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Can a US Company Employ and Pay Someone in Another Country?

The growth of remote work has opened up a global talent pool to US employers, but hiring abroad is not as simple as with a US-based employee.  US companies recruiting skilled employees in other countries will have the task of finding an efficient way to employ and pay them.  This overview will describe the methods you can use to hire and pay foreign employees, while maintaining full compliance at home and overseas.

Can a US company hire a non-US citizen in another country?

If your company is new to hiring foreigners in their own country, there are some key considerations as you move forward.  The central idea to remember is that the labor, tax and employment laws of the employee’s country will govern the relationship.  US companies will find that the labor policies of many countries favor employee rights, and offer statutory entitlements more generous than in the US.

You will have to setup a payroll that meets the country’s employment regulations, and also provide the employee with all mandatory benefits and entitlements.  The employee will pay tax in their own country, so that needs to be calculated and withheld accurately in payroll.

If you can accomplish all of this, then you can successfully hire and manage a foreign employee who offers the talent that you need.  There are no legal prohibitions in the US against hiring remote workers abroad, so the focus needs to be on compliance in the foreign country.

How can a US company hire and pay a foreign employee abroad?

The two most common ways to hire and pay a foreign employee are to set up an entity (branch or subsidiary), or use an employer of record (EOR).

Set up an entity in the new country

US companies that have business objectives in a foreign country may set up their own entity, which can in turn hire local employees.  This can also be practical if you are building a remote team in one country, and want to control the hiring and payroll process.  Otherwise, it is a costly and complex option for hiring one or two remote employees, and you will have to duplicate the setup if you hire in more than one location.

Use an employer of record

A better method for hiring one or more remote foreign employees is to use an employer of record.  The EOR administers all local employment on your behalf, while you still manage the employee’s schedule and work.  Your company is assured of compliance as the EOR has in country expertise in running payroll, and can overcome any regulatory issues that arise.  EORs can be used in multiple countries and regions with ease, giving you maximum flexibility in where you recruit.

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What are the risks of employing foreign employees in another country?

Aside from managing intellectual property and employee performance, there are compliance risks when hiring foreign employees.  You will have to meet all statutory employment requirements, regardless of your company’s policy in the US.

If you don’t, you will be open to employee claims abroad and potential penalties for non-compliance.  Those claims can be lodged either with your entity or the EOR, and should be taken seriously.  One other risk is that of permanent establishment, which results in corporate taxation.  Typically, this is only an issue if you have sales agents concluding regular contracts with local customers, which brings your company revenue.

Do US employment laws apply to employees in other countries?

Because your employees are working as non-US residents in another country, US employment laws will not apply to them in any respect.  Your remote employees may even expect US laws to apply to the relationship, and this is where the EOR can be helpful to explain they are only protected by local employment regulations.

Does a foreign employee need a work permit or visa to work remotely for a US company?

There are two types of work permissions in the US, 1) a work permit from the Department of Labor and 2) a work visa from immigration services.  The DOL work permit is designed to ensure that job opportunities are preserved for US citizens, and as such only applies to foreigners actually working inside the US. 

As long as your foreign employee works remotely form their own country, there is no need for a work visa either.  However, if you were to bring them to the US either for training or an extended stay, then they would need a business visa.

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Do US tax laws apply to foreign employees working in another country?

Although they are being paid by a US company (via a local entity or EOR), foreign employees do not have US tax obligations.  The fact is that they are tax residents in their own country, and not in the US, so those laws won’t apply.

Are US companies required to withhold US taxes and report wages to the IRS for a foreign employee?

The wages that you pay to a foreign employee are known as “foreign sourced income” by a non-resident alien according to the IRS, and you don’t have to report it or withhold US taxes.  In truth, those wages are actually being paid directly by your foreign branch or employer of record in the local payroll.  So, they would not be included in your US payroll for tax reporting purposes.

Are foreign employees working for a US company subject to social security or Medicare deductions?

US social security and Medicare contributions apply to an employee regardless of residence or nationality, but only if the services are provided inside the US.  Therefore, your remote foreign employee has no obligation for those payments, and is not even permitted to make them voluntarily.  This underscores why making employer and employee contributions in the foreign country is so important, as it’s the employee’s only access to those programs and benefits.

How do US companies stay compliant when hiring in a foreign country?

Entering a new country’s labor market is both an opportunity and a challenge.  You may feel like you are insulated from regulation as a foreign business, but once your hire a resident, compliance becomes essential.  Using an employer of record does allow you to overcome any potential issues as they are familiar with all local labor laws, and will be your partner in running a compliant payroll. 

Using Shield GEO to hire foreign employees in another country

Shield GEO has employers of record in all major markets, and can seamlessly onboard your remote employee to an established payroll.  Our account manager will liaise with your company, the employee and the EOR to make sure that the hiring process goes smoothly.  You can hire in multiple countries, and if at some point you want to set up an entity, we will help you transition the employees.  This gives you the confidence to recruit skilled remote employees in foreign countries, knowing you have an ally to navigate every step of the hiring process.

We make international employment simple.

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