Payroll Management for Remote Teams: Navigating Tax, Compliance, and Location-Based Challenges

Remote and hybrid roles are still much in demand. 48% of job seekers would like to find a hybrid role while 26% would prefer a fully remote job, according to research by Robert Half. Offer either, and you’re opening the door to a wealth of talent from outside your immediate location. 

But alongside the opportunity to access global talent, remote work also brings payroll complexity. Every single jurisdiction where you employ people have its own approach to red tape matters such as taxes, labor laws, and compliance. The bottom line: payroll can get complicated, fast. 

This blog introduces payroll management software as the key to simplifying payroll for remote teams. 

What is payroll management for remote teams?

Payroll management is the process of overseeing all tasks involved in distributing compensation to employees, so they’re paid on time, in full, and in accordance with applicable laws. When it works correctly, every payslip reflects the hours worked and salary agreed, along with the necessary tax deductions and benefits contributions. 

In the context of remote teams, payroll management goes beyond just running calculations and sending out payments. There are two major models of remote payroll to consider, based on the geography of your business. 

Multi-state payroll: For companies with employees spread across different regions within the same country, payroll teams must know the ins and outs of varying state income tax rules, withholding thresholds, and employment laws. 

Cross-border or multi-country payroll: Companies operating internationally must understand currency conversions, international tax treaties, statutory benefits, and country-specific compliance reporting.

What are the challenges of payroll management for remote teams?

As teams become more distributed, payroll management has grown more complex behind the scenes. Here are three major considerations.

Tax and “nexus” 

When employees work remotely across state or national lines, different location-based tax rules kick in. 

In New York State, for example, the “convenience of the employer” (COTE) rule requires remote workers based there to pay state income tax, even if their employer is located elsewhere. California requires employers to withhold state income tax for any employee performing services in the state, even if they’re part-time or temporary.  

International workers also create tax implications. In Germany, for example, taxable income is determined by whether a worker has resided in the country for more or less than 183 days, while Australia has a different approach, mandating Pay As You Go (PAYG) withholding. 

Warning: Payroll nexus kicks in when a remote employee’s physical presence in a state triggers tax obligations for the employer. An employee working in one state could require your company to register for corporate excise tax and file employer withholding returns, even if you don’t have an office in the state.

Keeping on top of every tax law in every state and jurisdiction is seriously resource-draining. But automated payroll software can calculate and withhold the correct amount of taxes, such as federal, state, and local income taxes, from employees’ paychecks. It also handles your tax filing obligations, accurately generating and submitting forms like W-2s to the appropriate authorities on your behalf.

Compliance and legal considerations 

Speaking on UKG’s “How Global Payroll Fuels Organizational Strategy” webinar, our VP of Professional Services, Claire Ryan, noted that payroll regulations change frequently and vary widely from country to country.

According to TMF Group, 54% of global jurisdictions predict that global HR and payroll regulatory requirements will become increasingly complex in the next five years. In particular, organizations should prepare for:

• New employer registration requirements in each state, province, or country where your employees live and work
• Region-specific wage, leave, and overtime laws, such as minimum sick pay in California or paid holiday entitlements in the EU
• New policies such as the EU Pay Transparency Directive, which mandates greater visibility into pay ranges and equity

Fail to meet the right legal requirements and your business could face fines, audits, or even back pay liabilities. Reputational damage is also a possibility.

This is where automation pays for itself by keeping pace with the latest remote work payroll regulations, providing assurance your payroll is compliant everywhere your people work. The price of getting this wrong is steep – in 2024, the IRS assessed $17.8 billion in additional taxes for returns not filed on time and collected $3.2 billion from delinquent returns. Legal action and reputational damage are two other key risks.

Global payroll complexities 

If you’re planning to expand your business globally, you’ll need to adhere to every local law where your employees or contractors are based, including those covering: 

Employee benefits 

In Brazil, for example, employers must contribute to a government severance fund (FGTS) every month, alongside standard payroll contributions. Meanwhile, UK employers must pay into a workplace pension scheme. 

Employee status 

Penalties kick in when you misclassify remote workers as contractors, if they’re legally considered employees in the country they’re working in. As an example, the Spanish “Rider’s Law” enacted in 2021, requires online delivery platforms in Spain to classify their couriers as employees rather than gig workers. 

Currencies 

Some countries also restrict how payroll operations handle currency conversions. Failing to pay in the local currency, or at the right exchange rate, can lead to fines or frustrated employees.

All of this makes global payroll one of the most complex operational challenges in the modern workforce. But global payroll software with built-in localization features can support your organization by calculating pay in local currencies, applying correct tax codes, handling mandatory filings, and helping you avoid misclassification.

The strategic role of payroll in the global workplace 

As businesses become more global and workforce models more flexible, payroll has moved from being a back-office function to a source of critical insight and strategic value, by: 

Boosting employee engagement

Global employee engagement stands at just 21%, but Claire Ryan believes these numbers can be heavily shaped by the strength of your payroll function. 

“If you’re not getting paid accurately and on time, that’s a real deal breaker in any employee relationship.” 

She also connects the dots between payroll accuracy and how employees experience company values.

Unlocking workforce understanding

Beyond the wage slips and tax contributions, payroll data provides early warnings about the implications of overtime, sick leave, turnover, and even payment timing. In this way, Claire Ryan describes, “payroll and its data are a window into workforce health.” 

When integrated with HR and finance systems, payroll data helps leaders make more informed decisions, such as where to invest in wellbeing programs or how to adjust compensation to support financial wellness. The insight is there; you just need the right tools to unlock it. 

Informing global workforce planning  

Payroll is a powerful tool for planning what comes next. The data it holds can:  

• Forecast labor costs in specific geographies
• Assess the financial impact of expanding into new markets
• Guide smarter hiring decisions 

Example: Comparing the cost of hiring a full-time employee in a lower-cost region against the rising overtime spend in another gives you a clear case for headcount investment.  

A practical remote payroll management checklist  

Whether you’re hiring across states or scaling globally, here’s what to keep in check: 

Know where your employees are working 

• Track employee work locations accurately (including hybrid or cross-border movements)
• Review if any presence in a new state or country creates nexus or new tax obligations
• Set up tax registrations in all relevant jurisdictions (local, state, federal, or international) and register for applicable payroll tax, unemployment insurance, and workers' comp 

Understand local payroll rules 

• Confirm required pay frequencies, currencies, and benefits by country or region
• Apply region-specific wage, sick leave, overtime, and holiday regulations
• Review and apply evolving legislation (e.g., EU Pay Transparency Directive) 

Mitigate compliance risk 

• Monitor for payroll misclassification risks (especially with contractors abroad)
• Keep pace with ongoing tax code and labor law changes
• Use audit-ready processes to avoid fines, penalties, and backpay

Use payroll data for decision-making

• Analyze overtime trends to flag burnout or staffing shortages
• Compare costs across geographies to guide hiring and expansion
• Use payroll metrics to inform wellness programs, financial planning, and retention strategies

Automate what you can

• Adopt payroll software such as UKG that offers built-in compliance monitoring and localization features
• Automate tax calculations, filings, and reporting (e.g., W-2s, PAYG, etc.)
• Configure real-time dashboards for better workforce visibility and strategic planning

Collaborate across teams

• Work closely with HR, finance, and legal to align across all functions
• Support remote work policy with clear, compliant payroll guidance
• Stay engaged with global expansion plans to spot payroll implications early

Overcome remote challenges with UKG’s automated payroll 

Managing remote and global payroll is easier when everything connects. UKG’s payroll platform helps distributed teams pay employees in full and on time without ripping and replacing your existing setup.

Automation is the power behind UKG’s payroll management software. Using slick workflows that run like clockwork in the background removes any guesswork from your payroll setup so you’re always in compliance with the latest set of regulations.

"I rely entirely on UKG for their expertise in compliance. It's a trust thing," says Stephen Bevan, Director of Worldwide Payroll at Trellix, a UKG One View™ customer. “It’s not only the competent answers; it’s the speed of them.”

Ready to make global payroll simpler, faster, and fully compliant? See UKG’s payroll platform in action.