How to Pay Remote Employees


Fred Perrotta

Running a remote company in the US requires onerous paperwork and the use of terrible government websites. Tortuga has 7 US-based employees across 4 states. Four of those employees have moved between states while working for Tortuga. In total, we've registered with 7 state-level employment agencies and closed 3 of those accounts. I still get mail from some of those agencies.

A "normal," colocated company of our size would have all of its employees in one office in one state. That company would have registered once and not thought about it again until they closed or opened a satellite office in another state.

Like all government infrastructue and most software tools, employment agencies are not designed for remote companies.

Remote companies like Tortuga have to cobble together solutions and hope they aren't breaking any laws. In this post, I'll outline our current, best attempt at a payroll system that works across countries. Consider this a personal RFS (Request for Startup) to simplify this process.

In the US

Employees

Cloud-based tools are a must for remote companies. There are no paper checks in this business.

As we built up the infrasturcture at Tortuga, we switched from using Quickbooks Payroll to Gusto, a software-as-a-service payroll provider.

Quickbooks was our previous choice because it was built into our old bank account (Bank of America) and integrated with our accounting software, Quickbooks.

We use Gusto for full-time and part-time US employees who receive W2s. Gusto integrates with Tsheets for time tracking for hourly employees.

Our switch from Quickbooks to Gusto was also part of a consolidation process. At the time, we were using Zenefits to manage our company benefits. Since Zenefits hadn't added payroll services yet, we switched to Gusto for payroll and benefits management because they could provide both services. Casting Kristen Schall in their ads was just icing on the cake.

Gusto now manages our payroll, medical/dental/vision insurance, 401k (via an integration with Guideline), PTO, and commuter benefits. We will use more of their HR features in the future as we onboard future employees.

Gusto has a helpful, albeit biased, comparison chart with other payroll providers. Like with other categories of business software, we've never considered the legacy brands, ADP and Paychex in this case.

Get $100 in credits by signing up for Gusto.

Contractors

For US-based contractors who are "1099-ed," we use Bill.com. Contractors send their monthly or project-based invoices to our unique email address, Bill.com proceses the invoice, then we batch send payment when processing our Account Payable (AP) for the month. Bill.com then sends a check or payment via direct deposit.

Bill.com is a huge improvement over our old process where contractors emailed invoices to a Gmail address then I sent payment via Paypal. Now we receive, process, and pay invoices all from Bill.com.

When using cloud-based tools, we want every piece of software to work seamlessly together. Bill.com syncs to Xero, our bookkeeping software, so that every invoice is automatically mapped to the correct expense category.

Outside the US

Outside of the US, everyone is considered a contractor, even if they're a full-time member of the company. This is a gray area that every remote company deals with if they have employees in multiple countries but aren't incorporated in all of those countries.

Whether we consider them an employee or a contractor, we pay everyone outside of the US through Transferwise because of its ease of use, transparency, and low fees. For a monthly fee or biweekly salary, Transferwise will usually be the cheapest option.

Transferwise's fees vary depending on which currency you are sending and which currency your employee is receiving. Here is an example list of fees based on sending USD to the people that we pay.

Transferwise Fees

  • USD to CAD: 0.6% fee + $1.00 USD
  • USD to HKG: 0.8% fee + $2.00 USD
  • USD to AUD: 0.6% fee + $1.25 USD

For employees or contractors who are on retainer, Transferwise has a "Repeat Transfer" button next to your past transfers to make the process easier and more repeatable.

Get your first transfer for free by signing up for Transferwise.

A Note on Purchase Orders

If you're sending a 5 or 6-figure purchase order, you should send it by wire transfer, not Transferwise. Wire transfer fees are a set amount, usually around $40, not a percentage of the total amount transferred. You can do the math to figure out at what dollar threshold sending wire transfers through your bank becomes cheaper than using Transferwise.

Use a wire transfer when the amount being transferred is greater than or equal to

[bank wire transfer fee - Transferwise set fee (e.g., $1)] / Transferwise percentage fee (e.g., 0.6%)

A Note on Paypal

While discussing remote businesses, a friend recently asked why we don't just use Paypal's "Send money to friends and family" option to avoid fees.

This option only works in the US and Canada per Paypal's Fees page. Since we have other means of paying Americans, this option would only be useful for Canadian employees and contractors.

The main reason we don't use it is because this practice is against Paypal's terms and easy to detect. We would be regularly sending the same amount of money to the same person. Our use case would be obvious and easily flagged by Paypal. I'd rather pay the fees above to Transferwise than risk having our Paypal account closed.

This is the same reason that we don't fudge the values on overseas shipments to reduce the duties that international customers pay. This is illegal and easy to spot. Taking the risk does not make any business sense.


If you run a remote team and have any better processes than what I've outlined above, I'd love to hear from you. Tell me about it on Twitter.