How To Pay Remote Employees: 5 Common Options With Pros and Cons

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Paying remote employees is tricky, especially with the additional complications of dealing with taxes and laws of another country or state. Then, how to pay remote workers? 

Currently, the five most common ways are:

  1. Pay them via the home country's payroll
  2. Pay them directly as independent contractors (Not recommended)
  3. Establish a local entity and pay them via the company payroll 
  4. Establish a local entity and pay them via professional employer organisation
  5. Don’t establish a local entity and outsource payroll to an employer of record.

In this post, we will discuss each of these methods in detail (along with the pros and cons) so you can decide which one will work best for you. 

1. Pay Remote Employees via The Home Country's Payroll

How to pay international employees? One way is to let them be on your home country's payroll. 

It may work if your employees have moved temporarily overseas. But double-check the local labour laws before taking this approach. 

Employees might need a VISA for the location they are moving to. Also, depending on the tax rules, they may have to pay taxes abroad. 

For instance, many countries follow the 183-day rule. The rule suggests that if the employee is present in the country for more than 183 days, they become a taxable resident. There is no tax liability only if the assignment finishes within 183 days. 


  • Saves time

This is the quick and simplest way to pay remote employees on temporary assignments—no need to set up any local entity in the country. Only arrange a work VISA if required. 


  • Permanent establishment risk 

Having remote employees in a country and not paying taxes there can trigger permanent establishment risk. It means your company is established enough in the country that you become liable to pay taxes. 

The common trigger points of permanent establishment risks are:

  • Human capital: Having employees in the country
  • Duration of activity: Prolonged business activity in the country.

Keeping employees on home payroll may look simple, but it requires a deep understanding of labour and tax laws to avoid trouble with authorities. 

2. Pay Remote Employees Directly as Independent Contractors (Not Recommended)

Another shortcut is to hire remote employees as independent contractors. You can send money via bank transfer, Paypal, Wise or any payment platform. 

But one thing to understand: Is your employee really a contractor? Different countries have different definitions of contractors. For example, as per Indian law, a contractor must be: 

  • Free to work for multiple companies
  • Have complete control over their work 
  • Be able to choose their work hours. 

So, if you hire a contractor who doesn't fit into the conditions set by the country, you may have to face legal trouble. 


  • Saves time and reduces administrative burden

Independent contractors are usually responsible for handling their taxes, which cuts down most administrative or tax-related tasks. There is no need to set up any additional system, directly reducing administrative work. 


  • Misclassification risks 

You run into misclassification risks when you wrongly classify an employee as a contractor. Unfortunately, it's a common practice. A study found around 10% of the New York workforce is incorrectly classified. 

Another point to note is many countries are getting stringent about misclassification. The US government is looking to revise contractor laws so that gig workers get employee benefits. With this much visibility on the issue, the lapses are also being reported frequently. Be it Nike, Glovo, Infosys or Uber. This malpractice is getting more limelight. Recently, Insider did a detailed report on Deel, an HR startup and accused the company of misclassifying employees.  

3. Establish a Local Entity and Pay Remote Employees via Company Payroll

The next and the most obvious way to pay remote employees in a country is to build a lawful presence there. But, setting up a legal entity in any country comes with a huge list of tasks. 

We share some bits of the process below:

  1. Understanding the local laws: legal requirements for paperwork, tax rules for the permanent establishment, labour laws to onboard workforce and taxation rules
  2. Completing the necessary paperwork
  3. Obtaining any necessary permits, licences and approvals
  4. Finalising office space (if required)
  5. Opening bank account
  6. Understanding labour and tax laws
  7. Understanding the market for salary benchmarks and accepted benefits
  8. Setting up payroll, bookkeeping and accounting.

And after all of this comes hiring employees. 

Going through this entire process would make sense for companies planning major expansions in a new country. But any company just exploring a new market with fewer employees would find this process tiresome. 


  • Long-term monetary benefits

Many countries are looking forward to international investment and trying to motivate companies to expand in their country. It brings an inflow of capital and generates employment. 

For example, the Singapore Government offers a pro-business environment by providing grants and tax benefits. So, while setting up an entity is a huge investment initially, it saves costs in the long run.


  • Heavy investment upfront and time-taking 

You have to complete a lengthy and costly procedure of setting up an entity before you start hiring.  

  • Less flexibility

After putting so much time and money into setting up the entity, it's tough to exit the market if things don't work out. Market conditions do keep fluctuating. For example, there was a labour shortage in the United Kingdom post-Brexit (the United Kingdom withdrawing from the European Union). Previously, many people from European Union countries would easily move to the United Kingdom for work. But that wasn't the case after Brexit, causing the labour shortage. Needless to say, employers suffered amidst the shortage.

  • More administrative burden

Having an entity in a new country means more administrative tasks for your HR and accounts team. The main duties are:

  • Managing benefits and payroll for remote employees in an entirely new territory with different rules
  • Dealing with more compliance obligations
  • Providing regular HR support to remote employees.

4. Establish a Local Entity and Pay Them via Professional Employer Organisation

You can only open a local entity and leave out the administrative part by partnering with a professional employer organisation (PEO). PEOs are human resource outsourcing organisations that take all the administrative work off your plate. They enter a co-employment arrangement with your company and do all administration tasks, such as payroll and benefits administration.


  • Eliminates administrative burden

You don't need to set up a local team for all HR work. You can fully outsource payroll, taxes and benefits handling.


  • Requires a local entity

PEOs require you to have a local entity. While it does reduce some of your tasks, it doesn't save you from the time-consuming process of establishing a local entity in the country. 

5. Don’t Establish a Local Entity and Outsource Payroll to an Employer of Record

The last way to pay international employees is via an employer of record (EOR)

An EOR is a third-party organisation that hires employees on your behalf. It becomes their employer on paper. That also means all administrative tasks of employees (like payroll, benefits, contracts and other HR duties) become their responsibility. 


  • Speeds up the process

The best part of working with an EOR is you don't need to establish a local entity. It saves time (and money) that goes into the process. Once you have found the candidates, you can onboard them in minutes.  

  • Reduces administrative burden

EORs handle all administrative tasks of employees, like global workforce payments, providing benefits and handling day-to-day queries of employees. 

  • Provides support in meeting compliance

EORs help you meet all compliance obligations by monitoring all paperwork, agreements, taxes and benefits. 


  • Service varies based on the country

An EOR team could be more well-versed in the local laws of one region and less in another. So, you may see a huge difference in service depending on the location.

Why Rapid Is the Best Choice for Paying Employees in India

The trickiest part with choosing an EOR is whether they are well-penetrated in a region. Rapid has deep expertise in India of over 25 years. 

With Rapid, you also get: 

Service marketplace: Get in touch with recruiters and immigration experts for hiring talent.

Digital onboarding portal: Onboard new hires via an online platform in under 5 minutes.

Payroll support: Complete payroll processing and withholding taxes per Indian norms.

Benefit options: Get flexible medical insurance plans to fit into benefits policy:

Here are the three plans we currently offer:

  • Pro - Coverage up to ₹500,000 for the employee only
  • Power - Coverage up to ₹1,000,000 for the employee, their spouse and up to 4 children.
  • Premium - Coverage up to ₹2,000,000 for the employee, their spouse, up to 4 children and parents or parents-in-law.

Pay your Indian team rapidly. Book a demo with us today! 


1. Do I pay state taxes for a remote employee? 

Yes, companies are supposed to pay taxes in the country or state where the employee is based and not the location where the company is headquartered. 

2. Which currency should you use to pay remote employees?

Ideally, you have to pay remote employees in their currency. But it depends on the remote payment options you are choosing. Some payment methods like bank transfer or third-party payment platforms allow you to pay directly in your currency. Later, the money gets converted to the employee's local currency as per the latest conversion rate.

3. What is the minimum wage in India?

The average salary of technical talent is $29K, varying between $19K and $121K. It depends from role to role. Contractors charge either per hour or have fixed pricing for a project. The average per-hour pay for contractors is close to $14.

4. What are the tax rates in India?

As per the new tax regime, the tax rates are:

  1. Up to ₹3 lakhs - 0% 
  2. ₹3 lakhs to ₹6 lakhs - 5%
  3. ₹6 lakhs to ₹9 lakhs -10%
  4. ₹9 lakhs to ₹12 lakhs - 15%
  5. ₹12 lakhs to ₹15 lakhs - 20%
  6. Above ₹15 lakhs - 30%.

5. Is 13th-month pay common in India?

Yes, as per the Payment of Bonus Act 1965, employees must get a minimum bonus of 8.33% of wages. But it mostly applies to workers in factories. So you need to check whether it is applicable for your company. 

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