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Select the best approach to pay workers in countries where the employer has no operations
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An employee wants to move to another country and continue working for his U.S.-based employer. Another employee cannot renew her visa and must return to her home country but can do her job remotely. Promising talent in another country has much needed skills but no interest in moving to the U.S.
If the employer involved has operations in the country in question, it's a relatively simple matter to transfer the employees or hire them through the local entity. But what if the employer has no presence in the country involved? This is where things can get complicated.
In some cases, an employer could be tempted to find a "workaround" to avoid the expense and administrative burden of creating the legal infrastructure necessary to employ and pay someone living outside the employer's home nation. By doing so, however, these organizations open themselves up to a host of potential legal consequences and HR headaches.
"When companies fly under the radar on these matters, it is easy for skeletons to come out," said Nicole Sahin, CEO of Globalization Partners, a global professional employer organization (PEO) based in Boston. "When that happens, you have to clean up the mess."
For example, if a worker living in a country that mandates generous paid-leave benefits is not being paid for time off as local laws requires, the U.S. employer could face significant liability. "This gives the employee a lot of leverage" if, for instance, the employer ever needs to fire that employee, Sahin said.
A key consideration is how many employees are involved and how long each employee will be living and working in the other country.
For example, Ecuador allows foreign employers to keep an employee who lives and works in Ecuador on the company's home country payroll if there is only one employee involved, said Donald Dowling, a shareholder with law firm Littler Mendelson P.C. in New York. An employee on a short-term assignment with a clear end date, such as within three months, could be paid as an independent contractor or that assignment could be treated as an extended business trip with no change to the employee's status.
[SHRM members-only toolkit:
Designing Global Compensation Systems]
Challenges also arise when a non-U.S. employer has employees who are working in the U.S.
"Let's say an Italian company based in Milan keeps an employee on its payroll when that employee moves to Chicago and begins working remotely," Dowling said. In this case, both parties could face significant legal jeopardy—the employee if he or she does not report that income or file a U.S. income tax return or pay taxes, and the employer for not withholding required U.S. payroll taxes.
Change the situation to involve a U.S. employer with an employee living in just about any other country and the legal consequences could be similarly harsh.
[SHRM members-only HR Q&A:
Where do expatriates pay income tax?]
Finding the Right Solution
In general, there are five options available for handling these situations, said Dowling. Not all of these solutions are legally viable in every location or situation. Employers, therefore, should evaluate the circumstances and choose the solution that fits best.
These are complicated situations and it's important for employers to get the details right. Sahin urged companies to bring all key stakeholders into the decision-making process, including the managers involved, HR, finance and legal counsel.
"There should also be a process in place to ensure that these situations are cleared in advance," Sahin advised. This can prevent managers from developing their own ad hoc solutions that could get everyone involved into legal trouble.
Related SHRM Article:
How to Pay Employees Working Across International Borders,
SHRM Online Global HR, December 2015
Joanne Sammer is a New Jersey-based business and financial writer.
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