Who Should Run Payroll During an International Assignment?
Context and Challenge
The main challenge with international payroll is that employers commonly assume payroll follows the country paying the salary. That assumption is unreliable. Payroll obligations can arise in any country where the employee performs duties, where a host entity benefits from the work, where costs are recharged or where local withholding rules apply. Common symptoms include missed payroll registration, unreported payroll obligations, untracked business visitors, social security errors and gaps. Formal assignments are often planned, but the traps usually sit in short or unplanned mobility including business trips, short projects overseas, board visits and work-from-anywhere employees.
Who Should Read This
CFOs, payroll managers, HR directors, C-Suite, finance directors, reward teams, legal teams, procurement, company secretaries, statutory directors, overseas tax advisers, employment lawyers, immigration advisers and employers using international assignments, secondments, EOR structures, business travel or work-from-anywhere policies.
Core Finding and Summary
Payroll should be operated where the relevant withholding, reporting and registration rules require it — not simply where the employee is paid. Home payroll may continue, but host payroll, social security taxes or dual payroll obligations can arise depending on where duties are performed, who benefits from the work and whether local withholding rules apply. Employers should determine the payroll position before the employee begins working overseas. Trailing income such as long term incentives like stock options and RSU may also create a payroll obligation after the employee leaves or repatriates.
In practice: Treat all cross-border work as potentially creating host-country payroll obligations unless a clear technical analysis confirms otherwise. Trailing income including stock options may create a payroll obligation after the assignment or arrangements have finished. Social security taxes, pension contributions, expense and benefit reporting may have different rules but should still be reviewed.
Technical reference: Shadow payroll, modified payroll and specialist short-term business visitor arrangements may apply depending on jurisdiction.
Decision point
Where is the employee performing duties, who benefits from the work, who is treated as the employer, does the host country require local withholding, and has the payroll position been determined before work begins? Is trailing income subject to payroll after the assignment or work arrangements have finished?
The Issue
What triggers it
An employee performs duties in a country other than where they are paid — including assignments, business trips, short projects, NED visits, EOR arrangements or work-from-anywhere situations.
Why it matters
Payroll obligations can arise in the host country regardless of where the salary or long term incentives are paid. The place of employment does not always determine where payroll obligations arise. Non-compliance creates withholding failures, penalties, social security exposure and governance risk.
What decision is needed
Determine whether home payroll, host payroll, shadow payroll, dual payroll or a specialist payroll arrangement is required — and do so before the work begins. Identifying any trailing income that requires payroll reporting - track and monitor for events such as exercise of any option.
Technical Analysis
1.Legal / tax position
An international payroll obligation is a requirement to operate payroll — including withholding, reporting or registration — in a country where the employee performs duties. International payroll does not mean that payroll automatically follows the country paying the salary. In many jurisdictions, payroll obligations depend on where the employee works, not where they are employed or paid.
Payroll may be required in the host country where that country taxes local workdays, where the host entity is treated as the employer, where costs are recharged, where the employee works for an end client or where local withholding rules apply regardless of treaty relief. The employee may remain legally employed and paid in one country while another country expects payroll reporting or withholding.
Home payroll may continue where the employee remains employed and paid by the home employer. But home payroll does not automatically answer host-country tax, host-country withholding, host-country reporting, social security, shadow payroll, taxable benefits, bonus reporting, equity reporting, tax return obligations or host employer obligations. Home payroll may be administratively convenient. It is not automatically compliant.
Host payroll may be required even where the home contract continues, the salary is paid from the home country, the employee remains home-country resident, the assignment is temporary or the employer does not intend to localise the employee. Host payroll creates practical issues including registration, tax identification numbers, local payslips, exchange rates, social security and year-end reconciliation.
Trailing income may also require payroll reporting and payroll deductions overseas even after an overseas work arrangement or assignment has finished. Trailing income may include income that was earned in the overseas country but paid or treated as arising, after an employee has left that country. The payroll obligation may continue and follow that income until it is paid, it vests, or it is exercised. Examples can include bonus payments, tax equalisation payments, stock options, RSUs, restricted shares and other long term incentives.
2.Shadow payroll and dual payroll obligations
Shadow payroll is a payroll mechanism used where the employee is paid in one country but income must be reported, taxed or withheld in another. The shadow payroll may not physically pay the employee. It records compensation paid elsewhere and operates local tax, reporting or withholding.
Shadow payroll is commonly required where the employee remains on home payroll but the host country taxes income based on local workdays, where the employee works for a host entity or end client, where the employee is tax equalised or where bonus, equity or benefit income is reportable in the host country. Shadow payroll requires complete compensation data. It fails where payroll is not told about benefits, reportable expenses, bonus, equity, allowances, gross-ups, tax equalisation, exchange rates or workday allocations.
Dual payroll obligations arise where both home and host countries require payroll reporting or withholding on the same income. This does not necessarily mean the employee pays double tax, but it can create cash-flow issues, over-withholding, under-withholding, foreign tax credit timing issues, payroll reconciliation complexity and employer penalties. Dual payroll can arise where local payroll procedures still apply despite treaty relief, where the host employer has withholding obligations or where bonuses or equity relate to work in more than one country. In many countries, it is possible to make elections or file applications to reduce payroll withholding to improve cash flow. Strict requirements are normally imposed before payroll can be reduced this way.
3.The biggest traps: short or unplanned mobility
Formal assignments are usually visible. They typically have assignment letters, tax advice, payroll planning, immigration review and social security certificates. The greater traps sit in short or less structured mobility where payroll analysis has not been performed.
A business trip can create payroll risk where the employee performs substantive duties, works for a host entity, works for an end client, visits repeatedly, has costs recharged or does not meet treaty relief conditions. Calling it a project, visit or business trip does not remove payroll exposure.
Short project-based work in another country — can create payroll, tax, social security, immigration, employment law and permanent establishment issues. Non executive directors (NEDs) and executive directors may visit a country for only a small number of days each year and still create payroll or reporting obligations. Directors' fees, board travel, accommodation, equity and consulting income should be reviewed separately.
Work-from-anywhere employees create particular payroll risk because payroll may not know where the employee is working. The employee may move countries, extend the period, change work patterns, become taxable overseas, trigger social security or pension contribution exposure or create reporting obligations that were never costed. A work-from-anywhere policy should require payroll review before approval.
4.Host employer obligations, EOR structures and treaty relief
A host employer type obligations are a requirement typically for a local business, group company or customer to operate payroll or shadow payroll for visiting workers, even where those workers are employed and paid overseas by a different entity or business. Many countries have these type of rules. The payroll analysis must consider not only who pays the employee but also who benefits from the work.
An employer of record (EOR) is a third-party entity that provides local employment and payroll administration where the employer has no local entity. An EOR can help with payroll processing, but it does not automatically solve permanent establishment risk, corporate tax, transfer pricing, pensions, immigration, social security certificates, home payroll coordination, equity reporting, tax equalisation, director tax or governance. The question to ask is whether the EPOR arrangement solves the legal, tax, payroll, social security, employee equity and corporate risks.
Treaty relief may reduce or remove final host-country tax in some cases. It does not automatically remove payroll withholding or reporting. A country may still require payroll registration, withholding unless relief is approved, short-term business visitor reporting, employee tax return filing, certificates of residence and employer reporting.
5.Evidence, records and practical controls
Employers should retain travel records, workday records, employment contracts, assignment letters, remote-working approvals, secondment agreements, board appointment letters, pension contributions, host entity and end-client arrangements, cost recharge details, treaty analysis, payroll calculations, shadow payroll reports, social security certificates, taxable benefit records, bonus and equity data, tax equalisation calculations and tax return filings. A payroll conclusion without records may be difficult to defend.
Where payroll obligations have been missed, employers should triage the issue: which country was missed, which employees or directors are affected, how many workdays were performed, what duties were performed, was a host entity or end client involved, was the employee senior, was cost recharged, were benefits or equity involved, was social security reviewed, were tax returns filed, was treaty relief available and who bears the employee tax, penalties or interest.
Employers should implement payroll review before overseas work starts, a shadow payroll decision tree, dual payroll review, short-term business visitor tracking, trailing income tracking and monitoring including equity and bonuses, NED and director payroll review, host employer risk review, work-from-anywhere payroll approval, social security certificate processes and annual audit of travel and payroll data. Payroll should not be told after the work or payroll event has happened.
Case Scenario
Shadow Payroll for Short-Term Project Worker
Situation: A German company sends an employee to the UK for six weeks to support a client implementation project. The employee remains on German payroll. The employee works from the UK client's offices and reports to the UK project manager.
Issue: Whether UK payroll withholding and reporting obligations arise for the German employer or the UK client.
Analysis: The employee is performing duties in the UK, working under the direction and control of the UK client, and the UK client benefits from the work. The German employer continues to pay the salary. The UK client may have host employer obligations. Shadow payroll may be required to report UK-taxable income. Treaty relief may reduce the final tax liability but does not automatically remove the payroll withholding obligation. Social Security continues to be due in Germany, and an A1 certificate should be claimed to evidence exemption in the UK.
Outcome: The UK client needs to assess whether PAYE obligations arise under host employer rules. The German employer needs to consider operating a shadow payroll in the UK, applying for an A1 and any other reporting obligations on trailing bonus payments, accommodation and travel expenses.Neither party identified the obligation before the employee arrived.
Lesson: Payroll, withholding and host employer obligations should be assessed before an employee begins working in another country, particularly where the employee works for or under the direction of a local entity.
Case Scenario
Short-Term Project Worker With Missed Host Payroll
Situation: A UK employer sends a project engineer to work in the Netherlands for four weeks to support a client implementation. The employee remains on UK payroll throughout. No Dutch payroll or social security review is conducted.
Issue: Whether Dutch tax, payroll or social security withholding, reporting or registration obligations arise.
Analysis: The employee is performing duties in the Netherlands for the benefit of a Dutch subsidiary company. Dutch domestic tax law may require withholding or reporting on income relating to Dutch workdays. The UK employment contract and UK payroll do not override Dutch domestic payroll rules. UK-EU social security rules need to be reviewed to determine that UK National Insurance contributions can continue with exemption in the Netherlands evidenced by an A1 certificate.
Outcome: Dutch payroll obligations may apply. The employer faces potential late registration, retrospective withholding, penalties and employee tax return requirements. Social security certificates should be obtained.
Lesson: Payroll review must happen before the employee begins overseas project work, not after. Short project work is one of the most common causes of missed host-country payroll obligations.
Fenton International's Advisory Position
Technical position?
Payroll obligations arise where the relevant country's withholding, reporting or registration rules require them. The position depends on where duties are performed, who is treated as the employer, who benefits from the work, whether costs are recharged and whether local rules apply.
Professional judgement required?
Yes — the payroll position depends on facts, treaty interaction, employer structure, host employer rules, social security coordination and the specific jurisdiction's payroll rules. This is not a mechanical analysis.
Main risks:
Payroll risk
tax risk
social security risk
corporate tax / PE risk
governance risk
reputational risk
trailing income risk
cost risk
evidence risk
Evidence needed:
Travel records
workday records
employment contracts
assignment letters
host entity arrangements
end-client arrangements
cost recharge details
treaty analysis
payroll calculations
shadow payroll reports
social security certificates
equity and bonus data
Recommended controls:
Pre-travel payroll review
shadow payroll decision tree
dual payroll review
short-term business visitor tracking
NED and director payroll review
host employer risk review
EOR technical review
work-from-anywhere payroll approval
social security certificate process
annual audit
Professional Judgement & Advisory Application
Professional judgement is required where the payroll position depends on the interaction of multiple country rules, where host employer obligations are uncertain, where treaty relief is claimed but local payroll procedures still apply, where EOR structures may not resolve all risks, or where short-term or unplanned mobility has created obligations that were never assessed.
Fenton International's judgement and recommendation: determine the payroll, withholding, shadow payroll, social security and reporting position before the employee works, travels, starts a project, attends board meetings, receives a bonus, vests equity or works from another country. Track and monitor trailing income obligations. Document the basis for the positions taken and implement controls before payroll exposure arises. Payroll planning should not become payroll remediation.
Frequently Asked Questions
Can an employer simply keep an employee on home payroll during an international assignment?
Home payroll may continue, but it does not automatically remove host-country payroll obligations. The host country may require withholding, reporting or registration on income relating to local duties regardless of where the salary is physically paid. The position depends on the jurisdiction, the nature of duties, who benefits from the work and whether local withholding rules apply. Home payroll is administratively convenient but is not automatically compliant. An application might be possible to reduce payroll deductions to improve cash flow. Trailing payroll obligations may still apply after the overseas work has ended.
What is shadow payroll and when is it needed?
Shadow payroll is a payroll mechanism that records compensation paid in one country and operates the tax, reporting or withholding required in another. It is commonly needed where the employee remains on home payroll but the host country taxes local workdays, or where bonus, equity or benefit income is reportable in the host jurisdiction. Shadow payroll requires complete compensation data to function correctly. Trailing payroll obligations may still apply even after the overseas work has ended.
Does treaty relief remove the need for host-country payroll?
No, not automatically. A tax treaty may reduce or remove the final host-country tax liability, but it does not automatically remove payroll withholding, reporting or registration obligations. The host country may still require payroll registration, withholding unless relief is specifically approved, short-term business visitor reporting and employee tax return filing. Trailing payroll obligations may still even apply after the overseas work has ended.
Do work-from-anywhere employees create payroll obligations?
Yes. Work-from-anywhere employees create particular payroll risk because payroll may not know where the employee is working. The employee may move countries, extend the period, trigger social security exposure or create host-country tax and reporting obligations that were never planned or costed. A work-from-anywhere policy should require payroll review and approval before the employee begins working from another country.
How Fenton International Can Help?
Fenton International is a London-based Private Advisory Office specialising in cross-border tax, global mobility and international people advisory. We help employers, executives and advisers resolve complex international payroll, withholding and compliance issues.
Short-term business visitor triage
NED and director payroll review
EOR structure review
International payroll and social security advisory
Discuss this issue:
Contact Fenton International for a cross-border director tax and compliance review.
Author
Mark Abbs, CEO, Fenton International
Fellow of the Association of Taxation Technicians (FATT)
Enrolled Agent of the IRS (EA)
Global Mobility Specialist – Talent Management (GMS-T)
Accredited Expert Witness (MAE)
32+ years' experience in international tax, cross-border employment tax and global mobility
Advises CFOs, HRDs, and Chairs on cross-border tax governance
Head of Advisory at Global Tax Network
Former Tax Partner, Head of International and Senior Leadership Team at Blick Rothenberg and Senior Tax Adviser in the Big 4.
Key terms: international payroll, shadow payroll, host payroll, dual payroll, home payroll, modified payroll, employer of record, EOR, short-term business visitor, STBV, host employer obligations, cross-border payroll compliance, work-from-anywhere payroll, NED payroll, tax equalisation payroll, international assignment payroll.
Scope note: This Insight provides a multi-jurisdictional overview of international payroll considerations. It does not provide jurisdiction-specific payroll rules or thresholds. Country-specific analysis should be obtained for each jurisdiction where employees perform duties. This Insight does not cover purely domestic payroll, permanent local hires or employees working exclusively in their country of employment.
Jurisdiction: Multi-jurisdiction | Last reviewed: June 2026 | Next review due: December 2026 | Insight type: Technical Guide
© 2026 Fenton International. All rights reserved.
This article is general information and not legal or tax advice. Professional advice should be taken for specific circumstances.
