What is global compensation?

Global compensation refers to the strategic compensation given to an international workforce—employees who work in their home country and those located abroad, either on permanent or temporary international assignments. In this context, compensation includes direct payments made to employees (like salaries and bonuses) and indirect compensation, such as health insurance and paid time off.

Your global compensation strategy serves as your foundation for deciding how to pay and reward employees. With it, you can adopt equitable compensation rules for all employees that meet or exceed industry and country standards. For example, a market-based strategy allows you to pay employees at the median or midpoint of local salary data for specific job roles within the same industry.    

Elements of a global compensation strategy

There are five main elements to consider when it comes to strategizing compensation for international employees: 

• Base pay.
• Variable and incentive compensation.
• Premiums and allowances.
• Benefits.
• Training. 

Base pay

There are four main approaches to calculating base pay:

• Home country approach: Employees are paid a wage equivalent to what they would be making in their home country. This is often used for temporary expatriates to ensure employees do not suffer financially if they are assigned to work in a country with a much lower cost of living.
• Host country approach: Compensation is based on local or national rates and the cost of living. This approach is often used for permanent relocations and hiring local employees who already reside in the country.
• Headquarters approach: Employees are paid as if they are working in the country where the business is headquartered, regardless of their actual location. Note that many countries mandate a minimum wage, so you need to make sure to abide by all local laws when using this method.
• Balance sheet approach: This method starts with a home country approach and adds allowances, deductions, and reimbursements to ensure employees receive equitable compensation as well as all necessary international benefits.

Variable and incentive compensation

Variable pay, sometimes called incentive pay, refers to compensation that is linked to performance and/or employee tenure. This type of compensation covers bonuses, stock options, and restricted share grants.

Premiums and allowances

Premiums and allowances are added to the base salary. These additional payments allow employees to maintain their standard of living wherever they’re located and cover costs associated with international moves. Examples of common premiums and allowances include hardship and hazard pay, cost of living adjustments, educational assistance, housing assistance, and home leave.

Benefits

Employee benefits consist of any perks or compensation besides base salary and other monetary payments. Some of the most common international benefits include paid time off, health insurance, retirement savings plans, and visa assistance for temporary expatriates.

Each country has different laws that dictate what benefits must be provided to employees residing within national borders, and some make specific exceptions for foreign nationals. For example, in Singapore, foreign nationals are not entitled to the country’s free public healthcare system. Health insurance is only provided to those with a valid work permit for migrant employees or an S Pass for skilled workers.

Training

While not as popular as the other elements listed here, some companies compensate international employees with cross-cultural training and language lessons to ease the transition to a new country. They may also offer assistance with repatriation or reassignment after the international posting ends.

Related: Cultivating Cultural Competence in the Workplace

How to create a global compensation strategy

Whether your business is embarking on an international expansion or the time has come to revise an established strategy, following the steps below will set you up for success.

Step 1: Establish goals

When creating or revising a global compensation strategy, you need to identify your primary goals, as these can guide your decisions throughout the process. Your company’s culture and values also play an important role, as well as your overall business objectives.

For example, your global compensation strategy could include a wide range of employee bonuses to reward performance and motivate employees. Or, your compensation strategy could focus on competitive salary packages with wellness benefits that promote work-life balance.

Step 2: Identify your competitive edge

Assess whether you have something unique to offer and highlight those advantages in your compensation strategy. These can be above-standard benefits, incentives, salaries, and perks that differentiate your company from others.

For example, say one country’s labor laws require that employees receive 13 months of pay in one calendar year, but your company offers 15 months. You can use that as a competitive edge to attract new hires, reduce high turnover or attrition, and retain potential job hoppers.

Another example is highlighting your office space, especially if it has well-stocked pantry areas and rooms where employees can rest or play games during break times. Unique perks like gym memberships, travel-related rewards, and stock options can also set you apart from competitors.                                        

Step 3: Research legal and cultural considerations

The next step is familiarizing yourself with local labor laws and customs that will influence your compensation package decisions. Besides the required minimum wage and benefits, you’ll also need to reconcile how your compensation packages for employees in one country remain fair and equitable with those in another.

For example, the UK mandates universal healthcare and paid leave for employees, while the U.S. does not. Your global compensation strategy should consider this and find options to ensure your U.S. employees receive equitable pay and benefit options that reflect those for your employees in the UK.

You should also consider cultural sensitivities and the needs of your international workers. This is where your diversity, equity, and inclusion (DEI) policies come into play. For instance, employees in Japan may appreciate commuter benefits since many depend on public transport to get to work — while employees in Belgium would rather receive meal vouchers to lower food costs.

Step 4: Conduct competitor analysis

Whether you are putting together an international or domestic compensation package, you’ll want to research the direct compensation that your competitors in that country are offering. You can partner with salary survey providers, such as Mercer and Willis Towers Watson, to get the market and competitor data you need. Don’t forget to check if your benefits (like paid time off, health insurance coverage, or retirement plan) are on par or better than your competitors in all the countries where you are hiring.

Step 5: Create a budget

Next, it’s time to set your total compensation budget. Be sure to account for base pay, mandatory and voluntary benefits, and bonuses, plus currency exchange rates and administration costs. Use this budget to determine what benefits you can offer to employees, including the tools you need to support international hiring efforts. These expenses might include extra payroll software fees and staffing costs for additional in-house HR employees. Some global payroll providers, like Oyster, even offer free online calculators for computing employee costs.

Step 6: Categorize employees by job roles

Employees may receive different compensation packages depending on their work experience, tenure, and position. Conducting job complexity analysis and market salary research for similar positions can help determine fair compensation plans that are based on each job role and not solely on the worker’s contributions. You can even create a compensation structure with salary bands or pay grades, which you can use to identify pay increases for employees and salary offers for new hires. 

Step 7: Consider partnering with on-site experts

Paying employees in other countries can be challenging, especially in staying on top of local labor laws and tax regulations. In some cases, it may be more practical to partner with an employer of record (EOR) to take care of managing essential HR tasks. 

EORs provide HR support to companies with global workforce expansion plans. Oftentimes, they serve as local business entities in the countries where you want to hire people. They’ll take care of payroll, benefits administration, and compliance, while you handle all of the other workforce management needs. EORs can also advise you of changes in country labor regulations that will impact benefits and salaries, allowing you to look at your compensation package and come up with strategies to address potential gaps.

Step 8: Execute and review the strategy

After designing and implementing your global compensation strategy, review it regularly and revise it as you prepare your annual budget. You should also update your compensation strategy if there are major changes in the company, such as a business expansion or reorganization.

Use EOR services and payroll software to support your global compensation strategy

Establishing a global compensation strategy and paying international employees can be an ambitious task without well-defined processes in place. Thankfully, the right software tools and EOR services can make things easier for your HR and finance teams.

For example, providers like Remote and Papaya Global grant you access to a wide range of country guides with insightful information about pay, benefits, and other local labor regulations. These resources can help you create a competitive compensation strategy or improve your current total rewards package.

Remote offers more than 190 country guides for hiring workers around the world. Source: Remote

Papaya Global’s online library has over 100 country guides you can access for free. Source: Papaya Global

For more options, check out our lists of top global payroll software and best EOR services to find the right one for your business.

Global compensation strategy FAQs

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How to pay international employees

International payroll processing is a complex task that often gives companies pause when it comes to hiring international employees. In this guide, we explain how to pay international employees and all of the potential road bumps you may encounter.

1. Categorize your overseas employees
2. Consider whether to open a local entity or partner with an EOR
3. Configure your payroll process
4. Determine employee benefits packages
5. Select payment method(s)
6. Identify the tools you need
7. Run payroll and maintain accurate records
8. Keep track of local payroll and tax compliance

The types of employees you have will impact overseas payroll processing. Each has different requirements when processing payroll and complying with local tax laws. There are four main categories of workers you need to consider: temporary foreign workers, US employees working overseas, native international employees, and international independent contractors. 

If you only have one or two US-based employees working overseas for a short amount of time, then you might be able to pay them via your US payroll — but check local laws. There might be conditions that will require you to employ and pay the workers directly in that country if their stay exceeds a specific number of days or months. 

If you decide to employ either temporary foreign workers or native international employees, you will need to withhold the correct taxes, Social Security contributions, and other payroll expenses. However, if you hire international contractors, then it will be the worker’s responsibility to withhold taxes and ensure global payroll compliance.

In choosing the right method for handling overseas payroll, you need to educate yourself on all relevant laws and exemptions to make sure you don’t run into legal trouble and incur penalties. At a minimum, most countries have an income tax and require employees to contribute to Social Security and pension funds. There may also be other local requirements, such as minimum wage thresholds, overtime limits, and standard benefits to offer.

Knowing these factors will help you determine whether to establish a local entity so your company can directly and legally hire and pay workers. This involves registering and applying for a tax ID number and then withholding all necessary taxes and expenses to ensure global payroll compliance.

If this doesn’t appeal to you, some countries offer alternative options. For instance, in the UK and Thailand, you can get a foreign employer exemption, which allows a company to hire and pay local workers without having to make local withholdings or contributions. 

Another option is partnering with an EOR service provider, which will handle all personnel functions on your company’s behalf — from hiring employees to processing payments and ensuring compliance. This is helpful, especially if you don’t have someone on staff who understands local laws and speaks the language.

Identify your payroll periods and how often you will pay employees while making sure that you remain compliant with all local laws. If you partner with an EOR, it will handle the international payroll process for you — but if you pay your employees directly, you will need to set that up yourself. 

Using a global payroll software platform can automate the payroll process if you decide to proceed with paying employees directly (but you will still need a taxpayer ID registered in that country to pay international employees). For suitable options, check out our list of top global payroll software to find a system that works for your multinational business. 

In addition to minimum wage and maximum hours worked, many countries have stipulations about standard employee benefits to offer, such as health insurance and paid time off days. These benefits must be included as part of the overall compensation package and may affect taxes and withholdings.

Choose a method for paying employees. Sending international ACH payments is one option, but the Federal Reserve only allows this for a limited number of companies. Your company can also open a central bank account overseas, fund it each month, and pay employees directly. Other options include digital payments, global wire transfers, and international money orders — though each method has its own advantages and disadvantages as well.

If you decide to partner with an EOR, it will handle the specifics of paying employees each pay period. Some international payroll providers, like Remote, can even create digital “bank files” that can be uploaded into banking systems for easy salary payouts. Papaya Global, on the other hand, has a secure “workforce wallet” you can use to fund overseas payroll and tax payments.

If you will be paying employees on an hourly basis, you need to schedule shifts and track their work hours. Look for employee scheduling systems and time-tracking software that sync with your international payroll platform or find an HR enterprise software that includes both functionalities. If you require immigration support for employees relocating to another country for work, consider an EOR (like Deel) that offers visa and immigration services.  

Once you have accomplished all of the steps above, you are ready to run payroll and pay international employees. Keep in mind that even if you have set everything up correctly, you must be diligent in maintaining accurate records and avoiding challenges with security, compliance, and other critical factors.

Be sure to keep track of all your documentation in case your company gets audited or an employee disputes their pay. It also helps if you have a payroll audit checklist so you know which documents to prepare and the key stakeholders involved in the audit. 

Even if you partner with an EOR, it’s still a good idea to familiarize yourself with local employment laws so that everything remains aboveboard. Most providers offer free-to-use global hiring guides on their websites. These resources will help you stay on track with local compliances and labor laws — from the required minimum wages to expected working hours and standard payroll cycles.

Challenges to paying international employees

Global payroll processing presents a number of challenges for employers who hire international employees. The biggest areas of concern are cybersecurity, compliance, payroll schedules, currency fluctuations, and processing delays.

Cybersecurity

Paying employees across borders increases cybersecurity vulnerabilities and makes data protection even more important. Depending on where your international employees work, there may also be additional international data protection laws that your company needs to comply with.

Compliance

There are many laws and regulations you must follow to do business internationally. These include tax rates and deadlines, statutory employee benefits, minimum wages, and maximum weekly working hours. The regulations will be different for each country you do business in, and you need to make sure that you remain compliant in each nation.

Payroll schedules

Countries may have specific requirements regarding the length and frequency of pay schedules. You need to monitor the pay periods for each country you employ people in. Finding a global payroll software can automate reminders for this and streamline processes.

Currency fluctuations

Having distributed teams in various parts of the world means that you have to stay on track of currency fluctuations as this can impact your payroll budget. You may also need to pay extra processing fees to securely move money across borders to fund employee payroll.

Processing delays

It can take days or weeks to process an international money transaction due to the fraud prevention processes that banks have in place. You need to account for these delays to ensure that employees are paid on time and that your company remains in compliance. 

Overseas payroll options

There are different ways to pay international employees. Here are some of the common options, including the pros and cons of each payment method.

Online payment providers

This allows you to send money to employees with just a few clicks. Popular options include Wise, PayPal, and Payoneer.

Global wire transfers

This is the most common way of paying international employees. Bank wire transfers, such as payments made through the Society for Worldwide Interbank Financial Telecommunication (SWIFT), allow you to directly remit payments to employees’ local bank accounts.

International money order

Unlike digital payments where you can process transfers online, you have to go to the bank, post office, or facilities like Western Union and MoneyGram to place an international money order. This is a paper document that shows the amount you want to send and is mailed to your recipient. Once the document arrives, the recipient can exchange it for cash via banks and other facilities that accept money orders.

International payroll FAQs

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What is unlimited PTO?

Unlimited paid time off (PTO) is a type of leave policy that allows employees to take off as much time as they need for vacation, sick, or personal reasons and still receive full pay. The main caveat is that employees must manage their time effectively and meet work expectations.

This contrasts traditional leave policies that have paid leave credits for vacation, sick, bereavement, personal, or floating holiday days off. And, while there’s no cap on the number of unlimited PTO days employees can use in a benefit year, setting up a PTO policy for this leave type will add structure to the requesting, approval, and tracking processes.

What are the pros and cons of an unlimited PTO policy?

Pros of unlimited PTO

Providing unlimited PTO is a good way of attracting and retaining employees, but it also benefits your company and HR team’s day-to-day operations.

Cons of unlimited PTO

Although offering an unlimited PTO policy sounds attractive as an employee benefit and company recruitment and employee retention tool, it is not for every business.

How to manage unlimited PTO

Although HR software can help with the administrative side of managing PTOs, you can maximize the effectiveness of your unlimited PTO policy by following these steps:

1. Put together a formal policy in writing.
2. Define the approval process.
3. Train managers on enforcement.
4. Encourage employees to take time off.
5. Review and update the policy regularly.

1. Put the policy in writing

Start with creating an unlimited PTO policy that outlines how employees can use it. This process can be time-consuming, as it involves collaboration from executives, managers, finance teams, and employees. 

However, HR compliance service providers such as Mineral can write federal and multi-state compliant policies and handbooks for your business. This helps minimize the risk of employment law violations and reduces the time it takes to create or update company policies. Watch the below video to learn more about Mineral’s services.

While unlimited PTO policies generally don’t have limits to leave days employees can take at a time, you can add temporary caps to PTO requests (such as 10 leave days per request) during busy seasons. This will help you plan manpower resources and avoid work disruptions. However, if you often need to place temporary time off limits, then a truly unlimited PTO policy may not be right for you. Using a traditionally limited PTO might be a better option for your employees.

2. Define the approval process

A transparent PTO approval process can prevent the abuse or underuse of unlimited PTO. It can also reduce favoritism or bias while increasing employees’ likelihood of using the policy.

HR software like GoCo can help you manage unlimited PTO by creating customized approval workflows. For example, employees can submit paid time off requests through their self-service portal, which automatically goes to managers or HR teams for review.

Once the HR department and manager review the request and consider its impact on other schedules, approved requests automatically display on company-wide schedules. You can even include additional steps to the approval process, such as reminders to follow up with employees on the need for additional leave.

3. Train managers on consistent enforcement

Effective manager training around time-off requests is essential to the success of an unlimited PTO policy. Because they’re on the front lines of the approval process, managers must know how to base decisions on objective criteria like staffing availability and the employee’s performance history. Otherwise, a poorly trained manager might make biased decisions that create employee resentment or tension.

HR software can compile PTO analytics so you can create more equitable PTO approval and enforcement practices. For example, in BambooHR, you can see at a glance who has not taken any PTO during particular periods and investigate further to determine why. HR teams can even pull performance management reports to compare employee productivity with their time off use.

4. Encourage employees to take time off

You can avoid the problem of the “always working” employee and decrease burnout by fostering a company culture that encourages workers to rest. Low engagement rates, performance scores, or other HR metrics are just a few indicators that you have unhappy employees in need of a break.

You can also implement mandatory minimum PTO requirements, regularly remind employees to take PTO, or add time off as a companywide key performance indicator (KPI). This will demonstrate to employees and external stakeholders that the company is committed to maintaining a healthy work-life balance and avoiding exploitative PTO practices.

5. Review and update the policy regularly

As business needs and company culture change, you should reevaluate your unlimited PTO policies. Generally, an annual review cycle provides enough data to reveal actionable insights that help continually improve the policy.

When reviewing your unlimited PTO policy, consider some of the following metrics to measure its success:

• Number of vacation days used over the benefit year.
• Number of employees using the PTO benefit.
• Number of PTO requests versus the number of approvals over a benefit year.
• PTO use by department.
• Company satisfaction scores.
• Company performance metrics.

While quantitative data is a great place to start, direct employee feedback is the most effective way to determine if the PTO policy adequately meets their needs. Many employee engagement platforms help gather feedback through avenues like pulse surveys so you can quickly gauge employee satisfaction.

Unlimited PTO FAQs

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