What is International Payroll Processing & how do you get started?

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Gino Peters

Written By:

Gino Peters

Reviewed By: Belinda E.

June 3, 2026 8:46 pm

Category Tag: News

The rise of remote work made international expansion much easier in recent years, but hiring abroad still comes with legal and administrative complexity, as every country has its own labour laws and payroll rules that must be followed. In addition, not many companies can open a new entity in every new market that they are expanding into. That is when the Employer of Record (EOR) solution comes in handy.

The EOR serves as the legal employer on paper, while the client company manages important activities related to the employees responsibilities and performance.

In this guide we will cover what an employer of record is, how it works in detail, how much it can cost and which business should consider an EOR solution.

What is an Employer of Record (EOR)?

An Employer of Record (EOR) is a third party service provider that legally employs a person on behalf of another company in the country where the employee officially resides. As an official employer the responsibilities of EOR include issuance of an employment contract, processing payroll and withholding taxes and necessary social security contributions, as well as preparation of offboarding documents or any documentation that need to be signed by the employer. In addition, EOR ensures the compliance with local labour laws and serves as a first point of contact for any legal disputes.

The client company that hired the employee through an EOR also has a list of responsibilities. As an Employer of Record does not have the visibility on operational activities behind the scenes a client company needs to provide direction and ensure proper team integration.

In simple terms, the EOR provider acts as a legal employer in the country of the employee’s residence, while the client company takes on day-to-day manager work.

Responsibility	Employer of Record (EOR)	Client Company
Employment contracts & any other official documentation
Payroll processing
Income tax & social security contributions
Compliance with local labour laws
Statutory benefits administration
Managing daily work and projects
Setting goals and performance expectations
Providing equipment and tools
Leading the employee’s team and workflow

Employer of Record solutions gain more and more popularity in the field of global expansion as they allow businesses to hire best candidates fast and easy while staying compliant with local employment regulations. More information about EOR service are available if you would like to understand more.

EOR Meaning

The term “EOR” is the abbreviation for Employer of Record.

Employer in this instance stands for the company that hires the employee and takes on duties related to it, such as onboarding and offboarding process, payment of wages and compliance with other legal requirements.

“Record” from the EOR perspective refers to official registration with government authorities. The name of the EOR provider is stated in all payslips and tax filings, and should also be listed by the employee in any documents where employer must be stated, such as mortgage or loan applications.

One might ask a question of why this legal structure exists. As it is not possible to provide an employment contract directly to a person that legally resides in another country, the business expanding abroad typically needs to establish a local entity. That involves legal registration, arrangement of local bank accounts and organisation of payroll structure, as well as compliance with local law.

EOR allows to simplify the global hiring and reduce administrative burden through their existing legal entity.

There are some other hiring models that can be confused with EOR.

EOR and PEO

Many sources online refer to EOR as “international PEO”, which may create confusion as these models have 1 important difference.

A Professional Employer Organisation (PEO) serves as a co-employer of a client company. In other words, a business must already have an established entity in the country. The hiring tasks are, therefore, shared between 2 companies, while legal liability stays only with the client company. In the EOR model all legal risks are being taken by the official employer. Read more about the difference between PEO and EOR here.

EOR and staffing agency

Staffing companies mainly provide assistance for short-term projects by providing temporary workers. If the client wishes to employ a person for a longer time, EOR approach must be chosen.

EOR and contractor model

Contractor agreements assume the involvement of independent workers rather than employees. This model is also often used for temporary, project-based assignments. It is important to remember that there is a big misclassification risk between a contractor and an employee in the company which can lead to potential legal issues. An EOR ensures that employment is legally compliant with local labour law.

How does an Employer of Record work?

While it may sound complicated at first, a process behind the employer of record model is relatively straightforward.

The operating company selects a candidate

The client company recruits the employee they want to hire in another country

The EOR becomes the legal employer & local employment contract is issued

The Employer of Record uses its local legal entity to prepare and issue an employment contract that complies with labour law of the country where the employee is based. Depending on case-by- case situation, the work visa might need to be secured beforehand. Our company provides immigration services, more details can be found here.

Payroll and taxes are managed

The EOR takes on recurring responsibilities related to a payroll and ensures correct processing of income tax, social security contributions etc

Benefits are administered

Paid leave, sick leave, pension contributions and any other statutory benefits are being managed by the EOR.

Ongoing compliance and HR support

It is the responsibility of the EOR to monitor changes in local labour law and ensure ongoing compliance.

Example:

Imagine a UK-based tech company found a perfect candidate in Germany for a position of a software developer.

Instead of going through the administrative burden of opening a legal entity in Germany, the company chooses to work with an Employer of Record. The EOR hires the developer under a German employment contract and manages payroll and taxes. At the same time the UK company welcomes the new employee in the team and manages the daily work of a developer.

What services does an Employer of Record provide?

The Employer of Record does more than just providing an employment contract to the employee. Typically a wide range of HR and compliance services is included in the EOR offer. For example, read about the services included in our EOR package here.

Employment and HR administration

Locally compliant employment contracts and support with other documents requested by authorities
Employee onboarding
Employee record management. For example, control over PTO

Payroll and tax management

Regular payroll processing
Tax withholding and reporting of social security contributions with authorities
Payslip generation and creation of annual wage tax certificates

Benefits administration

Management of statutory benefits
Pension contributions (where required)
Support with benefits such as maternity leave allowance, sick leave allowance etc

Compliance and risk management

Insuring compliance with local labour law
Management of onboarding and offboarding processes
Representation in difficult legal and court cases

Additional services:

Some EOR providers ( such as ThisWorks EOR Services) provide additional services such as:

Work permit and dependent visa support
Background checks
Relocation support
Value added services: support with housing, company car, banking, etc ( depending on the country).

This vast list of services allows businesses to manage international teams, while staying compliant and avoiding complex local employment administration.

Benefits of using an EOR service

There are multiple advantages the businesses can get from working with an Employer of Record provider.

Faster global hiring

Setting up a new entity can take up to several months. With an EOR the hiring process can take several days.

Reduced compliance risk

A trustworthy EOR provider ensures the compliance with all local regulations. As the labour law varies greatly between countries, having a knowledgeable party to rely on can make a big difference.

Lower expansion costs

Establishment of a new entity is not only a time-consuming process, but also costly. With EOR services these costs can be avoided.

Access to global talent

The location of a remote candidate is not a problem if the company uses Employer of Record services. In other words, the best candidate for specific business purposes can be chosen.

Scalable hiring model

EOR services are ideal for organisations that want to scale international hiring quickly. They are particularly useful in the following situations:

Remote-first teams and organisations
Companies testing new markets abroad
Startups expanding internationally

How to choose the right Employer of Record

Choosing between several EOR providers is important, as it influences not only compliance, but also employee experience for new hires and how your company is perceived on the job market.

Here are some important things to keep in mind when deciding on your EOR partner:

Geographic coverage

Make sure that EOR provider can cover the country where you want to expand globally. Read about our EOR coverage here.

Pricing transparency

Check that EOR provider does not have any hidden costs and the pricing is clearly outlined in your MSA.

Compliance expertise

A strong EOR provider should have a team of experienced local HR specialists who understands all in and outs of a national labour law.

In-house vs partner model

Some EOR providers rely on their third-party partners, while others manage employment directly through their own local entities.

Customer support

It is important to find a EOR partner that helps with any questions or concerns in a quick and professional manner. That can be crucial when dealing with employee offboarding or any legal disputes.

Warning signs

Understanding the importance of choosing a right party, your company should be cautious of providers that lack local expertise and cannot give clear answers to your labour law questions. In addition, companies with slow response times can prove to be unreliable in critical situations. Furthermore, providers with complex pricing models with many hidden fees can create a lack of cost transparency and result in unforeseen expenses.

By selecting a provider with strong expertise in local labour law and reliable support from dedicated teams, your company can ensure a smooth international growth. Learn why companies choose ThisWorks as their EOR partner.

How much does an employer of record cost

The vast coverage of services the employer of record provides makes many businesses ask how much an EOR costs.

Pricing models vary greatly on the provider and the country of coverage, but most EORs use one or more of the following structures.

Flat monthly fee per employee.

The EOR provider charges a fixed monthly fee for each employee they have on the payroll from the client.

Percentage of salary

While not being a popular approach, some EOR providers charge a percentage of the employee’s salary, typically ranging between 5%-15%.

Setup fees

Some providers charge onboarding or offboarding fee for each employee.

The fee that the business needs to pay to an EOR provider also depend on the location of a service. Local labour law complexity of some countries can influence the fee. In addition, some countries have specific statutory benefits and payroll administration requirements. Furthermore, employee headcount in the specific location can influence the fee.

EOR vs setting up a legal entity

To establish a new entity the organisations needs to go through legal and tax registration. In addition, accounting support and ongoing compliance costs such as the fees for local labour lawyers can make setting up a legal entity significantly more expensive.

An EOR allows companies to expand globally without these upfront investments.

EOR vs hiring contractors

Some businesses decide to hire international workers as contractors. However, this approach can often lead to a misclassification risk, which can cause legal and tax liabilities.

A professional EOR provider ensures that the new starters are compliantly onboarded under local employment regulations.

EOR FAQs

Is an EOR the same as a PEO?

No. PEO model assumes co-employment and requires the business to already have established local entity, while EOR employs new talents through its own entity only.

Can an EOR hire contractors?

While some EOR providers can support hiring contractors, it is important to remember that main function of EOR is the employment of full-time workers legally in a country. A risk of misclassification between EOR and contractor should be also considered carefully.

Is an employer of record legal?

Yes, when established and structured properly, Employer of Record entities are legal and widely used for international expansion by many companies.

When should you use an EOR?

The most common reason for using EOR include:

Hiring employees located in another countries remotely
Testing new markets before establishing an entity
Expanding internationally

Can you switch from EOR to your own entity?

Yes. Many companies initially hire through an EOR for the ease and speed of expansion and later transition employees to own legal entities upon their establishment. It is important to remember that some countries require specific procedure to be followed in such a scenario.

Get in touch with ThisWorks

Expanding your team globally does not need to be long and administratively complex.

With the use of Employer of Record the businesses can have access to the best talent from around the world while ensuring full compliance with local labour laws.

ThisWorks can support your global expansion with our compliant Employer of Record services.

Contact our team to find our how we can help your international team glow fast and compliantly!

Workplaces have evolved with improved global connectivity and access to the international workforce pool. This means that hiring foreign employees and remote workers has become easier and more advantageous than before. In fact, about 17% of the US labor force is comprised of foreign-born workers.

Building a global workforce has made it simpler for companies worldwide to hire the right people regardless of their location. However, with employment diversity and unprecedented international growth come modern challenges for businesses worldwide. For instance, you might be scratching your head regarding managing payrolls and adhering to global laws.

However, international payroll processing is a significant part of any company’s small or large operation. Fortunately, you can mitigate these challenges with the help of an international payroll service. ThisWorks provides international payroll solutions for companies as global expansion becomes essential.

In this blog, we will tell you what international payroll processing exactly is and how you can manage employee compensation across different countries and regions.

Understanding international payroll processing

International payroll processing is managing and adhering to foreign taxes, laws, and payment methods to pay staff abroad. It involves recording all payable international employees, deducting their gross pay, and remitting taxes to authorities according to local laws.

Getting your international payroll processing right is of paramount importance for several reasons. It ensures employee satisfaction and retention and is crucial for your company’s image and reputation.

While your business can manage international payroll internally, once you start, you will quickly realize that adhering to all the local tax codes and employment laws is extremely research-extensive and complicated. Working with a reliable international payroll provider to handle all the hassles can be very helpful.

What is the difference between domestic and international payroll?

Why do you need international payroll services for paying foreign employees rather than your local workforce? International payroll processing is different from domestic payroll. Paying international employees involves international laws, time zones, taxes, currencies, and compliance with local payment methods. Read more about that here. All of this increases the risk of legal issues and non-compliance penalties.

For example, if you hire employees from Poland, the UK, or Germany, all of these countries have different:

Mandatory employee benefits
Local payment methods
Tax regulations
Currencies
Exchange and conversion rates

Understanding these differences is a considerable undertaking for companies with a global workforce. Additionally, non-compliance penalties are excessive in some countries. Therefore, many companies prefer to hire an international payroll company to streamline their global payroll processing. An international payroll provider saves time, money, and effort that it would otherwise take to handle it in-house.

Components that are unique to international payroll management

Before skipping to international payroll processing methods, let’s cover essential payroll handling components.

A company’s ‘payroll’ is a list of all the employees on the company’s list of payable workers. The payroll processing unit of a company deals with a variety of operations, including:

Accurately recording time worked and, for paid staff, accurately calculating pay.
Deducting the appropriate amounts for compulsory employee contributions such as pension payments or healthcare premiums
Payroll tax and income withheld at the appropriate intervals.
Setting up automated payments or direct deposits, distributing checks to employees, and documenting the amounts in pay stubs (sometimes called “payslips”) for each employee.
Setting aside income per court judgments for debts such as alimony and maintenance, child support, and other issues.

International payroll is more complicated than domestic payroll processing as more factors come into focus with employees abroad.

Here are some common challenges businesses face while managing and processing global international payroll.

1. Local payroll requirements

Most companies’ biggest challenge with international payroll is adhering to different taxes and labor laws. It is important to remember that all countries have unique payroll requirements, with distinct minimum wages and other statutory benefits. Your business should have an efficient payroll processing system with a detailed understanding of local requirements. This will ensure compliance with local regulations and mitigate risks associated with falling prey to non-compliance penalties.

2. Currency conversion

International payroll processing requires currency conversion. This means you need to convert local currency into the currency used in payroll processing. Currency conversion is a complex process as the conversion rates vary. To ensure that calculations are accurate and avoid blunders, your payroll department must know all the latest conversion rates for each country you have employees.

3. Communication

Communication is vital for ensuring smooth payroll processing. However, different countries have different languages and time zones. This can be a considerable barrier and make it difficult for the payroll department to engage with the local staff. Businesses need to effectively communicate with authorities, vendors, and local staff to ensure there are no gaps in the process.

4. Compliance

A company may be severely penalized if it fails to comply with local tax codes and employment laws. It’s crucial to handle legal issues correctly and maintain a positive reputation. Your payroll department should know all the compliance regulations and penalties if you fail to adhere to the local laws.

5. Technology and Infrastructure

Last but not least, technology can significantly affect your payroll processing. Businesses should remember that all countries are different regarding payroll systems, and it is challenging to integrate them into a single system. Global companies must invest in robust technology and payroll software for efficient and streamlined international payroll processing. This will not only make calculations and compensations easier, but it will ensure timely payments to employees globally.

Top 3 ways to manage international payroll

Businesses often use international payroll services to mitigate the risks and challenges mentioned earlier. Working with global payroll solution companies allows you to stay compliant and simplify the process. Here are the top 3 international payroll solutions that will help you mitigate legal risk and maintain your company’s global image:

1. Payroll Software

As mentioned above, technology is vital to your payroll processing methods. One way to manage your international payroll is to use international payroll processing software. Automated payroll processing is a great way to efficiently manage tax withholdings, deductions, benefits, and compensation.

These versatile software tools can help almost all kinds of businesses manage their payroll systems. International payroll processing software is an excellent solution if you need to outsource and automate your global payroll while maintaining a certain degree of flexibility, control, and oversight. It speeds up the payment process and leaves you exclusively responsible for your payroll function. However, most of these software tools require an in-house specialist to operate. Businesses must hire an in-house expert or train their current employees for automation. In addition to this, you will also need a paid license to use the software. Another option and the easiest one is hiring an international payroll service provider who takes care of your automated payroll service.

2. Hire An International Payroll Service Provider

International payroll providers specialize in handling your company’s international payroll. They take care of everything from paying your foreign employees and keeping payroll records to complying with tax rules and time zones.

By hiring international payroll companies like ThisWorks, your business will no longer have to deal with intensive research regarding employment laws and tax regulations in different countries. As a 365-degree Employer of Record, we at ThisWorks also offer international Payroll Services. Find all our services here (internal link). Our professionals understand payroll processing challenges, including conversion rates and payment regulations.

Before hiring a third-party company for payroll processing, it is essential to receive a comprehensive consultation and discuss recent testimonials to make the right decision. While this solution may require a larger initial investment than payroll software, it has long-term benefits. For example, you do not need to hire an in-house specialist, but you will have access to in-country and international expertise.

3. Use an Employer of Record

An Employer of Record (EOR) is a company that can hire new talent on your behalf. This method eliminates the need for you to establish a local entity. ThisWorks, as an EOR, will not only take care of your payroll processing and tax calculation, but we will also handle employee contracts, onboarding, and benefits so that you do not have to worry about anything. Read more about how to manage payroll here.

For companies who want to expand globally, using an employer of record is an attractive solution since it eliminates two of the most considerable barriers to global employment.

FAQ about international payroll processing

Check out some of the most commonly asked questions about international payroll processing and how it works:

How do you calculate payroll?

Calculating international payrolls is complex. You have to consider several factors, including different local and international compensations and conversion rates. Our professionals keep records of taxes, global policies, and local laws to streamline your company’s payroll processing system.

What is multinational payroll outsourcing?

International payroll outsourcing means that a third-party company takes over payroll processing for your company, including administrative functions like tax reporting, calculating voluntary benefits, and managing employee inquiries.

What do payroll processing fees include?

Payroll service fees can vary depending on your company’s needs, size, and requirements. You can contact us and get your payroll processing right with just a few clicks. Our experts are more than happy to guide you through the entire process.

What is a global payroll provider?

A global payroll provider is a third-party company that understands local regulations and tax laws. We help businesses pay their international workers while covering employee benefits, minimum wage requirements, and conversion rates.

How do I pay employees with an international payroll?

Paying international employees is different from paying your local staff. Every country has unique tax regulations, conversion rates, time zones, and languages. Businesses must have a strong understanding of international rules and laws to avoid penalties for non-compliance. Maintaining a global payroll will help you understand these challenges and navigate different areas of international payroll processing.

How do I choose the best international payroll service?

An efficient payroll system ensures your company’s image remains unharmed. You can look at recent testimonials to choose the best international payroll service. Consider your business needs and make an informed decision based on your requirements. When selecting an international payroll service, compare the included services since most providers only offer one service. Of course, find a competent point of contact and check the contract with the contact person before signing it.

Do you need help with international payroll processing? Well, you do not need to worry anymore! With the help of ThisWorks, you will no longer have to scratch your head over complicated tax laws across different regions.

ThisWorks is an international payroll provider that handles everything from tax codes and employment laws to compensation and employee benefits for different countries. Hiring foreign EOR providers like ThisWorks will relieve your company of the burden of conducting thorough research on local tax and employment rules. They are experts who understand the difficulties in processing payrolls, such as conversion rates and other payment laws.

Consider ThisWorks if you need a simple, convenient international payroll processing solution. Our experts are here to guide you through the process. Book a free consultation with our specialists here.

If you want to learn more about global business expansion, check out this blog.