A Guide for US Employers on How to Pay Their Overseas Employees
The consequences of globalization, particularly when it comes to expatriate employees working remotely, will be more significant. International employers either expanding abroad or employing remote staff will be entering an unfamiliar realm of foreign labor regulations. Even the most seasoned human resources team might struggle to anticipate the massive variances between US employment laws.
This article will answer the most basic concerns a US employer would have before hiring a foreign employee, as well as the responsibilities that must be fulfilled in a foreign place.
What is the distinction between workers on assignment and foreign employees?
The first matter that an employer must clarify is what the difference is between these two kinds of workers. An employee on assignment is a US worker whose employer relocates to a foreign country for a specific period. The employee will maintain their status as a US worker and be subject to US taxation. In contrast, a foreign employee is someone who is not a US citizen or national and who does not have a green card. They may be working in their home country or abroad.
Is it possible to have foreign workers on a US payroll?
Generally speaking, yes. The most common way to achieve this is to set up a branch or subsidiary of the US company in the foreign country where the employee is located. The employee can then be put on the local payroll and receive their salary in the local currency. Another option is to set up a separate payroll account in the United States for foreign employees. In this case, the employee will receive their salary in US dollars.
What are the employer’s obligations in the foreign employee’s country?
When an employer hires a foreign employee, they become subject to the laws and regulations of that employee’s country. This includes things like work permits, visas, social security contributions, and so on. The employer is also responsible for ensuring that the employee has health insurance that meets the standards of their home country.
Those obligations include:
- Calculation and withholding of employee income tax
- Employee contributions (like payroll taxes in the United States) are withheld/paid.
- When required, workplace pension contributions are provided.
- When it comes to health and safety, employers must follow established guidelines.
- Following termination notice periods and making severance payments is necessary.
An Australian employee, for example, receives a quarterly pension (superannuation) contribution from the employer equal to 10% of their salary. In contrast, UK employers and employees must contribute 3% and 5% to a workplace pension.
In India, allowances and reimbursements for transportation, medical care, and housing are at least partly tax-free, which must be considered when computing payroll expenses.
How do firms in the United States compensate workers who live outside of the country?
US employers can pay their overseas employees in a few different ways. The most common method is to set up a foreign subsidiary or branch of the company and have the employee be put on the local payroll. In this case, the employee will receive their salary in the local currency. Another option is to set up a separate payroll account in the United States for foreign employees. In this case, the employee will receive their salary in US dollars.
Set up a legal entity in the country:
The first step is to set up a legal entity, such as a branch or subsidiary, in the country where the employee will be working. This can be a complicated and time-consuming process, so it is important to seek professional help to ensure everything is done correctly.
Use a GEO employer of record service:
Another option is to use a global employment solutions provider, a GEO employer of record service. This type of company will help you navigate the complexities of setting up an overseas payroll and can even act as the employer of record for your foreign employees.
Payroll services:
Several payroll services can help you process payroll for your overseas employees. These services can be a good option if you don’t want to set up a foreign subsidiary or use a GEO record service.
Client Case: Paying employees in the Philippines using an employer of record
One of our clients, a US-based company, was expanding its operations to the Philippines. The company wanted to hire several employees in the Philippines but wasn’t sure how to do so. After researching, the company decided to use an employer of record service.
The employer of record service handled all of the payroll and HR-related compliance for the company’s employees in the Philippines. This included work permits, visas, social security contributions, and health insurance. The record service employer also ensured that the employees paid on time and per Philippine law.
The company could focus on its core business while the employer of record service took care of all of the compliance-related issues. This allowed the company to quickly and efficiently expand its operations into the Philippines.
Do you require additional information about paying foreign employees?
If you’re new to hiring abroad, you might have more questions about paying foreign talent, such as:
Is a foreign employee eligible for company stock options like a US employee?
Is the company’s main employment agreement written in English, or does it use a different form that meets foreign standards?
What is the process for a US company to determine a compensation amount for foreign employees, and which currency is utilized?
These are the difficulties that US businesses confront when they hire foreign workers, and we assist our clients in finding the finest options to remain 100% compliant abroad. We make international job recruitment simple.
What are the benefits of paying a foreign employee through a US-based payroll?
Paying a foreign employee through a US-based payroll has a few advantages:
- It allows the employer to maintain more control over the employee. The employer can withhold taxes at the US rate, which may be lower than the employee’s home country’s tax rate.
- It can help the employer avoid double taxation of the employee’s income.
- It may provide some protection from currency fluctuations.
What are the compliance risks associated with hiring foreign employees?
The biggest compliance risk for US employers is failing to comply with local employment laws in the country where the foreign employee is. This can result in significant penalties, including jail time for the employer. In addition, the employer may be required to pay back wages and benefits to the employee and any taxes that did not withhold correctly.
Another compliance risk is failing to obtain the proper work permits and visas for foreign employees. This can result in significant fines from the US government and the possible deportation of the employees.
Conclusion:
Paying employees who live outside of the country can be done in a few different ways. The most common method is to set up a foreign subsidiary or branch of the company and have the employee be put on the local payroll. Another option is to set up a separate payroll account in the United States for foreign employees. In this case, the employee will receive their salary in US dollars. Several payroll services can help you process payroll for your overseas employees. These services can be a good option.
