Understanding Salary Split in International Payroll: A Practical Guide for HR

In today’s increasingly international workforce, HR teams are often faced with employees who live and work across borders. Think of expats, international project staff, or employees partially based in another country. In these situations, a salary split can be a practical solution but what does it entail, and what should HR professionals keep in mind?

What is a salary split?

A salary split is a payroll approach where an employee’s income is divided across two or more countries. Each portion of the salary is processed locally, following the specific tax, social security, and labor laws of the respective country. This ensures compliance with legal requirements in every location while allowing employees to receive part of their compensation in the relevant currency for their residence.

When is a salary split used?

Salary splits are typically applied when employees:

• Work or reside in multiple countries;

• Are temporarily assigned abroad (expats);

• Need to maintain ties to their home country for tax or social security purposes;

• Require part of their salary in the local currency to cover living costs abroad.

For HR, a salary split is more than a payroll mechanism it’s a tool to ensure compliance while offering competitive, internationally mobile compensation.

How a salary split works: step by step

1. Determine salary allocation: Decide what portion of the employee’s salary will be paid from each country. This may depend on factors such as work location, home country obligations, and local currency needs.

2. Local payroll processing: Each portion is run through the payroll system in its respective country, applying local tax and social security rules.

3. Currency management: Ensure the employee receives the correct amount in the appropriate currency. This can help cover living expenses in their country of residence.

4. Compliance check: Coordinate with finance, payroll providers, and tax advisors to make sure each country’s legal requirements are met.

5. Regular monitoring: Continuously review changes in local legislation or employee circumstances to avoid compliance issues.

Key benefits of a salary split

• Social security retention: Employees can remain partially connected to their home country’s social security system.

• Local law compliance: Employers meet the tax and labor regulations in all relevant countries.

• Practical salary distribution: Employees receive part of their salary in the currency that makes the most sense for their living situation.

• Financial benefit: By maing use of tax treaties a lower tax burden can be arranged.

Challenges and Considerations

While beneficial, salary splits come with complexities:

• Payroll administration can be time-consuming and error-prone;

• Coordination between HR, finance, payroll providers, and tax advisors is essential;

• Rules and regulations differ across countries and can change frequently;

• Mistakes can lead to compliance risks.

All in all, a salary split is a complex matter, which often makes it difficult for both employers and employees to understand and results in obligations in multiple countries.

Conclusion

A salary split is not a one-size-fits-all solution, but it is a powerful tool for HR in international workforce management. Careful setup, clear communication with the employee, and collaboration with specialized advisors are key to minimizing risks and maximizing benefits.

Want to learn how a salary split could work for your international team? Contact us today.