Getting International Payroll & Compliance Right

International payroll and contract management have shifted from being seen as routine administration to becoming a core strategic priority. The way a business handles these functions now directly shapes compliance, talent retention, contractor engagement, client confidence and overall brand integrity.

Misclassification

Why Classification Matters

Among the most pressing challenges worldwide is the issue of worker classification. Determining whether someone qualifies as an employee or as a self-employed contractor isn’t just a formality - it defines tax treatment and legal obligations. Missteps in this area can lead to serious consequences: regulatory penalties, unexpected tax liabilities and lasting reputational harm.

Choosing the correct worker structure and providing the right solution - employee or self-employed independent contractor is critical, as it shapes payroll processes, tax responsibilities, benefits and social security entitlements, and compliance with local labour laws. Getting this right ensures smooth operations and protects the interests of the individual, the agency and the client alike.

Assistance in determining classification

There are various tools available for determining classification.

In the UK, the HMRC provides the Check Employment Status for Tax (CEST) tool. This online questionnaire is designed to determine whether someone should be engaged as an employee or a self-employed independent contractor, particularly in relation to the IR35/off-payroll working rules.

• The tool asks structured questions about working practices and contractual terms.

• At the end, it issues a determination of employment status.

• The questionnaire has 8 sections, with explanatory notes to guide completion.

• It’s not mandatory, but it can provide a useful framework.

It is important to note that CEST is only applicable in the UK.

Every country applies its own rules and tests to determine whether an individual should be classified as an employee or a self-employed contractor. While the UK’s CEST tool can serve as a useful reference, it’s essential to identify and follow the specific criteria and legal frameworks that apply in the jurisdiction relevant to your case.

Some international payroll providers and umbrella companies create their own worker-classification questionnaires, often modelled on the UK’s CEST tool. While these questionnaires can provide useful direction in assessing employment status, they should be treated only as a guidance tool rather than a definitive answer. They cannot replace formal legal or tax advice, which remains essential to ensure compliance in each jurisdiction. In addition, organisations must pay close attention to how data from these assessments is collected, stored and processed. Strong data protection measures and compliance safeguards are critical to protect both the business and the individual, and to ensure that the use of such tools does not inadvertently create new risks.

Choosing the correct worker structure and providing the right solution

Choosing the right structure and providing the right solution - whether employee or self-employed independent contractor - is fundamental. Each route impacts:

• Payroll operations

• Tax obligations

• Benefits and social security

• Compliance with local labour laws

Getting it right means providing the correct structure and solution for the individual, the agency and the client.

Simplifying the process and staying compliant

Staying compliant with EOR partners

Working with a trusted Employer of Record (EOR) partner helps businesses stay compliant across multiple jurisdictions. An EOR ensures that employees are legally employed in-country, with the correct visas and work permits secured before work begins. For self-employed independent contractors, compliance means verifying that they are properly registered in the local system, paying the appropriate taxes and meeting all regulatory requirements. By relying on an EOR, companies reduce the risk of misclassification, immigration breaches and tax penalties while focusing on their core operations.

Practicalities of compliant onboarding

Compliance doesn’t end with contracts - it continues throughout the onboarding process. Every new hire should be checked for right-to-work eligibility, have their documentation verified and be set up correctly for payroll, tax and social security contributions. Ensuring that onboarding is handled systematically and in line with local laws not only protects the business legally but also builds trust with employees and contractors from the very start.

Final thoughts

International payroll is not just about paying people - it’s about navigating complex intersections of tax, compliance, contracts and immigration law. Getting worker classification, visas and payroll right is essential for avoiding compliance risks, protecting brand reputation and ensuring a seamless experience for employees and contractors alike.

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Our Employer of Record (EOR) services enable businesses to employ contractors as full-time staff in their respective countries, while we handle all employment-related responsibilities. Click here to find out more about our EOR services.

We also provide support to self-employed contractors and freelancers with advice on compliance, as well as tax and payment management. This service is available to those who are already established as self-employed or need assistance in setting up as self-employed in their country of work. Click here to find out more about our self-employed services.

Contact us for tailored advice and solutions to keep you and your organisation fully compliant.