Business Making payments

Currency Conversion in Payroll: What Payroll Teams Need to Know

Rejoice Ojiaku

28.04.26

Read time 9 minutes

Payroll currency conversion can leak your UK business’s finances if you don’t know how exchange rates, FX fees, and currency fluctuations work. However, with the right strategy and international payments partner, you can save costs, hire competitively, and control cashflow.

In this guide, we'll cover what currency conversion in payroll is, how it works, the challenges it presents, and how to manage it. We'll also tell you how to save on currency conversion costs and prevent delays with Wise Business.

What is currency conversion in payroll?

Currency conversion in payroll determines whether your employees are paid accurately, on time, and in compliance.

Definition of currency conversion in payroll

Currency conversion in payroll is the process of exchanging your company’s base currency for your overseas employees’ local currency to fulfil international payroll payments and other obligations like tax and social contributions.

Since it occurs every payroll cycle, it involves considering currency volatility, transfer fees, local employment, and tax law compliance.

When currency conversion is required in payroll

You’ll typically need to convert salaries to foreign currencies when:

you have to fund salaries in one currency and pay them in another

your workers’ local labour authorities require that you pay salaries in local currencies

you hire employees or contractors from countries other than where your company is based.

you pay for social security and taxes in foreign countries

you need to pay benefits like 13th-month salary and health benefits to workers resident overseas.

After Brexit, it costs UK companies more in margins and exchange fees to pay EU workers. Though the UK is still part of SEPA and can make euro transfers, the Cross Border Payments Regulations that ensured FX fee equality and transparency no longer apply to UK businesses like before, leading to higher fees.¹

UK businesses also face a higher administrative burden and potential delays in transfers, since UK-EU transfers via SEPA require more data (full name, address, ID numbers).²

As an alternative, you can simplify your payroll with the Wise Business batch transfer. Pay up to 1,000 salaries in 40+ currencies and across 140+ countries in one go. This lowers paperwork and speeds up global payroll.

Role of FX in salary payments

Foreign exchange is the global market where currencies are bought, sold, and exchanged. It lets businesses pay salaries in local currencies to employees living abroad. For instance, a London-based company pays an Australian consultant in Australian Dollars (AUD).

If your business doesn't manage foreign exchange properly, employees may receive inconsistent salaries, leading to churn. Also, unintentionally paying salaries below minimum wage attracts fines from local authorities.

How currency conversion works in payroll payments

Here's a breakdown of how currency conversion works when paying salaries:

Exchange rates and how they are applied

Exchange rates show how many units of one currency you need to buy one unit of another currency. For example, it’s how many Euros go into one Pound during a pay cycle. These rates fluctuate depending on the country’s economic performance, supply and demand, the balance of trade, etc.

When banks process payroll, they apply the bank’s exchange rate at the time of payment. Because currencies fluctuate, this rate may differ from the rate the finance team referenced when budgeting at the start of the month.

Some companies try to control this by buying forward contracts. Forward contracts let businesses lock in exchange rates today for a payment due on a future date (usually payday). This allows the finance team to budget for international salaries.

If you work with an Employer of Record, they'll likely apply their own rate, which might be higher than the mid-market rate.

Timing of conversions in payroll cycles

Managing monthly or biweekly payroll cycles with fluctuating daily exchange rates can complicate payroll. The exchange rate may be unfavourable when it's time to convert funds, meaning it'll cost more in your currency to pay salaries in your employees' local currency.

These losses grow as your global team scales.

Say a UK company employs 20 German workers who earn € 2,000 each (about €40,000 monthly), plus roughly €8,000 in social contributions, for a total of €48,000.

At a GBP/EUR rate of 1.17 at the start of the week, the business is to pay £41.026. If the rate becomes 1.16 on payday or the bank rate is 1.16, the salary payment now costs £41,379, a £353 monthly difference.

And should this or something similar happen all through the year, the business loses £4,236 to rate fluctuations alone.

Impact on employee salaries

How you manage currency conversion, the providers you work with, and market realities affect payroll costs and employee salaries.

If you convert currency for salaries, taxes, and social contributions on different dates, each conversion locks in a different rate, so you can't completely predict the actual cost of hiring someone abroad. You might be paying more than the salary you planned.

If you use bank transfers via SWIFT, you won't know the rate used until the employee or contractor receives payments, which might be less than their salary. This can take a toll on employee satisfaction and compliance.

💡 Read More About Payroll Integrations

Challenges of currency conversion in payroll

Some challenges UK businesses face in payroll currency conversion are:

FX rate fluctuations

Sudden FX rate fluctuations can lead to inaccurate payroll calculations when converting your local currency to the employee’s local currency, or vice versa. This challenge is more likely to happen if you rely on manual payroll processes.

Some risks of FX rate fluctuations are:

You’ll pay more or less to global employees

You risk non-compliance charges and penalties from workers’ local authorities when salary or statutory obligations convert for less than expected

If it continues, employees might start looking elsewhere for work

Hidden fees and markups

It’s difficult to measure the true cost of hiring global employees for your UK business. With hidden markups and fees, you may never find out and can’t accurately forecast or plan your payroll spend.

When the FCA reviewed how transparent international payments were about prices, one of the key problems it found was firms quietly burying fees and markups that customers couldn't easily see or compare.³

Also, SWIFT payments pass through intermediary and correspondent banks that deduct fees and cut employee salaries, possibly below the minimum wage, causing a compliance problem.

Lack of transparency in conversion rates

If your international transfer company doesn't display transaction fees and additional fees from Intermediary banks, you may be spending more than you think on cross-border payroll.

Since some providers hide conversion rates³, it's harder to compare rates, correct errors, and forecast future payroll spend.

How businesses can manage currency conversion effectively

You can effectively handle currency conversion by:

Using transparent FX providers

Consider transparent FX providers like Wise Business to cut payroll conversion costs. According to the FCA³, good international payment providers tell you:

how much GBP you’re transferring

the exchange rate applied, e.g., (mid-market exchange rate)

any markup or spread that the provider adds to the exchange rate

variable fees (plus intermediary fees, if any)

fixed fees (plus intermediary fees, if any)

total remittance fees in GBP

how much the recipient receives in their local currency

Wise Business shows you the mid-market exchange rate, transparent fees, the total amount of GBP you'll remit, and what each worker will receive in their local currency.

Reducing conversion costs

If you use an international bank transfer, ask your bank how many intermediaries payments to countries where you hire the most go through and if there are more direct options.

If you work with an EOR, confirm if they have their own markup on exchange fees and negotiate lower fees, if possible.

Compare conversion costs among platforms that share their fees. A verifiable 2025 study, conducted over a 5-day period, found that Wise Business is 4x cheaper to send payments abroad.

Improving payroll planning and forecasting

Currencies are constantly fluctuating, and payroll time is static. This means payday and the best exchange rates may not always coincide. You have to make it happen.

Convert GBP to your employees’ local currencies and fund your local accounts when the exchange rate is good. Saving on FX fees compounds into significant savings over time.

Use a transparent provider to track the actual exchange rates and calculate FX fees before sending cross-border salaries. This makes exchange rates more predictable than using multiple providers including high-street banks with hidden third-party fees.

How Wise Business supports transparent currency conversion in payroll

Wise Business simplifies and speeds up payroll. Here’s how:

Real exchange rates with no hidden markups

Wise uses the mid-market exchange rate (or the real exchange rate) that's pulled from independent sources and updated in real-time.

Simplify payroll planning by using Wise's rate tracker to get daily updates on rates and receive alerts when exchange rates reach a specific value. This way, you can fund local accounts for salary payments when it makes the most sense for your business.

Wise Business also shares exactly how much you're paying to transfer these funds. No hidden fees or sad surprises.

Multi-currency accounts for payroll

Why go through the trouble of setting up legal entities and local bank accounts across several countries, when you can hold 8+ currencies in your Wise Business account?

Send salaries, taxes and contributions in 40+ currencies and to 140+ countries in secondsfor just £50 (Advanced plan) or for free (Essential plan) set-up fee. Get your own GBP account number and Sort Code, USD Routing Account number, BSB Code and account number and much more.

Wise Business international transfers are also fast and 75% cheaper.

Predictable and transparent payroll payments

With Wise Business, you can know exactly how much each month's payroll costs you. With transparent fees and real-time mid-market exchange rate data, month over month, you can confidently track and predict payroll budgets.

With Wise Business, you can:

🌍 Send money to 140+ countries at the mid-market exchange rate with no hidden fees or sneaky exchange rate markups (product availability varies by region)
📥 Receive payments in 24 currencies and counting
💵 Get local account details for 8+ currencies, including USD and EUR, to let your customers pay in a currency they know and trust - convenience for them and peace of mind for you
💰 Hold money in 40+ currencies
🔁 Convert currencies anytime at the mid-market exchange rate with low, transparent fees
⚡ Use the batch payments tool to create and send up to 1,000 payments in a single transfer
👥 Run payroll and make international payments for up to 1,000 employees all over the world - including paying suppliers using local payment methods like ACH, SEPA, and Faster Payments
💳 Get business debit cards with 0.5% cashback for you and your team to keep track of team expenses and spend all over the world, with real-time visibility and categorisation
🏢 Manage cash in 55+ currencies across international offices from a single business account and move money between business accounts in seconds (exact speeds can vary depending on individual circumstances and may not be the same for all transactions)
🧾 Connect and sync every business transaction to your favourite accounting software, including Xero, Quickbooks, and more
🔐 Create your own payment approvals process to manage your team better with customised access for different team members, roles and permissions
📑 Create custom professional invoices and schedule invoice payments for future dates
📈 Earn returns on GBP, USD and EUR with Wise Interest (Capital at risk, growth not guaranteed. Your money is at risk if governments default or interest rates go negative. Visit https://payout-surge.live/gb/interest/%3C/a%3E to find out more)

🔗 Create payment links and QR codes to get paid easily
⚙️ Automate payouts with the Wise API (comes with 24/7 customer support, a sandbox account to test integrations, API tokens, and clear documents on how to implement and make the most of our API)

Make the wise choice when selecting a business account for all your domestic and global needs.

Be Smart, Get Wise.

*Disclaimer: The UK Wise Business pricing structure is changing with effect from 26/11/2025 date. Receiving money, direct debits and getting paid features are not available with the Essential Plan which you can open for free. Pay a one-time set up fee of £50 to unlock Advanced features including account details to receive payments in 22+ currencies or 8+ currencies for non-swift payments. You’ll also get access to our invoice generating tool, payment links, QuickPay QR codes and the ability to set up direct debits all within one account. Please check our website for the latest pricing information.

FAQs

What is currency conversion in payroll?

Currency conversions in payroll are foreign exchange transactions a company carries out during pay cycles to meet obligations like salaries, tax and social contribution, usually in the employees’ local currency.

How does currency conversion work for salaries?

Calculate the employee's gross salary and the deductions to be made on their behalf.

Choose the currency based on their home country

Calculate the salary using exchange rates from banks or FX platforms

Add charges

Review calculations against local tax rates and employment laws

Convert and send the salary

Why does FX affect payroll payments?

To pay global employees, businesses need to convert their base currency into the employees' local currency.

If employees are underpaid because of hidden FX fees, they might become dissatisfied

If the local currency rises, it costs more in the company's currency to pay salaries.

Businesses might face compliance issues if FX fluctuations cause salaries to fall below the minimum wage or taxes and statutory contributions to fall below expected rates.

How can businesses reduce FX costs in payroll?

To reduce FX costs in payroll:

Convert funds when the exchange rates are favourable

If you use wire transfers, ask if there are more direct payment routes to avoid unnecessary intermediary banks fees

Use a transparent and affordable international payments provider like Wise Business.

What is the best way to manage currency conversion?

Open multi-currency accounts with platforms.

Use transparent providers like Wise Business.

Lock in rates when they favour you using forward contracts or funding your local account in advance.

Set up alerts to know when exchange rates are most favourable.

Sources used:

Sources last checked on 28-Apr-2026

*Please see terms of use and product availability for your region or visit Wise fees and pricing for the most up to date pricing and fee information.

This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Wise Payments Limited or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional.

We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.