Payroll in Europe – Things You Need To Know
Payroll is an important topic for every employer. It is, however, also a complex topic. The complexity increases when you employ employees in multiple countries, as you have to deal with different processes, legislation, taxes, and authorities. Europe is considered the most complex region for payrolling. In order to avoid compliance issues, it is essential to understand the different rules and regulations that govern how employees in Europe are payrolled. In this blog, we will outline important topics for payroll in Europe.
What is Payroll in Europe?
In short, payroll is the process of paying a company’s employees. This is mostly done through a salary. In the United States, this is mostly done twice a month – every two weeks. In Europe, a monthly salary payment is common and often even mandatory
How to Payroll in Europe? The basics.
Payrolling might sound simple, but it’s quite complex as it involves many components. These components differ per country, as every European country has its’ own processes, taxes, and legislation. Before diving into the different components, it is important to understand that you can only payroll your employees in a European country, if you have an entity in place, or if you are registered as an employer in the country. If you do not have an entity in Europe, an Employer of Record provider can be the solution. Another solution is working with contractors*.
*The definition of a contractor is different in each country. In the Netherlands, for example, you need three clients to classify as a contractor. If you’re only working for one client as a contractor, the company will not be in compliance with the local labor law.
Now that you’re able to process payroll in Europe, it is crucial to do this correctly. Incorrect payroll does not only result in unsatisfied employees, it also means you are incompliant with the local labor laws, causing fines - and potentially permanent establishment. In general, to be able to process payroll in Europe correctly, the following components need to be considered:
- Registering yourself with local authorities to:
- Receive a Payroll Tax Number
- Get confirmation on which sector your organization is part of in order to pay the correct social contributions (if applicable)
- Comply with Collective Bargaining Agreements (if applicable)
- Setting up plans for mandatory and common national insurances, such as:
- Health Insurance
- Apply correct income tax: All European countries operate according to their own taxation system. As a result, you will need to apply the income tax rate for each country. Some European countries have over 6 income tax scales – depending on the region within the country, income level, or personal circumstances.
What are the most complex payroll countries in Europe?
Running payroll in a foreign country is always challenging. But as you can imagine, some countries are more complex than others. When deciding where to expand your business in Europe, the payroll complexity might be a factor to consider. According to GPCI's "Top 10 Most Complex Payroll Countries in the World", 6 are from Europe. 7, if you include Switzerland. The complexity is based on the mandatory legislative, reporting, process, and security regulations. You can find the top 10 below:
- United States
Interested in learning about the most expensive countries to payroll/employ in Europe? Read our blog on Costs of hiring employees in Europe.
The benefits of outsourcing payroll
Due to the complexity and importance of payrolling, a lot of businesses decide to outsource their payroll. Especially when expanding your business into a foreign country, to take advantage of the opportunities presented by new markets, outsourcing your payroll responsibilities is a common choice. The most common benefits of outsourcing your payrolling responsibilities include:
- Focusing on your core business
- Minimizes corporate and employment risks and liabilities
- Saves time & caused thanks to efficient and improved processes
EuroDev, established in 1996 with offices in The Netherlands, has a single, defined purpose to help mid-sized North American companies expand their business in Europe. We have created a proven, successful business development model and since our founding, have partnered with over 500 companies to help them define and meet their European business goals. Services provided include Sales Outsourcing, HR Outsourcing, and Digital Marketing.
Disclaimer: While we strive to provide accurate and timely information, please note that HR policies and regulations can change frequently. It is recommended that you seek guidance from our HR consultants to ensure that the data presented here is current and accurate.
Source: Go Global, PRLog
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