Most reasearch here applies if you’re American, working outside the US for a US company (not sure if it relates to non-US employees). This is for employees (natural persons) wishing to work for a (US) company:
The reason why US companies don’t want non-US based employees is payroll issues
You can only put someone on US payroll if they spend >6mo in the US (didn’t fact check this, might be bullshit, check what Airbnb is doing)
Countries have different rules around “payroll” and around “income tax”
Income tax gets generally triggered after 6 months. (Companies usually don’t care, responsibility of the employee).
Payroll also has triggers (most conservative countries is 3 months, same rule as Airbnb)
Payroll companies (like DEEL) exist to make sure that the US company is compliant with the labour and other laws of where their employee is located.
These payroll companies have the same model:
They have a subsidiary or partner firm in most countries
That subsidiary, either signs you as an employee with that entity (to be compliant with employment laws) or more commonly:
They will structure you as a contractor to them (following contracting laws in that country, much more common)
In various countries, there are complexities around what a contractor is (as it relates to benefits etc).
These companies now become a vendor, getting paid by the hiring company, to pay the employee.
It often is set up as a percentage of your salary (cost to the hiring company), increasing the cost to the hiring company (especially if that vendor uses another partner/company, as they often do), everyone increasing the cost.
The benefit to the hiring company, is that it is de-risked, they are compliant and it’s the most secure route.
The drawbacks are much higher cost and getting rid of the employee (in some countries, like SA, it’s very difficult to fire employees, need to give large packages, help find other work etc.), it’s hard to structure bonuses, stock, options.
Drawbacks for the employee would be difficulty to enter into agreements and changes (say, we agree to x salary now, and I want a 5% increase, it will exponentially more expensive for the hiring company to get there, even if they agreed). Things like “Let’s agree to a lower salary now, but give me 6 months to double revenue and if I hit that target, we agree to a 10% increase”. Flexibility is lost.
As example: the hiring company would have had to pay $400,000 but the employee would have only seen $170,000 before taxes (which would have been levied at 45% in that country).
These companies require you to be resident somewhere (have to spend x months in the country)
These agreements are structured in local laws and payment, so it has to happen in that currency (MXN, ZAR etc)
The other route is to have a business entity: one in the US (like US LLC) or outside the US (like Mexican company)
In the US, LLC works best with low business taxes, low reporting requirements (DE, WY, NE, SD). Some states require business bank account in that state (some don’t). WY don’t require reporting on any assets outside of that state (Kava in NE). Pass-through entity not treated as Corp or S corp.
The hiring company will contract the US LLC (as a vendor, for instance).
The vendor agreement / contract details things similarly as an employment contract: scope of work that will be completed, payment structure (how much, how often, how invoiced, terms of invoice, how long the contract is for — annually renewed for instance. Requirements and restrictions (like agree to use VPN for certain things). Reimbursement policy (cover transport, flights, office gear, testing gear). Ownership policy (owning all work completed by the employee). Legal stuff (state of Delaware, state of X). Termination policy (how much notice should be given etc. etc).
In effect, the US LLC, sends an automated payment invoice to the hiring company fortnightly or twice monthly. That amount is the “salary plus benefits” divided by 12/24. Separately the LLC will invoice for other things like flights, equipment etc. etc.
The “employee” and the LLC aren’t eligible for normal benefits (like dental, healthcare, home office, retirement matching, wellness). Other weird benefits like anniversary $1000 flight somewhere etc. They really add up. Best way is to calculate the sum of the benefits in USD / percentage (total cost to company for benefits for this employee-if-the-were-an-employee) and added to salary divided by 12/24
Slightly higher cost of compliance to the LLC for annual reporting, accounting, compliance etc.
Leave. Technically the hiring company can’t force a vendor to “be in a seat, in front of a computer, x days per week, x hours per day”. From the worker’s side, they technically have zero leave. So it will come down to trust. Employee will just track the days and take leave equal to the amount that the company’s staff takes, including US federal holidays (not the home country’s).
Cash bonus is easier. That can be included in the contract, or added as addendum. If target x is hit or if hiring company feels that LLC contributes significantly etc etc then $ or % payment bonus. You invoice for this separately. Invoice at same time other staff are eligible. The word “bonus” is never used in the contract / adendum.
Stock bonus was too complicated, easier to calculate a cost to hiring company in USD and just work with that.
Equity — Werner needs to research. Assume just LLC gets ownership of the shares. Review taxes for business owning other business.
Crypto tokens — Werner needs to research.
Can’t be part of “bonus software” see below
Not part of HR software (like Workday) due to contractor status (things that have leave days, sick days, performance reviews related to bonus). Potentially can make performance reviews etc difficult
Can be part of Bamboo / hiring software, Slack etc etc.
There might be security restrictions — policy around staging server access
Changes — added in addendum.
Drawback to employee (could be a benefit to the company) no job security, easy for hiring company to terminate contract, compliance costs.
Could be riskier to the company, employee vs contractor.
Non-US LLC. Might be beneficial to the hiring company, can explore it, but unlikely.
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