Questions and Answers on Hiring an Employee to Work in Another Country
Q1: We would like to hire an employee who would be living and working in another country. What do we need to consider?
A1: When a WSU employee works in another country the employment and taxation requirements of that country must be met by both the individual and the University, just like employees and employers in the US must comply with IRS and state tax requirements and all payroll and employment laws and obligations. Each country has a unique set of laws. Issues can be complex. Some things that need to be considered are:
- How long will the employee work there?
- Is the employee a US citizen or a citizen of the country of residence, or other?
- What is the employee’s visa status in the foreign country?
- It usually is necessary to retain legal and tax professionals to advise on tax and employment requirements – can the department afford the cost of professional services to work through the requirements of hiring an employee to work in another country? See below.
Q2: How can we make sure we are handling this employment in compliance with the country’s laws?
A2: The University does not have in house expertise to be able to analyze, recommend and execute all that is needed to employ a person in a foreign country. The Controller’s Office has engaged a tax consulting firm to assist with initial analyses and computations, but it often is necessary to also retain legal and tax experts in the country where the employee is located.
Q3: Professional tax or legal counsel can be expensive. Who pays for this?
A3: The employing department is responsible for the costs of all professional services and ongoing tax/payroll processing costs.
Q4: How much does an initial tax and compliance analysis cost?
A4: It can differ according to the complexity of the situation. Currently, these kinds of analyses have been between $5,000 to $10,000. If it is necessary to obtain legal counsel this amount will be higher.
Q5: Would there be ongoing costs and how much are they?
A5: Usually it is necessary to engage an agency on the ground in the country of residence to handle the proper payroll and tax remittances and filings throughout the year. Currently, these costs have been around $1000 annually, however costs may differ according to the country and complexity of the situation.
Q6: Could we instead treat these appointees as independent contractors, thereby avoiding local labor laws and tax issues?
A6: Many countries have laws that protect employees and it is difficult to justify an independent contractor relationship. Please review BPPM 60.01 for information on the employee vs independent contractor question. https://policies.wsu.edu/prf/index/manuals/60-00-personnel/60-01-determining-pay-status-employee-contractor/ In addition to our US laws regarding independent contractors, the laws of the host country must also be followed. In almost all other countries it is much more difficult to classify someone as an independent contractor. The specific legal criteria for an independent contractor for that country must be met.
Q7: Could a department utilize a temporary staffing agency in the host country to handle the employment, payroll and taxation issues?
A7: If the temporary staffing agency would allow the department to choose the worker and then employ them through the agency this would be an excellent option that would transfer the burden of compliance away from the University. It would be up to the department to find such an agency. The contract with that agency would need to be processed through Purchasing Services.
Q8: Aren’t the employee’s taxes their own responsibility? Why should the University care?
A8: Just as employers in the US have obligations to the IRS with respect to employees, most foreign countries place certain tax obligations on the employer for its employees. Failure to comply with these laws can result in fees and penalties – possibly for both the employee and the employer.
Q9: If there are employer-paid taxes, like our social security taxes, or other mandatory employer-paid contributions in these other countries, are those covered centrally or borne by the department?
A9: Currently these benefits are paid on subobject 07DO. They will be paid from departmental funds. There is no allocation from the central benefits pool for those positions on PBL type funds.
Q10: If our employee is working in another country because of the COVID-19 pandemic, is there CARES Act funding to cover these special tax consulting and other costs?
A10: No. These funds are not available for these costs.
Q11: How does Payroll send payment to an employee in another country?
A11: Unless the employee has a US bank account, typically Payroll will request a wire transfer each payday for an employee in another country. Although it might depend on the situation, the process could look something like this:
- Payroll produces a regular payroll check for the employee
- Payroll deposits the check into a holding account
- Payroll will figure out the correct withholdings for the country’s taxes and create a manual earning statement showing the gross pay, deductions and new net pay
- They will initiate a payday wire transfer to the employee’s foreign bank account using the country’s currency
- Wire transfer fees are covered by the department
- Withheld taxes and employer paid taxes are sent to a third party agent in the country of residence
- This third party will remit the taxes to the country’s revenue authority and file necessary tax returns
- Employer paid taxes and any third party charges are paid quarterly by the department
Q12: If we have decided we want to pursue an out of country hire and are willing to bear the associated costs, how do we proceed?
A12: Please follow the guidelines below
- Contact Payroll Services, email@example.com, and ask for an estimate of the tax analysis costs.
- If the estimate is acceptable, submit a memo, before an offer is made, signed by the Appointing Authority to HRS and Payroll Services with the details of the hire and an account to be used to cover the cost of the necessary professional services (tax and/or legal)..
- The Controller’s Office will prepare a Scope of Work document for the tax consulting firm and initiate the preliminary tax analysis. This analysis will inform whether it is necessary to retain additional professional services.
- HRS will assist the department in conducting an initial analysis of employment laws of the country the employee is working in. As noted above, it may be necessary to retain additional professional services to evaluate the employment laws at the cost of the hiring department. HRS will assist in drafting the offer letter incorporating any in-country employment requirements
- Follow WSU hiring guidelines normal hiring procedures, processing the necessary documents through HRS and Position Control
- Once the hire has been made Payroll Services will need the necessary banking information in order to wire payments to foreign bank accounts.
Q13: Our employee started their job at WSU and had to return to their country because of COVID19 or another reason. How do we proceed to ensure compliance?
A13: These situations will need to be handled on a case by case basis. Please email Payroll Services with the following information:
- Employee Name
- Job Classification
- Position Number
- Name of country the employee is working from
- Date the employee left the US
- Date the employee will return to the US or plans to end their employment with WSU
Payroll will work with HRS to determine the best approach to use for each situation.
Q14: Can we have a graduate assistant work from another country?
A14: Eligibility for Graduate Student Assistantships require individuals to reside within WA State. If unable to reside in WA State during an assistantship term, they are not eligible for the appointment. Please contact the Graduate School (gradschool firstname.lastname@example.org; gs.finance email@example.com) with further questions.