Understanding non-local currency payments vs. linked salary payments

Navigating salary payment options can be complex, especially when dealing with multiple currencies. This article explores the key differences between non-local currency payments and linked salary payments, helping you understand how each option works and its implications for employees.

Linked Salaries

Linked Salaries refer to a setup where an employee's contract salary is agreed as a fixed amount in a foreign currency (USD, EUR, GBP), but the salary is paid out in local currency. The salary in local currency will therefore vary month to month in this set-up.

Linked salaries are typically used in countries where domestic currencies are unstable (e.g., Egypt, Pakistan). Linked Salaries are available in certain countries, which may change based on legal and tax factors.

Salaries in Non-Local Currency

Salaries in Non-Local Currency refer to a payroll setup where both the employee’s contract and the net salary payout are in a foreign currency (usually USD). However, the payslip and the statutory obligations are still calculated and paid out in the local currency, using the official FX rate.

This arrangement is often used in countries with highly volatile local currencies (e.g. Argentina). It provides employees with stable compensation in a stronger foreign currency while still complying with local regulations.

See also: All about non-local currency salary payments

How is the FX conversion handled?

1. What FX rate is used in these cases?

• FX rate for Payroll: In many countries, there is a requirement to use a national-mandated FX rate for conversions of benefits and salary from non-local currency into local currency for the payslip and tax calculations. This rate is then e.g. published monthly by a local central bank. If this is not the case, we use a mid-market rate for these payroll calculations. This ensures compliance with tax and statutory obligations.
• FX Rate for Billing: For billing purposes, we use the Remote FX rate on all elements of the payslip in a currency different from the billing currency. This guarantees the cost of currency conversion, transaction fees, and currency fluctuation management for our customers over the period of the invoice. The same Remote FX rate is used during the full billing cycle, this means from pre-funding to reconciliation.

See also: Remote FX rate

2. Why does Remote apply FX conversion even when the billing currency is the same as the employee contract currency?

• The employee's payout and tax obligations are based on the payslip calculations, utilizing the national FX rate where applicable. Local Remote entities handle these payouts with local funds, as required by local employer regulations.
• The Remote FX rate is therefore applied to the amounts in local currency to determine the final amount for billing, taking into account the cost and volatility of currency conversion.
• This conversion is necessary to comply with local regulations and ensure accurate payslip reporting, which requires all amounts to be presented in the local currency. For Salaries in Non Local Currency, the conversion is also required to determine the Net Payout.

Note: Payment options vary by country and are subject to local regulations.