The Legal Challenges of Hiring Employees Abroad and Allowing Remote Work for American Workers Living Abroad

By Greta Morina - McMahon Berger P.C.

March 29, 2022

As employers in all sectors are facing drastic labor shortages, some are thinking outside the box by launching recruitment campaigns outside the U.S.  The Covid pandemic has shown employers that working virtually may be an option if the circumstances exist to support it. Fortunately for these employers, the increase in virtual work has provided them with the opportunity to hire employees living in other countries without the need to get involved in the somewhat arduous employment visa immigration process. But, as with any hiring, there are legal considerations and consequences that employers must be aware of to successfully hire foreign national employees even when not going through the immigration process. These same considerations also apply when current employees request to work remotely abroad (although this issue brings with it more immigration-based concerns that will be briefly discussed below).

How Can a Company Even Do This?

Beyond the employment and labor law implications involved, practical considerations such as who will manage the employees and how they do so are an initial hurdle to address. One proven way a U.S.-based company can hire employees abroad who will remain abroad is to set up another entity or subsidiary in whatever country they want to hire. This option brings with it a lot of other implications that companies must consider relating to business structure, so be prepared to hire local counsel for this guidance. Another option that many companies may not be aware of is to use an employer of record. Basically, the company hires a local employment management company that will ensure compliance with local rules and regulations by taking on the legal responsibility to do so, while the U.S. company still maintains full management authority for the day-to-day activities, such as performance reviews and terminations. Generally, whichever method you choose, you will still need to be apprised of any legal implications that come with running a business.

My Laws or Your Laws?

One big issue that employers face when hiring abroad is discerning which employment and labor laws apply: America’s or the foreign country’s laws? The answer is (as always in the legal world) it depends. It depends on whether it is a U.S. Citizen working remotely from the country, and if so, how long the U.S. employee will be working abroad, the scope of the duties abroad, etc. For a foreign-born employee, this usually depends on whether an employment contract exists. More likely than not, the laws of the foreign country will apply, but, with some good drafting and guidance, employers could potentially avoid foreign employment and labor laws (which could be more employee friendly). As such, employers must plan ahead when hiring abroad and be prepared to negotiate very important employment agreements.

Taxes, Taxes, and More Taxes

Another issue employers will likely face is not in the legal realm necessarily, but in the tax realm, that may lead to possible legal ramifications. Employers must be aware that employees working abroad will have different tax obligations and it will be on the employer to determine what those tax obligations could be by hiring local tax specialists in the foreign country to provide that guidance. And as with any tax ramifications, social security also comes into play. This will likely mean employers will need to work with foreign payroll companies to pay their workers abroad accurately and appropriately.

Technology Use = Data Use = Security Issues

With technology also comes the risk of data privacy and security. In this area, both U.S. and other country securities laws will apply in duality. The biggest concern here for employers would be to avoid triggering regulations about cross border data transfer and confirming that the host country provides the necessary data protection required under the applicable laws.  Again, the best method to overcome these issues would be to use carefully written employment agreements with a data management clause, but the risks may remain depending on the country.

But I’m Not Hiring an Immigrant, Why Would Immigration Laws Apply?

Well, you are right in the fact that you are not hiring an immigrant to work in the U.S.; however, every country has its own immigration laws when it comes to foreigners traveling and working there. If a U.S. company sends a U.S. citizen to another country to do remote work, then that citizen will more likely than not be required to apply for a work permit to work in that country. For situations such as these, there are visas called Nomad Visas that countries use to allow foreigners the opportunity to not only tour their country but also to work while they do so. Every country that uses these types of visas has its own requirements and duration limitations. Employers must be aware that sending an American employee abroad will trigger immigration issues.

The decision to employ U.S. or foreign workers outside of the U.S. opens an employer to new opportunities to hire and retain top talent. Taking the proper and legal approach in such circumstances requires careful consideration and advance planning. Consultation with the immigration attorneys at McMahon Berger can help point you in the right direction and set you on a path to success.

The St. Louis employment attorneys at McMahon Berger have been representing employers across the country in labor and employment matters for over sixty years and are available to discuss these issues and others. As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.

www.mcmahonberger.com