Pre-Brexit, UK firms benefited from some EU-wide employment laws and standards. Post-Brexit, however, compliance obligations diverge for each country. While much EU law was initially retained in the UK, the UK can now diverge. For example, recent changes have affected holiday pay calculations and working time record-keeping requirements based on retained EU law.

Global Talent Demands

Access to skilled talent can be difficult. Post-Brexit, hiring EU nationals lacking existing UK work rights requires navigating the points-based immigration system and often becoming licensed sponsors. Managing compliant payroll across jurisdictions is critical when hiring globally. Notably, UK employers must thoroughly check every employee’s Right to Work, including British citizens, to avoid major penalties. 

Operational Scalability

As SMEs grow into new markets, handling payroll across countries in-house can quickly become unwieldy. Outsourced solutions, such as payroll outsourcing or leveraging comprehensive global payroll services, offer efficiency and compliance expertise from payroll experts that enables scale. 

Financial and Legal Risks

Non-compliance with laws like tax codes or labour laws poses major financial penalties. Payroll errors or missed deadlines are costly, so staying compliant is a business imperative.

Key International Payroll Challenges 

Expanding payroll globally creates a web of complexities that UK businesses must be prepared to address:

• Currency conversion and volatility
• Employment law differences
• Data protection and security
• Disparate  tools and processes
• Avoiding a permanent establishment offshore

Currency Conversion and Volatility

Fluctuating exchange rates create unpredictability in payroll costs. For example, if the pound sterling (£) weakens against the Euro, Euro-denominated salaries and payments become more expensive in local currency. This volatility makes forecasting and budgeting difficult.

Sudden currency swings also impact employee purchasing power in their location. Some multinationals use FX rate freezes, currency collars, or hedging strategies to mitigate risks. But FX uncertainty remains a persistent payroll challenge.

Employment Law Differences

While the UK has aligned employment law frameworks, regulations vary significantly across other jurisdictions. Areas like termination notices, overtime rules, holiday days, maternity leave, and more diverge widely.

Germany, for instance, has strict regulations around overtime documentation, requiring pre-authorisation of extended hours. France has complex pre-termination processes and heightened employee protections. Navigating these nuances exponentially multiplies compliance obligations.

Data Protection and Security

With employees across the globe, payroll data is subject to varying data regulations. The EU has GDPR standards, and the UK has the UK GDPR which is very similar. Countries like the USA, China, and India have distinct data protection laws. Keeping payroll information secure while enabling workforce access across borders is a rising challenge.

Disparate Tools and Processes

Many UK companies start with a single payroll system at home, then as they expand overseas, adopt country-specific tools to manage in-country payroll. Linking these disparate systems efficiently while maintaining compliance is hugely difficult. Centralising global payroll on unified platforms is an emerging best practice.

Avoiding a Permanent Established Offshore 

A significant risk for UK companies employing staff overseas is the potential creation of a Permanent Establishment (PE) in the host country. A PE can trigger local corporate tax liabilities and further reporting obligations for the UK company in that foreign jurisdiction.

Global Payroll Compliance Considerations

Making payroll missteps globally exposes businesses to substantial financial penalties, legal risks, and reputational damage. Let’s look at some of the critical compliance considerations for UK companies paying employees worldwide.

• UK PAYE and National Insurance Contributions (NICs) requirements
• Tax residency and double taxation
• Shadow payrolls
• Pensions auto-enrolment (UK)
• Data protection (GDPR)
• Record keeping and audit trails

UK PAYE and National Insurance Contributions (NICs) Requirements

Payroll compliance for international teams can be challenging for UK companies due to varying global tax and social security models, unlike the relatively straightforward domestic PAYE system.

For example, France mandates high payroll taxes paid by employers on top of salary, including social security contributions that differ from UK Employer NICs. Germany requires substantial health insurance contributions split between employers and employees, along with other deductions.

These examples illustrate the challenges of modifying payroll calculations market-by-market to remain locally compliant. Employers often use a mix of localised payroll tools and centralised platforms to track requirements.

Tax Residency and Double Taxation

For employees dividing time between countries, determining tax residency and avoiding double taxation is critical. The UK’s Statutory Residence Test assesses residency based on days spent in the UK and other connecting factors. 

Tax treaties can prevent dual taxation. For example, remote UK employees working in Spain for fewer than 183 days per year may avoid Spanish income tax under the UK-Spain treaty terms.

Shadow Payrolls

A shadow payroll system is frequently needed when employees work internationally but remain on their home country payroll. For example, a UK employee sent overseas on assignment may still receive their net pay from the UK payroll. However, they likely have tax and/or social security obligations in the host country that require local reporting.

Pensions Auto-Enrolment (UK)

UK employers must fulfill auto-enrolment pension duties for eligible employees ordinarily working in the UK. This can include staff temporarily overseas but still on UK contracts and considered to be ordinarily UK workers.

Data Protection (GDPR)

GDPR impacts payroll given the volume of employee personal data processed. While GDPR applies across the UK and EU, other major markets like USA and China have different privacy laws.

Ensuring compliance from end to end while enabling workforce access worldwide is a complex data protection challenge. Some best practices include local data storage, encryption, and access controls.

Record Keeping and Audit Trails

Proper payroll record-keeping is critical for compliance and resolving errors. Companies must retain documents both locally and centrally to respond to potential tax audits or labor disputes. HMRC mandates keeping PAYE records for three years after the related tax year. However, records showing National Minimum Wage compliance must be kept for six years.

Top International Payroll Provider Options

Payroll outsourcing to specialised global payroll providers offers localised expertise and advanced technology, often cloud-based, to streamline compliance. Below is an overview of five leading providers of global payroll services:

1) Papaya Global

Papaya Global is a leading provider of global workforce management, offering payroll, payments, and Employer of Record services in over 160 countries. Their platform aims to be a centralised database integrating HR, payroll, and payments. Key strengths relevant for expanding UK businesses include the ability to hire overseas workers without a local legal entity through Papaya’s Employer of Record service, access to local experts in payroll and compliance, and integrated automation to reduce manual processes when you run payroll. Papaya offers comprehensive global payroll solutions.

Considerations: Can be complex for very small businesses; learning curve for some users.

2) ADP

ADP is a well-established global leader in payroll and human capital management. They offer payroll services in over 140 countries, primarily through their GlobalView and Celergo platforms for larger and smaller multinationals respectively. Key strengths include ADP’s vast compliance expertise and managed service model, which can fully outsource international payroll complexities.

Considerations: Relies on third parties in some nations; potentially high costs and complexity for smaller SMEs.

3) Rippling

Rippling is an emerging all-in-one platform for HR, IT, finance and payroll. Key strengths for UK firms include its unified data and workflows across HR, IT, finance to reduce silos,  payroll software, international payroll reach, and emphasis on automation. Rippling owns its global payroll infrastructure and has international payroll reach for 50+ countries directly and 185+ through partners with emphasis on local payments, and focus on automation from onboarding to payroll. 

Considerations: Pricing is custom; may suit tech-savvy firms more.

4) Deel

Deel specialises in solutions for remote teams and international hiring, providing strong Employer of Record services, global payroll, and contractor management in over 150 countries. Key strengths include their EOR capability for local hiring without an entity, contractor payment automation, user-friendly interface, and remote work focus. Deel emphasises simplified onboarding, multi-currency payments, and compliance for remote employees and contractors. Their platform also integrates popular HR and finance software.

Considerations: May lack local expertise in niche markets

5) CloudPay

CloudPay is a UK company providing managed global payroll services and payment services through a unified cloud-based platform, targeting large multinational corporations. They offer payroll processing in over 130 countries and support numerous currencies. Key strengths are CloudPay’s end-to-end managed services, real-time global payroll visibility and reporting, focus on process standardisation, and deep compliance expertise delivered by payroll experts. This is a significant player among global payroll providers.

Considerations: Pricing not public; tailored for enterprises

These leading platforms offer strong foundations for UK companies to build globally compliant, efficient payroll frameworks. The right solution depends on your business footprint, team size, compliance needs, and internal capabilities.

Building a Scalable International Payroll Framework

Rather than tackling multi-country payroll haphazardly, UK businesses need a streamlined framework with structures to support sustainable scale. Here are some best practices:

Centralise Governance

Appoint a global payroll team to oversee regional policies, processes, and systems. While local configurations may differ, global governance ensures continuity. This group can spearhead initiatives like:

• Selecting suitable technologies as the business expands
• Auditing country-specific payroll accuracy and compliance
• Identifying opportunities to standardise tools and workflows

Leverage Integrated HRIS Platforms

Managing payroll on spreadsheets or disjointed systems is ineffective long-term. Integrated HRIS platforms like centralise employee data, payroll calculation, and reporting on a single version of the truth.

Critical features like self-service payroll access, automated report generation, and real-time analytics add efficiency. These systems integrate smoothly with localised payroll engines.

Build Local Partnerships

Even with strong technology, local expertise is crucial for niche payroll requirements when expanding internationally. Working with accredited in-country payroll providers or Employers of Record can help address unique needs across markets.

Automate What’s Predictable

Look for opportunities to standardise payroll processes globally. For example:

• Use self-service payroll tools to empower employees and offload manual work
• Automate date-driven actions like local tax filings, currency conversions, or salary benchmark adjustments
• Build workflows for commonly repeated tasks like compiling monthly reports

Plan for Fluctuations

Forecasting and scenario planning will minimise risks of currency volatility, changing regulations, and talent shifts. Keep pace with legal revisions, monitor exchange rates, and track labor trends in your footprint. Being proactive beats reacting to surprises.

By taking an integrated, compliant, and employee-focused approach, your UK businesses can build global payroll frameworks to support expansion anywhere talent and opportunity arise.

Nuances for UK Employees Working Overseas vs. Hiring Foreign Nationals to Work in the UK

Global Payroll Creates Complexity, but Needn’t Create Chaos

Expanding your UK business with a global team offers immense benefits, but international payroll undeniably brings complexities. Fragmented regulations and diverse local requirements can seem daunting.

However, these challenges are manageable. With a strategic approach, governance, integrated HR platforms, local expertise, and automation, your business can achieve compliant, scalable, and efficient global payroll operations. The key is to implement solutions designed to handle the intricacies of paying your international workforce.

Beyond Payroll Calculation: Automating Global Payouts

Once payroll is calculated, the final, critical step is executing compliant and efficient payments to your global workforce. While payroll providers calculate net pay, tax, and deductions, a dedicated global payments platform automates the complex “last mile” of actually disbursing the funds across different countries, currencies, and payment methods.

This is where a solution like Tipalti comes in.

Tipalti is a global payables automation platform that specialises in high-volume global payouts to employees, freelancers, and other partners to streamline the entire payment execution process.

• Global Payout Network: It supports payments to over 200countries in 120+ currencies, which is advantageous for UK firms with dispersed workforces.
• Flexible Payment Methods: It gives payees the choice of how to receive funds, using UK-specific rails like BACS and Faster Payments, as well as SEPA, international wires, and more.
• Automated Compliance: The platform helps manage regulatory and tax compliance by validating payee information against 26,000+ rules and screening against international sanctions lists.
• Real-time Reconciliation: Tipalti integrates with ERPs and accounting systems to automate the reconciliation of all global payments, providing finance teams with a clear, consolidated view of all payout activity.

By separating payroll calculation from payment execution, UK businesses can leverage best-in-class solutions for each function: a global payroll provider to ensure local compliance and calculations, and a mass payments platform like Tipalti to ensure those payments are made efficiently, securely, and cost-effectively anywhere in the world.

For a deeper understanding of how to streamline high-volume payouts to your international employees and contractors, explore Tipalti’s mass payment solutions.