How Employees Working Remotely From Abroad Impacts Employers
Since the pandemic made remote work commonplace for many professionals, some workers are reconsidering how they envision work life moving forward. If living near the office is not necessary, even working remotely from abroad is an option.
However, this can present challenges for an employer. For instance, having employees who live overseas could affect how a business handles payroll, local employment laws, taxes, healthcare and other benefits.
Here are some issues U.S. employers should take into consideration for employees seeking to relocate internationally.
Employees living abroad while working for a U.S. company qualify for benefits, including 401(k), stock options and pension plans. But a company’s health insurance policy may not cover employees living abroad. In this case, the employer may need to seek local providers for employees and purchase insurance where the employee resides.
Working outside the U.S. could require workers to pay into two social security systems. This is not always the case, though, as the U.S. Social Security Administration has agreements with many countries that eliminates the need for dual social security payments. These agreements are beneficial if an employee is not going to live in a place long enough to qualify for social security benefits. For more information, check the SSA website.
Companies must report and withhold payroll taxes for U.S. employees even if they are residing overseas. Income may also be required to be reported to the host country. Whether the worker is considered an employee or contractor may impact how taxes are handled.
Foreign earned income exclusion
Americans living abroad may qualify for the foreign earned income exclusion, which allows them to exclude up to $108,700 of their foreign earnings from income from their U.S. taxes for the 2021 tax year. The IRS website offers more details on how to qualify for this exclusion.
Local employment laws
U.S. employees living abroad will likely have to follow local employment laws. These could include items such as mandatory sick or holiday pay; pension provisions; and termination policies. A worker’s status as an employee or independent contractor also may influence whether an employee must adhere to local laws.
Providing detailed employment documents can help both the employer and employee by clearly outlining benefits and expectations. These documents also may be helpful if local authorities make a request for documents while overseas.
Widening the net to allow talent to maintain their jobs while living abroad can lead to happy employees, but it also can have legal and financial implications for a business. Solidifying a global mobility program can help anticipate any potential issues. It is a good idea to look closely at the details, including how long an employee wants to relocate, before deciding whether having employees working abroad is a fit for your company.