# Payroll: What It Means When You Hire Across Borders > Machine-readable page from EOR Overview (https://eoroverview.com/), an independent research platform for Employer of Record services. > Canonical page: https://eoroverview.com/glossary/payroll/ > Methodology: how providers are researched, scored and compared is documented at https://eoroverview.com/methodology/. > Disclosure: EOR Overview is free to use. We may earn a referral fee from some providers; this never affects a rating or ranking position (https://eoroverview.com/disclosure/). Payroll is the process of calculating and distributing wages to workers, withholding the correct taxes, and filing the required reports with government authorities. For companies hiring entirely in one country, that process is well-understood. For companies hiring internationally, payroll becomes one of the most legally sensitive parts of the entire operation - because every country has its own tax rates, contribution schemes, pay-cycle rules, and compliance deadlines that can trip up even experienced HR teams. ## Explanation What payroll actually involves At its core, payroll has six moving parts that appear in every country, even if the rules governing each one differ: - Employee data management - tax filing status, bank details, benefit elections, and any country-specific identifiers (national insurance numbers, tax file numbers, social security IDs, etc.). - Time and attendance - hours worked, overtime, paid leave, and public holidays. Overtime thresholds and leave entitlements vary sharply by country. - Gross pay calculation - base salary, commissions, bonuses, allowances, and any mandatory supplements (such as a 13th-month payment required by law in countries like the Philippines, Mexico, and Brazil). - Tax and social-contribution withholding - the employer deducts income tax and statutory contributions from the employee's gross pay and remits those amounts to the relevant authorities. - Employer-side contributions - most countries require employers to pay their own portion of social security, pension, or health contributions on top of the employee deduction. - Net pay distribution - payment to the employee by bank transfer, mobile wallet, or another approved method, in the local currency and on the legally required schedule. Why payroll is different when workers are in other countries A US or UK company running domestic payroll can rely on a single tax code and a familiar set of filing deadlines. The moment workers are located abroad, that familiarity disappears. Consider what changes: Variable Domestic payroll International payroll Tax rates and brackets One country's rules A separate regime per country Social contributions Fixed national scheme Varies widely - some countries exceed 30% employer contribution Pay frequency Weekly, bi-weekly, or monthly Mandated by local law (e.g., twice-monthly in Taiwan, monthly in Germany) Currency Single currency Local currency required; FX risk falls on the paying entity Mandatory supplements Often discretionary 13th/14th month, statutory bonuses, or profit-sharing required by law in many countries Payslip format Standard national format Local language, local line-item labels often legally required Legal employer The hiring company itself May need a local entity or an EOR to be the legal employer The legal employer problem This is where payroll intersects directly with the EOR model. To run payroll in another country, someone has to be the legal employer on record in that jurisdiction. That entity must: - Be registered with local tax and social-security authorities. - Sign employment contracts under local law. - Withhold and remit taxes and contributions on the correct schedule. - Issue payslips in the required format. - File quarterly or annual returns with local government agencies. If a company hires workers in another country without a local entity, it typically cannot legally run payroll there. Paying a foreign worker directly from a home-country bank account - without local registration - is sometimes called "informal payroll" or "shadow payroll," and it exposes the company to back taxes, penalties, and potential permanent-establishment risk. An Employer of Record solves this by acting as the legal employer in the worker's country. The EOR runs payroll under local law, handles all withholdings and filings, and then invoices the client company for the gross labour cost plus a service fee. The worker is on the EOR's payroll, not the client's - but performs work exclusively for the client. Payroll and worker misclassification risk Some companies try to sidestep foreign payroll obligations by classifying workers as independent contractors. This avoids the need to run local payroll and pay employer contributions. However, misclassification carries serious risk in most countries. Authorities in Germany, France, Spain, Brazil, Australia, and many other jurisdictions apply economic-reality tests to determine whether a relationship is truly independent contracting or disguised employment. Factors examined typically include exclusivity, control over work methods, integration into the business, and provision of tools and equipment. If a contractor is reclassified as an employee, the company becomes liable for: - All unpaid employer social contributions for the period in question. - Penalties and interest on late tax remittances. - Statutory benefits the worker should have received (paid leave, severance, etc.). - In some cases, criminal liability for the responsible managers. Running proper payroll through an EOR - or through a locally registered entity - is the main way to eliminate this risk for workers who meet the legal definition of employees in their country. What payroll taxes look like country by country The US-centric view of payroll taxes (FICA, FUTA, federal and state income tax) does not translate abroad. Every country has its own structure. Below are simplified illustrations - not current rates, which change regularly and should be verified with local counsel. Country Main employer contributions Notable features France Social charges covering health, pension, unemployment, family Total employer burden can approach or exceed 40% of gross salary Germany Pension, health, unemployment, long-term care insurance Contributions split roughly equally between employer and employee Brazil INSS (social security), FGTS (severance fund), education tax Mandatory 13th salary and vacation bonus add to annual labour cost Singapore Central Provident Fund (CPF) contributions Lower overall burden than many Western countries; rates vary by worker age United Kingdom National Insurance contributions Employers pay NI above a threshold; must also adhere to auto-enrolment pension rules United States FICA (Social Security + Medicare), FUTA, state unemployment State income tax withholding obligations vary - some states have none When budgeting for international hires, companies routinely underestimate total employment cost because they apply their home-country assumptions. A salary agreed with a worker in France or Brazil will cost significantly more when mandatory employer contributions are added. How EOR providers handle payroll When a company uses an Employer of Record, the payroll workflow typically looks like this: - The client submits payroll inputs (hours, bonuses, expense reimbursements, any changes) to the EOR by a cut-off date. - The EOR calculates gross pay, applies local tax withholding tables, and computes employer contributions. - The EOR funds payroll in local currency and pays the worker on the legally required schedule. - The EOR remits withheld taxes and employer contributions to local authorities. - The EOR issues compliant payslips to the worker. - The EOR invoices the client in a major currency (often USD or EUR), covering gross labour cost, employer contributions, and the EOR fee. The client company never touches local payroll mechanics directly - that is the core value of the EOR model for international hiring. In-house payroll vs. EOR vs. local entity: a comparison Approach Legal employer Who runs payroll Best suited for Own local entity Your company's subsidiary In-house team or local payroll bureau Large, established headcount in one country EOR The EOR provider The EOR provider One to dozens of workers across multiple countries, fast starts Contractor model (compliant) The contractor's own entity The contractor Genuinely independent project work where classification risk is low Global payroll aggregator Your local entity (required) Aggregator coordinates local bureaus Companies with existing entities in multiple countries needing unified reporting Payroll frequency and pay-cycle rules abroad Pay frequency is not always the employer's choice. Many countries set minimum pay-cycle requirements in statute: - Monthly is the standard in most of Europe and much of Asia. - Twice-monthly or bi-weekly is common in Latin America and parts of Asia-Pacific. - Weekly is relatively unusual but exists in some sectors in the UK and Ireland. Paying less frequently than the statutory minimum is a compliance violation. Paying more frequently is usually permitted but can create additional administrative cost. Payroll records and data privacy Running international payroll means handling personal data - names, national ID numbers, bank account details, salary information - across borders. This triggers data-protection obligations. In the European Union, payroll data transfer between an EU-based worker and a non-EU company must comply with GDPR rules on international data transfers. Similar frameworks exist in Brazil (LGPD), the UK (UK GDPR), and many other jurisdictions. EOR providers typically act as data processors under these frameworks and should provide appropriate data processing agreements. Common payroll mistakes in international hiring - Using home-country payroll software abroad - most domestic payroll tools cannot calculate foreign tax tables or generate compliant local payslips. - Ignoring mandatory supplements - missing a legally required 13th-month payment or statutory bonus creates an immediate liability. - Misclassifying the currency of payment - workers generally must be paid in local currency; paying in USD or EUR may be prohibited or create FX obligations for the worker. - Late tax remittances - local authorities impose interest and penalties for late deposits, and schedules vary widely. - Not accounting for termination costs in payroll planning - statutory severance in many countries is a payroll-adjacent liability that must be funded, sometimes through ongoing accruals. Is payroll part of HR or finance? In most organisations, payroll sits between HR and finance. HR supplies the data (new hires, terminations, salary changes, leave records); finance relies on payroll output for cost reporting and tax filings. Who owns the function depends on company size and structure. For companies using an EOR, the question becomes simpler: the EOR handles payroll execution, and the client's HR and finance teams focus on workforce planning and invoice reconciliation. This separation is one reason the EOR model appeals to companies expanding internationally without the resources to build local payroll expertise in every new country. ## Related terms - [Benefits Administration](https://eoroverview.com/glossary/benefits-administration/) - [Co-employment](https://eoroverview.com/glossary/co-employment/) - [Net Pay](https://eoroverview.com/glossary/net-pay/) - [Managed Payroll](https://eoroverview.com/glossary/managed-payroll/)