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What is split payroll?

By Payel Bera

Reviewed by Jekaterina Drozdovica

Fact checked by Jane Cahane

split payroll definition a stack of money is inserted into scissors

The split-payroll meaning is especially relevant for employees on international assignments or those located in countries far away from the main office of their employer.

The process of splitting the payroll involves dividing the employee’s pay between local and home-country currencies, reducing the effect of currency fluctuations and thus minimising exchange-rate risk.

When a company has employees in foreign countries, there are risks associated with the exchange rate impacting both the employee and the employer. 
The split-payroll method helps in dividing between local and home-country currencies, and has several other functions such as reducing the effect of currency fluctuations. 

If an individual receives a monthly salary without split payroll, their pay will vary in line with the current-exchange value. 

How does split payroll work?

The main feature of a split payroll is its pay structure. An employee receives a part of their salary in the home-country currency of a business and the rest is paid in the employee’s local currency.
Payments made in a local currency can be used for living expenses such as rent, food, transportation and services, while an employer’s home currency is intended for savings and purchases abroad.

While spilt payroll helps in cost-of-living adjustment, it also caters to day-to-day expenses and protects from inflation and currency fluctuations. 

In an ideal case, the company is responsible for setting a level of spendable wages for the employee that meets the requirements of the expat worker. However, guessing or calculating the exact figure is difficult, given that employees’ spending can vary from month to month. 

As a solution, the company can allow the employee to decide the ratio of host country to home-country payments, which will make the split-payroll process smoother.

Splitting payments helps both companies and their employees to comply with the host country’s regulations for work and for transferring money out of the country. It enables the employee to comply with the tax requirements of an expatriate worker’s home and host countries, and also take part in the company’s retirement plan even while working abroad. 

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