Definition
Shadow payroll is a payroll process that companies use when employees are working abroad but remain on their home country’s payroll. It ensures taxes and social contributions are calculated and reported correctly in the host country, even if the employee’s salary is still paid from the home country.
In practice, this means the company “shadows” the employee’s compensation in the host country for compliance purposes, without actually running a second full payroll there.
Why shadow payroll matters
Without a shadow payroll system in place, companies risk:
Noncompliance: Local authorities require accurate reporting, even if no payment is made locally.
Double taxation issues: Employees could be taxed incorrectly in both home and host countries.
Immigration consequences: Visa status can be jeopardized if payroll isn’t reported properly.
For globally mobile employees — expats, secondees, or temporary assignments — shadow payroll is often mandatory.
Common mistakes
Assuming global mobility is tax-free. Even short-term assignments can trigger local tax obligations.
Running duplicate payrolls. Companies sometimes mistakenly pay employees twice instead of reporting shadow income.
Poor coordination. Home and host country payroll teams often fail to sync data, leading to errors.
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