How to Pay Remote Employees


Fred Perrotta

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

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, with one state, and not thought about it again until they opened a satellite office in another state or closed the company.

Like all government infrastructure and most software, 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 United States

Employees

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

As we built up the infrastructure at Tortuga, we switched from using Quickbooks Payroll to Gusto then to Rippling.

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

Later we switched to Gusto, which I still recommend for most small businesses. We are currently using Rippling because it allows our "back office" company to also be our insurance broker. Gusto is the broker of record for any policies in their system.

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

Rippling handles our payroll, medical/dental/vision insurance, 401k (via an integration with Guideline), PTO, and onboarding. Eventually, we'll use their account provisioning features to get new employees set up with the software they will need.

Get $150 in credits by signing up for Rippling.

Contractors

For US-based contractors who are "1099-ed," we use Bill.com. Contractors send their monthly or project-based invoices to our @bill.com email address. Then our accountants approve and pay the invoices every week when processing our Accounts Payable (AP). 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 United States

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 is usually 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. Unfortunately, you can't schedule a recurring transfer.

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

A Note on Purchase Orders

If you're sending a five or six-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. Some banks will give you a set number of free wires per month. Make sure to ask your banker about this.

Do the math to figure out at what dollar threshold sending wire transfers through your bank becomes cheaper than using Transferwise.

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 according to 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 Paypal freezing our account.

We also 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, please email me.

Like what you read?

Join the list to get more articles like this via email.

    I won't send you any spam. Unsubscribe at any time.