Split Payroll

DEFINITION of 'Split Payroll'

A method a business may use to pay its employees who are on international assignments. Split pay has several functions. It reduces the effect of currency fluctuations on an employee's pay and lets him expect a certain amount of pay in his home country's currency and a certain amount of pay in his host country's currency. Without split payroll, he would have to exchange money from one currency to the other each month and being subject to the whims of exchange rates. Split pay thus transfers exchange-rate risk from the employee to his company.

BREAKING DOWN 'Split Payroll'

Split pay also makes it easier to simultaneously comply with the tax withholding requirements of both the home and host countries. It can also ensure that an employee can continue to participate in his company's retirement plan even while working abroad. Split pay can also make it easier for companies and their employees to comply with the host country's regulations for work and for transferring money out of the country. Instead of split pay, employees working abroad may also receive home-based compensation, host country-based compensation, or headquarters-based compensation.