How to Pay Foreign Workers in the US and Other FAQs

Find out how to pay American workers overseas, foreign contractors in the US, source and hire employees in another country and comply with US tax regulations while ensuring full compliance with local labor laws.

There are plenty of plus points to hiring foreign workers — global talent, cost-savings, improved productivity and diversity in the workforce, to name a few. Yet many companies are missing out on the advantages of engaging international talent because they are overwhelmed by the risks associated with paying foreign workers. Hiring and paying employees in another country compliantly can be challenging considering the complexities of differing local labor laws and US tax regulations for foreign workers. 

Luckily, these risks can be avoided by staying up to date with foreign employment requirements in the US. Enlisting professional contract management services will ensure full compliance, allowing your company to reap the benefits of building global teams. 

If you are unsure how to pay American workers overseas, how to pay foreign contractors in the US, how to source and hire employees in another country, or how to comply with US tax regulations while ensuring full compliance with local labor laws, keep reading for a breakdown of the most frequently asked questions regarding foreign workers in the US.

Can US companies hire foreign workers?

Yes, US companies can hire foreign workers either as full-time employees or independent contractors, with the option of either working remotely in their home country or relocating to the US with the relevant labor certification and visa. When applying for labor certification for foreign workers, the company must provide evidence for the need for a foreign worker and prove that the worker will be paid the required wage. Foreign independent contractors must complete Form W-8 BEN to prove their status as non-US residents. 

How can US companies hire foreign workers?

US companies can hire foreign workers by applying for the relevant certification from the US Department of Labor. The certification will be determined by the occupational requirements of the vacancy. Upon certification approval, the talent sourcing and interview process can begin. Once the right candidate has been selected, the next step is to obtain a work visa from US Citizenship and Immigration Services and to verify the tax laws applicable to the company and the newly appointed foreign worker. 

How can US companies pay foreign employees?

Typically, there are two ways to pay foreign workers in the US:

  • Set up an entity in the foreign worker’s country of origin. By setting up their own entity in a different country, US companies can hire and pay local employees and build remote teams across the world. A company could also opt to establish a subsidiary in a foreign country if the number of foreign employees justifies the time and cost associated with this process. 
  • The second and more efficient option is to engage an Employer of Record (EOR). This method ensures full compliance as the EOR administers all foreign employment matters on behalf of the company without exercising control over the employee’s work processes. By outsourcing payroll administration, companies can hire and pay foreign employees with confidence that the entire process remains compliant with local employment laws while adhering to the relevant tax regulations. 

What are the payment terms for foreign workers?

US employers are responsible for calculating foreign workers’ salaries and paying the equivalent in employees’ relevant local currency. Employers must also calculate and deduct income tax from their international employees’ pay. Factors to consider when hiring and paying foreign workers include working hours and time zones, payment instalments, employment benefits, tax regulations, currency conversion rates, and the regulatory bodies and laws of the relevant foreign countries. 

Depending on the employment agreement, foreign contractor workers can either be paid hourly, weekly, upfront, upon project completion or with a down payment. Foreign employees working remotely must be paid in accordance with their local standard salary rates. If needed, remote payment options such as an international bank transfer, international money order, or digital wallets like TransferWise or PayPal can be used.

What is foreign labor certification?

The occupational requirements of the job will determine which Foreign Labor Certification a company must apply for on behalf of a foreign worker. The options are as follows: 

  • Permanent Labor Certification
  • H-1B, H-1B1, and E-3 Speciality (Professional) Workers
  • H-2A Temporary Agricultural Program Certification
  • H-2B Certification for Temporary Non-Agricultural Work

Which visas are available for foreign workers?

A company or organization must apply for the relevant work visa from US Citizenship and Immigration Services on behalf of a foreign worker. Form 1-9 can be used to verify work authorization for a worker who is already in the US. If not, the company will have to sponsor the foreign worker’s visa. Below are the most common US work visas available for application, depending on the nature of the vacancy: 

  • L visas for specialized workers
  • E visas to transfer qualified workers
  • H visas for temporary foreign workers
  • P visas for fulfilling temporary engagements in the US

What are the advantages of hiring foreign workers?

There are several advantages to hiring foreign workers in the US. Engaging foreign talent can add value to an organization by diversifying the workforce, accessing global insights and increasing productivity. Other benefits may include:

  • Accessing an international talent pool to strengthen the workforce
  • Engaging unique skills that are in shortage in the US
  • Building global remote teams with localized offerings
  • Including foreign languages and global knowledge in the workplace
  • Unlocking new creative ideas and problem-solving mechanisms
  • Promoting diverse representation and inclusivity in the professional environment
  • Increasing flexibility in the workforce

Do foreign employees pay US taxes?

Yes, foreign employees working in the US are mandated to apply for a social security number and comply with US tax regulations. US companies paying foreign workers must report all salary payments to the IRS. Foreign workers in the US are subject to US tax rates of 30%, although reduced rates may apply depending on the tax treaties between the US and the relevant foreign country. To prove their foreign status and claim tax treaty benefits, non-US independent contractors must complete the applicable Form W-8 to their US employer prior to the first salary payment. Failure to submit this form will require employers to withhold 30% of foreign workers’ income and pay it to the IRS, as per US federal law. 

What is employee misclassification?

Worker misclassification is one of the most common issues when hiring and paying foreign workers. Worker misclassification occurs when a company or organization wrongfully categorizes an employee as an independent contractor for tax and legal purposes instead of a permanent employee. Worker misclassification can put companies at financial and legal risk with the possibility of an audit, misclassification lawsuit, fines, penalties, litigation expenses and worker settlements. Working with a Professional Employment Organization (PEO) can mitigate these risks by ensuring that workers are correctly classified and employed within full compliance with local and in-country laws.

 

CXC is a global HR outsourcing organization with 30 years of experience in workforce management. Our innovative and cost-effective solutions help companies gain a competitive advantage by improving efficiency while reducing risks.

Contact CXC today to start enabling your future workforce.

 

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