How To Do Payroll For Remote Employees
Chances are, you are working with a remote team, especially considering the difficult Covid-19 pandemic. In fact, you may have a multi-national team working for you, with each one contributing differently to the overall outcome.
As an employer, you are tasked with creating a paystub that matches their work profile. This paystub generator should be able to comply with all rules, regulations, and taxation policies of the US and the country the employee is working from.
Payroll by employee classification
Here in the States, employees are classified based on the tax forms they receive.
Company employees receive the W-2 form online while independent contractors receive the 1099 form.
The W-2 form contains all the wages paid during the year and the tax subtracted from the wages during the year.
On the other hand, the 1099-NEC form gives details of the payments you have made to the individual contractor during the year. As you aren’t required to pay their taxes, you are not liable to report the taxes on their forms. Both these forms are available online.
Sometimes, you can also hire agencies or other businesses as contractors. These are treated as independent contractors as you are paying for their goods and services.
Here’s why payroll accounting becomes difficult
Though the amount of paperwork is more or less the same, there are a few reasons why doing the paperwork and taxes of a remote worker is challenging than an in-house employee.
Out of state workers
You do have the flexibility to hire from anywhere in the country, but their various taxes and other different requirements can become a headache. As a taxpayer in another state, you might have to register as a firm to pay taxes in that state. To avoid this, you might need to hire remote workers in your state itself. However, you do not have to bother about paying taxes for freelancers or independent contractors.
Out of country workers
These days, remote workers can be based anywhere in the world. This further complicates the situation. Based on the company requirements, you might need to pay the wages in their home currencies or pay it to an intermediary that converts the wages into their home currencies. Generally, this intermediary is PayPal or other similar services.
You, as well as the employee, may have to pay additional taxes as applicable locally or in the worker’s country. This makes working for overtime, benefits, and other expenses very difficult.
In such cases, many times companies put the liabilities of paying taxes to the employees. To save on paying taxes, many companies hire freelancers who work for a lesser wage but do the same amount of work. You can also outsource your payroll functions to a third party. This third party can be organizations such as PEO companies. The best PEO companies will take care of your remote employees and all the policies.
Handling their pay stubs
Many companies use paystub maker suited for international clients for best results. They check the stub makers and integrate all the taxes and other deductions before calculating the gross pay for every employee.
Doing the payroll for remote employees can be complicated, highly technical, and requires dedicated resources. It is best to employ dedicated software for this purpose.