Hiring Overseas Employees: A Complete Guide
Are you considering hiring overseas employees for your US-based remote company?
Though an international hiring process may seem like a challenge, the benefits of having remote workers abroad far outweigh the upfront legwork.
You may be able to find top talent for a fraction of the cost of hiring domestically. And if you hire remote workers in different time zones, you’ll boost your company’s productive hours and support window. The diversity of new perspectives may also spur innovation.
But what’s the deal with payroll and tax liabilities in other countries? Can your team unite despite cultural differences?
Today’s guide to hiring overseas remote employees provides a checklist of items like these to consider before you post your job ad. We’ll also share an overview of the best hiring and onboarding practices for overseas teams.
But Before You Learn the Ins and Outs of Hiring Overseas Employees…
We just need to clarify that we’re not legal experts here at We Work Remotely.
Posting your job ad on our super popular remote job board will blast your awesome opportunity to the entire planet.
But today’s guide shouldn’t be considered legal advice. So speak with a professional well-versed in today’s topics before putting them into practice.
With that PSA out of the way, let’s talk about what to add to your to-list as a US-based remote company looking to hire overseas employees.
Step 1: Determine Employee Classification (Remote Direct-Hire or Independent Contractor?)
Thanks to the rise of the gig economy, companies can operate remotely and hire diverse candidates from around the globe. But countries vary on what separates a direct hire from an independent contractor.
So before you consider adding another person to your team, you’ll need to be clear about the type of worker they’ll be.
Direct-Hire Employees Work Remotely For Your Company
Direct hires typically work exclusively for your company. Most countries classify an employee as someone who:
- Works set hours or a set schedule
- Follows the company’s training, instructions, and methods for completing their work
- Receives routine performance evaluations
- Earns a guaranteed, regular wage
- Is entitled to your company’s employee benefits, such as vacation and sick pay
If you hire a remote employee, you’ll need to comply with their local labor protections (more on this later).
Independent Contractors/Freelancers Provide a Service To Your Company
Independent contractors or freelancers often perform work for many companies simultaneously. They use their own working methods, create their own schedule, complete specific projects with deadlines, and earn money per project.
Some people believe taking the contractor route is the easiest way to hire overseas remote employees.
An independent contractor is considered self-employed, meaning they have the sole responsibility of reporting their income, taking on tax liabilities, and making social contributions in their country. This removes the burden off your company to do these.
However, countries are becoming stricter about what separates a gig worker from a full-time employee. So you’ll need to make sure your classification doesn’t violate local labor laws.
Step 2: Determine Your Tax Liabilities and Potential Withholdings
The IRS considers any wages earned by foreign workers for performing services outside of the US a foreign source of income, and not subject to reporting and withholding of US federal income tax [*].
So when a US employer hires non-US citizens overseas as remote workers, the company does not have to:
- File W-2 or 1099 IRS forms
- Pay social security tax
- Contribute to Medicare
Your remote team member will need to complete IRS Form W-8BEN to exempt them from all US tax liabilities.
What about taxes in your employee’s country?
If you hire remote independent contractors, they’ll be required to report their income for taxes and social contributions within their country.
If you choose to hire a direct employee, you’ll need to check their country’s rules about employer taxes. Failing to pay these employer taxes may lead to hefty fines, fees, and penalties later on.
Step 3: Make Sure You’re In Compliance With Local Labor Laws
Countries have their own unique labor laws that govern work hours, holidays, notice periods, vacation and sick leave time, justifiable termination and severance, etc.
As a remote employer of a direct-hire, you’ll need to fulfill the same obligations a local employer would for employees in that country. This means you’ll need to match all the entitlements and benefits they’re due.
For example, labor laws in the Czech Republic say [*]:
- Employees are entitled to four weeks of annual vacation and at least two consecutive weeks off.
- Pregnant employees are entitled to maternity pay (70% of their salary) and maternity leave of up to 28 weeks for one birth and up to 37 weeks for multiple births.
These rules may differ from those in your employee handbook. But you’ll need to comply with the local laws of where your remote employees live.
So make sure to research each country’s requirements for:
- Health and medical coverage
- Vacation time and sick leave
- Pension contributions
- Workplace health and safety guidelines
- Notice periods for termination
- Severance payments
- Paternity and maternity leave and pay
Now, these labor laws cover employees, not independent remote contractors. Freelancers are not entitled to employee benefits like vacation pay or severance packages since they’re self-employed.
Step 4: Paying Overseas Remote Employees
Your payment options depend on the type of worker (direct-hire vs. independent contractor), local currency, and each country’s laws.
For instance, fluctuations in currency happen all the time, and the US dollar exchange rate isn’t always equal. The current currency exchange rate for US $1 in Germany only nets €0.85 [*]. So you must consider this before agreeing on prices or salary.
Your four payroll options for direct hires include:
1. Paying your overseas remote employee from your US payroll, which is not considered the best approach. Your foreign employee will not have a social security number, potentially creating a few tax issues.
Plus, many countries (like China) prohibit this because there’s no way to collect taxes or social contributions.
2. Setting up a legal business entity abroad. If you’re going to hire multiple remote employees from the same country, you could incorporate as a legal entity there and pay them as a local employer.
This gives you complete control over the entire payroll process. And if you hire a native HR representative, they could help you comply with all local and country-wide regulations.
Only hiring one or two remote employees there? This process takes more time and money than it might be worth.
3. Partnering with a local foreign business or professional employer organization (PEO). If you have a business partner abroad, you could ask them to add your remote employee to their local payroll and reimburse them for the employee’s salary. The third party becomes the “employer” for payroll administration, tax withholdings, social contributions, etc.
A PEO provides a similar service. These companies group the employees of several companies into one large pool, allowing remote business owners to comply with local payroll and labor laws.
4. Using a third-party global employment outsourcing (GEO) provider. Want to outsource the entire payroll process for your direct-hire employees living abroad?
A GEO service can distribute payroll, withhold taxes, and comply with contribution requirements for employees working across the globe. They provide a local employer of record (EOR) that’s set up to meet these obligations and keep your business in compliance no matter where your employees live.
What about independent contractors? They typically receive payment per project, similar to a B2B transaction. Your remote company gets an invoice and pays for the service your freelancer provides.
Step 5: Create a Culturally-Aware Benefits Package
While reimbursements for childcare expenses and personal development courses are often universal, you can’t create a one-size-fits-all benefits package and expect it to attract or retain remote talent abroad.
What employees consider a perk in the US may not be the same for someone overseas.
For example, many countries provide healthcare coverage for their citizens, making your private health plan neither necessary nor valuable.
Instead, you’ll need to tailor each benefits plan to the country in which your new hire lives.
Do most people have fast internet at home, or will your remote employee find value in a coworking space stipend? Is there a strong cafe culture where a monthly coffee or tea allowance would be a huge bonus?
You may even want your HR team to research benefits plans your competitors offer in those countries to stay one step ahead.
Step 6: Communicate Your Remote Work Policy During Your Virtual Onboarding Process
After you interview and select the perfect candidate, your onboarding experience should welcome them to your team and outline your expectations. A stellar onboarding helps alleviate uncertainty and shows you’re invested in their success from day one.
Here’s where you’ll communicate everything about what it’s like to work with your team, including:
- How their scope of work matters to your company’s goals
- Their daily tasks and responsibilities
- How you define success and failure
- Tools, platforms, and systems they’ll need to use for collaboration
- Your communication guidelines and asynchronous communication examples
When hiring overseas employees, you’ll also need to think about cultural differences in their ways of working.
For example, a typical workday in Spain may still include a siesta (i.e., a three-hour afternoon break). So your employee may want to work a split schedule to have this.
Read up on these guides to provide the best onboarding experience ever:
- Guide To Onboarding Your New Work From Home Employees
- Best Practices For Your Virtual Onboarding Process
- Working Across Different Time Zones: Best Practices and Tools
You should also discuss your company culture during your virtual onboarding.
Step 7: Share and Reinforce Your Company Culture
It can be easy for remote employees working overseas to feel disconnected from your US-based team. So use your company’s shared values, goals, and mission to connect and align everyone.
Your company culture gives overseas employees a better idea of how you take care of your crew. But learning how to build a strong culture with a remote team isn’t enough. You must reinforce these values day in and day out.
For example, employees in Japan may expect to clock in long hours. But if your company truly wants to support mental health in the workplace, you won’t set impossible turnaround times and impose overtime.
In this way, you may need your company culture to teach overseas employees how to set healthy boundaries at work remotely, especially if this differs from your employee’s cultural norms and work ethic.
Ready To Tackle Hiring Overseas Employees? The Right Remote Job Board Can Help!
The future of managing remote workers may include hiring overseas employees, and that’s fantastic news for your team!
As we’ve seen today, hiring remote employees or independent freelancers abroad isn’t as scary or complicated as you may have imagined. So if you’ve been on the fence about this task, just pass along this guide and discuss all your options with your company’s key decision-makers.
Though you shouldn’t take our steps as legal advice, you at least have a roadmap to find your next outstanding hire outside the US.
From here, make sure you know:
And when you’re ready, remember to post your job ad on the most popular remote job board: We Work Remotely. With over 3 million monthly visitors, you’re sure to attract the best employee or gig worker your team needs for the win!
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