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What are some good accounting and payroll guidelines for handling employees (virtual teams) who live outside the United States, but are paid from the US?

Matt Treat's Profile

Answers

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

International virtual teams present two separate challenges, i.e. activity management and currency fluctuations. There is nothing special from an accounting point of view. In a perfect world you would provide your virtual team with a project. They would give you an estimated date of completion. From there you could calculate when your payroll would be due and hedge the currency fluctuation. Chase Manhattan has a merchant product for companies that pay international vendors and receive international payments. Let them do the hedging. But they do need to know when the payment will be sent or received, so the estimated date of completion will be important.

Topic Expert
Stephen Wares
Title: International Expansion Expert
Company: CCW Business Solutions
(International Expansion Expert, CCW Business Solutions) |

Matt, there are multiple issues to consider with these employees outside the US including the potential creation of tax nexus in the overseas countries and all that comes with that, however my direct responses to your questions are as follows:

1. Accounting - create department codes within your GL to accommodate each country, or better still maintain separate sets of books for each country and maintain them in local currency so that you can easily account for local country expenditure without having fx and timing issues. Use US GAAP to handle fx on consolidation.

2. Payroll - make sure you are running local payrolls for each of the teams and that you are not trying to run them through a US payroll (I have met many companies over the years who believed it was possible to put their European employees on their US payroll). Be sure you understand which elements of the payroll are costs and should be included in your income statement, and which elements are liabilities that need to be paid to the employees and the local tax authorities. While this is easy in the US, it can be very difficult to immediately understand this from a series of reports produced from say, an Italian month end payroll. Also, with the exception of Canada, most international employees who receive a salary rather than a wage are paid once monthly at month end and not every two weeks. Finally, I would add that you should pay attention to the data privacy rules in the countries in which you have employees and check to see whether there are any cross-border issues with the sharing of senstive personal data.

Hope these help!

Topic Expert
International Representative
Title: International Expert
Company: Nair & Co.
(International Expert , Nair & Co.) |

Matt,

I need more detail to give you a definitive response. In particular, I need to know if these individuals are local country residents or expats.

If they are local country residents, then they are taxable in the local country and it is therefore illegal to pay them via US payroll. The US company can setup an appropriate registration in that country which will enable it to register for payroll in that country and thereafter the payrolls will be run legally, taxes with-held and paid etc. The type of registration is dependent on a variety of factors which include the type of activities being conducted. We can discuss this directly if you wish.

If they are expats and in a country with a tax treaty and/or a social security treaty with US, then it is usually possible to enable them to continue to contribute to US social security, pay into a 401(k) etc albeit the process is somewhat convoluted with dual country payrolls having to be run.

Please let me know if you would like to discuss direct as I need further detail to give a more precise answer

best regards,
Shan

Topic Expert
Malak Kazan
Title: VP, Special Projects
Company: ERI Economic Research Institute
(VP, Special Projects, ERI Economic Research Institute) |

A few more variables for each employee should be considered: Where is the "home country" (permanent residence) of the employee? how long is the assignment? Do they have any employment agreements in place? What are they statutory and non-statutory benefits for which they are eligible? (the duration of assignment, residency, and company policy will define most of these outcomes). www.worldwideerc.org has some helpful resources in this regard

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