The COVID-19 pandemic has taught us that remote work is possible in almost any job, with some exceptions, of course. So why should US companies not hire international talent located abroad? Both employers and employees can greatly benefit from this, and here’s how:
Remote employees working from abroad are neither subject to the US tax system, nor employment or immigration laws. Foreign workers can be hired via legal entities abroad, through employer of record (EOR) companies, or as independent contractors.
Hiring remote workers from abroad has become a common practice among many US companies. Doing this can significantly reduce costs, and companies can select from a wider talent pool. Are you interested in employing foreign talent for your US organization? This article explains how and why to hire remote employees overseas.
Can US companies hire someone overseas?
According to the US Labor Department and the IRS, US companies or US employers can legally hire foreigners living outside of the states as remote or telecommute workers.
Furthermore, hiring foreigners abroad can be beneficial for a US company. They can save time and money by not having to pay Social Security Tax, nor must they contribute to Medicare or file W-2/1099 IRS forms.
That contributes to around 7,65% in savings. Furthermore, the IRS provides a W-8BEN form that allows foreigners living outside of the US to become tax-exempt from all American taxes as independent contractors.
Some facts about hiring remote employees abroad
- US employment laws don’t apply to remote workers abroad
Because your employees are working as non-US residents in another country, US employment laws will not apply to them in any respect. Usually, they will be protected by the local employment regulations of their country.
- Remote workers don’t need a visa for the US
According to officials, no immigration visas for the US are required when US employers hire foreigners overseas for remote work. Therefore, as long as your foreign employee works remotely from their own country, there is no need for a work visa.
Neither the US employer nor the foreign employee has to worry about obtaining a work permit. It will only be needed if a worker is living in the US or performing work on American soil for the contract’s duration.
- Remote employees aren’t subject to US taxes
The IRS states that wages earned by non-residents for services performed outside of the US are considered foreign source income, which isn’t subject to reporting and withholding of US federal income tax. Thus, such income would not be included in your US payroll for tax reporting purposes.
This also means that US companies aren’t required to withhold an employee’s estimated taxes, nor must they report these wages to the IRS.
However, US companies may need to withhold taxes for foreign remote workers if they are hired as independent contractors, but only in particular cases. This includes the work completed by the foreign independent contractor within the US.
To avoid taxation in the US, the following criteria should be met:
- The contractor was present in the US for less than 90 days in a tax year
- The payment to the contractor is lower than $3,000
- The payment to the contractor is for services performed for an entity or office maintained in a foreign country
If all those points are met, a US company doesn’t have to withhold or report taxes in the US.
How can US companies hire foreign workers remotely?
So you are determined to hire your first foreign employees for remote work, but don’t know how? Generally, it’s not very easy for a US company to hire foreign talent.
The most common ways to hire a foreign employee are to set up an entity abroad (a branch or subsidiary), use an employer of record (EOR), rely on foreign staffing agencies or hire contractors.
Establish an entity abroad
Having a legal entity is a traditional way of hiring employees abroad, but it’s also a more complicated and expensive avenue. US companies may set up their own entity in a particular country and hire local employees. This can also be helpful when building a remote team in one country to control the hiring and payroll process better.
Yet, this option is pretty costly and complex to implement when hiring only one or two remote employees. Furthermore, US companies will have to duplicate their setup for any country where they are hiring.
Use Employer of Record (EOR)
EOR is a smart workaround that allows you to hire your contractor as an employee without setting up a legal entity abroad. You would work with a local in-country partner who hires the contractor as an employee on your behalf.
Therefore, the EOR administers all local employment, while a US company still manages the employee’s schedule and work. Moreover, compliance and payroll management will be managed and automated by an EOR company. Hence, EORs make it very easy for organizations to hire and manage their global team.
US companies can choose among many emerging EORs in the market like Velocity Global, Skuad, Papaya Global, etc.
Many employment and outsourcing arrangements are made with the help of a third-party company abroad. This way, US employers don’t have to work with international employment contracts for each individual.
Hiring a contractor
US companies can hire a remote contractor abroad as well, which is a service we here at Support Adventure provide as a remote staffing company. Contractors can technically be foreign sole proprietors, people registered as an LLC (with their own private limited company) or people with any legal entity.
In fact, it’s very common for remote workers to be hired as independent contractors. The relationships between the employer and the contractor will be identified as B2B.
That arrangement is highly recommended for international remote hires. Keep in mind that there is a strict set of rules governing independent contractor classifications, so you should verify that the position and expectations don’t violate those parameters. Read more about this here.
Taxation bureaucracy to keep in mind
Remote workers who aren’t US citizens will need to complete a W-8BEN form as required documentation to work for a US company.
Assuming the foreign independent contractor meets all the criteria of independent contractors, their salary won’t be subject to withholding in the US. However, if their status can’t be verified, US companies might need to withhold up to 30% of their earnings for taxes.
If a US employer hires US citizens living abroad, they must submit a W-9 form. The employee will be responsible for managing taxes on earned wages, though US employers will be responsible for sending out a 1099-NEC form every January for reporting purposes.
The only exception is if the contractor is paid via PayPal, as the service itself deploys 1099s.
Employee or Contractor?
If you’re a US company looking to hire remote workers overseas, you can choose between hiring them as an employee or as a contractor. So what is better for you?
These points can help you to make the right decision.
- How essential or critical is the work of a new hire? Is it a big part of your business? If yes, then hiring an employee is a better solution. You can train, mentor and develop them accordingly.
- Does the role contribute substantially to net profits? If yes, this should be an employee hire.
- Are you hiring a special skill set that is also a long-term requirement of your business? In that case, it could be both a full-time employee or a contractor.
- Do you need them to be autonomous? If yes, contractors are better suited. They usually control their own hours, work location, etc.
- What are your tax management requirements? Contracts require much less tax management than regular employees. They will do their own provisional and final tax submissions.
Overall, hiring independent contractors has its advantages, as the US company only has to set up a contract, confirm work progress and send payments. The worker takes care of their taxes and contributions as they are self-employed.
US social security for remote employees
The IRS also states that foreigners who work for a US company from abroad aren’t subject to Social Security or Medicare deductions in the US. These obligations only apply when services or work happens inside the US. Therefore, you and your remote foreign employee have no responsibility for those payments.
How to pay foreign employees remotely?
When hiring workers abroad, payment processes and payroll can get complicated. Your foreign employees also need to take care of the payroll and social security in their own country. Some payment options are:
Registering a legal entity abroad
If you set up a branch abroad and hire your employee that way, you can place a foreign employee on local payroll. Furthermore, you can “second” them to an affiliate or business partner in that country.
Outsourcing payroll of remote employee
There are two ways to do this. The first is through a payroll provider or an employer of record service. Payroll providers are only administrative and cannot function as legal employers.
The second option is to use the EOR we mentioned earlier. It’s a more comprehensive solution though. If you use a local employer of record to hire employees abroad, they will manage payroll and withhold taxes as part of the services. This is far preferable to the remote home payroll option and avoids non-compliance issues altogether.
Paying your remote workers as independent contractors
Payment is very straightforward if you hire workers overseas as independent contractors. An employer pays them an agreed rate directly while contractors deal with taxes on their own.
Some positions are perfect for a contractor role, such as salespeople working on commission, as well as hourly specialists such as lawyers or accountants.
Why should you consider hiring overseas as a US-based company?
In today’s times of remote and telework, companies can take advantage of hiring foreign talent. Moreover, there are several benefits of hiring workers overseas. For starters, US companies will save time and money by avoiding withholding taxes, social security and Medicare from employees’ salaries. This factor alone contributes to 7,65% in savings, but there is more to it.
Hiring remote employees overseas has other major advantages such as:
- access to the large talent pool
- native English speakers
- highly skilled talent
- productive and well-performing employees
- cultural similarities
- time zone alignment
Let’s not forget that the main reasons for outsourcing are financial gain and reduction of expenses. Studies have shown that companies tend to save up to 50% on staff by hiring foreign countries.
For example, when hiring remote workers in South Africa, US companies can benefit from:
- candidates with native English proficiency
- candidates with cultural similarities
- high-quality staff
- productive and well-performing employees
- competitive costs of hiring
- good infrastructure
- convenient time zone
Read more here about hiring staff in South Africa and all the benefits they bring.
As a matter of fact, our company Support Adventure has provided dozens of remote IT technicians based in South Africa for our Western clients. We realized the staffing potential of this country early on, especially for the IT industry, where we specialize in fulfilling staffing needs for MSPs.
Which roles are particularly suitable for hiring abroad?
Basically, the answer is that any job which can be performed remotely can be hired overseas. Some popular remote positions include:
- customer support
- technical support
- back-office services
- software and app development
- online marketing
- graphic design
Get help in hiring remote employees abroad!
Complications with taxes and laws scare many employers from hiring remote employees overseas. Here at Support Adventure, we provide talented, culturally compatible staff worldwide for US and UK companies. We are an expat outsourcing company that handpicks candidates with high standards via our training and testing program. Learn more about our offerings here.