What is shadow payroll?

A shadow payroll is a mechanism which facilitates local tax withholding for an employee who is working abroad, but remaining on the home country payroll system. By conducting a shadow payroll in the host country, the employer will be able to remit local taxes in the host country to the revenue authority. Usually the employee will not be physically paid any amounts via the host country under a shadow payroll arrangement. The amounts paid via the home country payroll will be reported in the host country payroll system in order to calculate the amount of local local taxes which need to be remitted in the host country. The shadow payroll will also assist the employer to meet local reporting obligations and produce the appropriate year end wage statements etc.