In today’s age of remote work, the world is connected more than ever, and businesses are in the position to hire talent from anywhere. Hiring international employees is a great stepping stone for companies based in the United States looking to explore new markets, target specialized talent, and expand their global presence.
Here’s what you need to know about hiring employees in another country:
Can a US Company Hire a Foreign Employee in Another Country?
Yes, a US company can hire someone in another country; however, the process is not as straightforward as hiring employees in the US. Some common challenges US companies face when hiring an international workforce include:
- Permanent establishment. If a US company has a fixed location in another country and is generating revenue, it triggers permanent establishment, which means it is liable to local corporate taxes. Companies that don’t adhere to permanent establishment obligations are subject to tax penalties, liabilities, and legal issues.
- Unfamiliar labor laws. Each country has its own labor laws and payroll regulations, and navigating the differences from US employment requirements is a complex and time-consuming process. Failure to comply with local employment laws when hiring employees in a foreign market will result in penalties and fines.
- Payroll setup and accurate contributions. An employer’s payroll setup and contributions in another country can vary significantly from US requirements. Noncompliance and fines will result if a US company doesn’t correctly calculate payroll and contributions for their foreign employees and the in-country requirements.
- Misclassification risk. Misclassification is most common when a company engages with a contractor and treats them like a full-time employee. For example, if the company starts managing the contractor’s work schedule or pays them a fixed salary, the individual could claim they have been misclassified as a contractor and are instead entitled to employee benefits.
3 Options for Hiring an Employee From Another Country
Despite the challenges of hiring employees in another country, there are several options to building a workforce in any foreign market.
1. Set Up a Legal Entity
Setting up an entity in another country is the traditional method for companies looking to hire international employees and build a long-term, global presence. Establishing a foreign entity gives you full autonomy to create a local branch, hire employees, and run payroll in compliance with the country’s labor laws and taxes. Entity establishment is a desirable option if your company has a large budget and plans to hire a sizable workforce in another country.
Even so, setting up an entity is a time-consuming and expensive process. It also requires extensive in-country expertise in the local legal, corporate, and payroll regulations. Entity establishment is not recommended if you do not have the bandwidth, capital investment, or only plan to hire a small number of employees.
2. Partner With a Global Employer of Record
A simpler, more streamlined option is to partner with a global employer of record (EoR). A global EoR hires, pays, and manages employees in international markets on your behalf. As a legal entity, an EoR has in-country knowledge of all local labor laws and regulations to ensure that you stay compliant in supporting your global workforce. An EoR partner also allows you to target talent in multiple countries and hire quickly, with less red tape.
3. Hire and Engage Contractors
Engaging with an international contractor is an alternative to hiring full-time employees in another country. An international contractor provides their services as a self-employed individual from anywhere in the world. Using and paying a contractor still allows you to work with global talent, target the specialized skills you need, and benefit from more cost savings and flexibility.
FAQs on Hiring Remote Employees in Other Countries
When hiring and paying remote employees in other countries, US employment laws will not apply to them because they are non-US residents. Here are a few common questions regarding hiring and paying remote employees in foreign countries:
Does a Remote Employee Have to Pay US Taxes?
Remote, foreign employees do not have to pay US taxes even though they are being paid by a US company. Because your international employee is a tax resident in their own country, they are subject to the local laws, and US taxes do not apply.
Is a US Company Responsible for Withholding US Taxes or Reporting Wages?
US companies are not responsible for withholding US taxes or reporting the wages of their international employees. According to the IRS, wages earned by a nonresident alien for services performed outside of the US are foreign source income and are therefore not subject to US tax reporting or withholding.
Does an Employee in Another Country Need a Visa to Work for a US Company?
Foreign employees who work for a US company remotely from their own country do not need a visa or work permit, as long as they work outside of the US. However, they would need a business visa if the US company wanted to bring them to the US for an extended stay or training purposes.
Hire Employees and Contractors in Another Country
While hiring international employees and entering into a foreign market may feel like a challenge, it also provides a world of opportunity when done compliantly. Working with a global employer of record is one way to do so.
A knowledgeable and experienced global partner like Velocity Global helps simplify the hurdles of international hiring and payroll, making it easier for you to manage your global workforce. Velocity Global’s full suite of solutions helps you build your distributed workforce without facing compliance issues – including our global Employer of Record solution that allows you to quickly hire and pay your international employees, and our Contractor Management solution that engages international contractors and helps you avoid the misclassification risk.
Reach out today to learn more about how Velocity Global can support your international team.