What Is a Salary Split and How Does It Work?

A salary split occurs when an employee’s earnings are divided and paid in different currencies or across multiple countries. This arrangement is common for expatriates, remote workers, and employees of multinational companies who manage income in multiple locations.

Companies use salary splits to comply with tax regulations, stabilize earnings against currency fluctuations, and account for cost-of-living differences. For employees, this setup offers financial flexibility but requires careful management of tax laws, banking logistics, and benefits eligibility.

Taxation Implications

Receiving income in multiple countries creates complex tax obligations due to differing national laws. Some countries tax residents on worldwide income, while others only tax income earned within their borders. This means an employee with a salary split may be liable for taxes in more than one jurisdiction, potentially leading to double taxation.

Tax treaties between countries provide relief through foreign tax credits or exemptions. The United States taxes its citizens on global income but allows eligible expatriates to exclude up to $126,500 in 2024 under the Foreign Earned Income Exclusion (FEIE). The Foreign Tax Credit (FTC) can also offset taxes paid to another country. The United Kingdom, in contrast, taxes only UK-sourced income for non-residents.

Tax residency status determines liabilities, with many countries using the 183-day rule—individuals spending more than 183 days in a country within a tax year may be considered tax residents. Some jurisdictions also factor in permanent home location and economic ties, further complicating residency determinations.

Salary splits can trigger withholding tax requirements. Employers may need to withhold income tax in multiple jurisdictions, depending on local laws. Germany requires withholding at progressive rates from 14% to 45%, while Singapore imposes a flat 15% withholding tax for non-residents. Noncompliance can result in penalties and legal consequences for both employers and employees.

Currency Payment Methods

Employees receiving salaries in multiple currencies face challenges related to exchange rates, transfer fees, and banking logistics. Employers typically use direct deposits into local bank accounts, international wire transfers, or multi-currency digital wallets.

Direct deposit into local accounts minimizes conversion costs but requires employees to maintain multiple accounts, which can be cumbersome. Some banks impose restrictions on foreign nationals opening accounts, requiring proof of residency or employment authorization.

International wire transfers allow employees to receive funds in a preferred currency but come with costs. Banks and transfer services charge fees that vary based on the amount and destination. SWIFT transfers often include intermediary bank fees, reducing the final amount received. Some companies use bulk payment services like Wise or Payoneer to lower costs and speed up transfers.

Multi-currency digital wallets provide flexibility by allowing employees to hold and convert money in different currencies as needed. Platforms like Revolut and Wise offer competitive exchange rates and lower fees than traditional banks, benefiting employees who frequently move between countries or manage expenses across currencies.

Administrative Steps

Setting up a salary split requires coordination between payroll departments, banking institutions, and compliance teams. Employers must establish clear agreements specifying how compensation will be divided, including the percentage allocated to each jurisdiction and currency. These agreements should be documented in employment contracts to prevent disputes and ensure compliance with labor laws.

Payroll systems must accommodate multi-jurisdictional payments, often requiring specialized providers or in-house teams to process payments according to local regulations. Payroll software must handle different tax codes, wage reporting standards, and statutory deductions. Many multinational corporations use global payroll solutions like ADP or Deel to streamline this process.

Regulatory compliance is essential, as labor laws vary. Some countries require a portion of an employee’s salary to be paid in the local currency, while others mandate employer registration with tax or employment authorities before making payments. In France, for example, employers must register with the URSSAF system to remit social security contributions, even if part of the salary is paid elsewhere. Failure to comply with payroll regulations can result in fines or legal action.

Effects on Employee Benefits

Dividing a salary across multiple jurisdictions affects social security contributions, pension entitlements, and healthcare coverage. Each country has distinct regulations dictating employer and employee obligations, and discrepancies in contribution rates or eligibility requirements can impact long-term financial security. Employees subject to dual payroll systems may contribute to multiple pension schemes, which can either enhance or dilute retirement benefits depending on international agreements.

Social security totalization agreements help determine how benefits are accrued when working in more than one country. Countries such as the United States, Canada, and several European nations have bilateral agreements preventing individuals from paying social security taxes in two places simultaneously. An American expatriate working in Germany, for example, may be exempt from German social security contributions if they remain covered under the U.S. system, provided they obtain a Certificate of Coverage from the Social Security Administration.

Healthcare access may also be affected. Some national systems require continuous contributions for eligibility. Employees receiving part of their salary in a country with a public healthcare system must verify whether their contributions are sufficient to maintain coverage. In Switzerland, where private insurance is mandatory, salary splits can impact premium calculations, as insurers often assess costs based on total earnings, regardless of where the income originates.

Reporting Obligations

Managing salary splits requires compliance with tax and labor regulations in multiple jurisdictions. Governments require detailed disclosures to ensure proper taxation and social security contributions. Failure to meet these obligations can result in audits, fines, or legal consequences.

Employers must submit payroll reports to tax authorities in each country where wages are paid. In the European Union, companies employing workers across borders may need to file declarations under the Posted Workers Directive, detailing salary payments and working conditions. In the United States, companies paying employees abroad may have to report wages on Form W-2 for domestic earnings and Form 1042-S for certain foreign payments. Some jurisdictions require real-time payroll reporting, such as the United Kingdom’s PAYE system, which mandates that employers submit earnings data to HMRC on or before each payday.

Employees receiving income from multiple sources must correctly report their earnings on tax returns. Many countries require individuals to disclose foreign income, even if taxes have already been paid elsewhere. In Canada, for instance, residents must report worldwide income on their T1 tax return, with foreign tax credits available to avoid double taxation. Some jurisdictions impose additional reporting obligations, such as the U.S. Foreign Bank Account Report (FBAR), which requires individuals with foreign financial accounts exceeding $10,000 to disclose them to the Financial Crimes Enforcement Network (FinCEN). Proper documentation and record-keeping are necessary to ensure compliance with international tax laws.