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I sometimes see job offers that allow employees to work remotely anywhere in the world. However, reading answers on Why does a US company need to know the location of their employees for tax purposes?, it sounds like allowing employees to work remotely anywhere in the world may cause some major tax headaches to the company. Do such companies have some strategies to conveniently deal with their remote employees? I'm mostly interested in companies whose headquarters are in the US.

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    This is HR's/Payroll's precise purpose in a company. They figure this crap out and pay taxes to the proper entity. I believe most payroll software attempts to help you take care of this tax mess automatically. – MonkeyZeus Jun 2 at 19:00
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There are several ways to handle the situation.

First, if the employer is large enough (not necessarily Google size, but just large enough) and already doing business in several locations, adding another employee in an existing location is much less of an issue than for a small or middle size business with no previous exposure to such situation.

Second, and quite frequently, employers attempt to have the individual categorized not as an employee but as an "independent contractor". This particular approach sometimes works, but it has become more and more difficult to implement given that all sorts of authorities (not just tax) are continuously expanding the scope of what constitutes an employment relationship and what is independent contracting. Even if it works, it's a little difficult to do with individuals who are already on the payroll of the employer. And, from the individual's point of view, it's far more complicated to be an independent contractor than an employee. The individual has to file business tax returns, get his own insurance, comply with all applicable rules, etc. Some people do this feeling that they "can run personal expenses through the company" or just don't appreciate what's involved.

Some sort of a intermediate approach can be taken by using Professional Employer Organizations (aka employee leasing organizations or, in some industries, "body shops") which specialize in taking on the employer responsibilities vis-a-vis the employee and "leasing" the employee to the organization that would otherwise need to employ/contract with the individual. These PEOs are large enough and experienced enough to handle the formalities. It's not the appropriate solution in all situations and, of course, the service isn't free. I'm also not sure how a PEO would deal with the new problem of having its employees work from their own homes, as opposed to working from the offices of the contracting organization.

And there is, of course, the classic "audit lottery" approach. Some businesses just ignore the rules and do what they want to do on the assumption that "nobody will ever know". That's not really a good idea to begin with and the penalties for failing to conduct the business property can be very hefty and frequently imposed years after the fact, which makes it impossible to attempt to retroactively fix the problems.

It's obviously a complicated matter (and I'm actually oversimplifying things) and should not be entered into by anyone without serious due diligence...

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    (+1) Interestingly, some companies (I am thinking about GitLab) rule out hiring people based in certain countries, probably because they figured out that the pretend-independent-contractor status is legally precarious in these countries. – Relaxed Jun 1 at 22:39
  • @Relaxed this is a great link, thanks for sharing! As a French I'm not surprised to see France in the list of countries GitLab doesn't hire from, given how complex and constraining labor+tax laws are there. I'd be curious how Gitlab workers are hired: as employees or as contractors, and if employed whether it is through the Professional Employer Organizations that Jack mentioned in their answer. – Franck Dernoncourt Jun 2 at 0:06
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    @FranckDernoncourt: GitLab is technically a Dutch company. The equivalent of a US "PEO" is known as a "payroll firm" in the Netherlands, but GitLab indicates that their employees are directly employed by national Gitlab operating companies. (Belgium appears to be an exception, which is no surprise. Workers from Belgium can be directly employed by the Dutch company) – MSalters Jun 2 at 12:33
  • @FranckDernoncourt GitLab only offers proper employment in the Netherlands (and maybe the US). Everywhere else, you're hired as a contractor. Which is why they won't do it in France: it's not so much that labor law is that complicated compared to other European countries, it's that the rules against “hidden employment” are quite strict. You cannot pretend to be a contractor while working for one client who directs all aspects of your work. HotJar works in the same way with Germany, Malta, and some other place as their “employment countries”. – Relaxed Jun 2 at 16:10
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    @Relaxed True enough. BTW, I found a list of countries where GitLab hires employees (rather than contractors). It includes the US, France and Romania. – jpaugh Jun 2 at 19:28
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From my experience (having done this) you are treated as being employed at some company facility. Assuming you're a US citizen/legal resident, if you're not a resident of the state where that facility is located, you pay non-resident state income tax in that state, and resident income tax in your state of legal residence. presumably being able to deduct what you paid to the other state. (I live in a state with no income tax, so I can't say for sure.) Then you can physically be anywhere in the world.

If you're not a US citizen or resident, things are going to depend on tax treaties between the US and your country. From the other direction, an American working for a European company, you're treated as a resident of that country and first pay income tax there. Then you can take the amount of tax paid to the country as a credit on your US income taxes.

Caveats: This is only my personal experience as of a decade or so ago, so regulations may have changed. There might also be ways of treating remote employees other than what I experienced. I think the bottom line is that if the company is of any size and has been around for a while, they will have done this many times before, and know what needs to be done.

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    As a resident of a state with no income tax and working for decades for a company headquartered in California (income tax) with facilities in all states and working from home, I have worked remotely on hundreds of facilities in all the states, and I have even gone in person to work on facilities in many states with income tax, but I have never paid anything in state income tax. My taxes are strictly calculated on the state where I live, and that is the same for the 200,000+ fellow employees of my company. – Ron Maupin Jun 3 at 3:40
  • An interesting note is that a woman who moved to my state from a state with income tax asked me how she was to report her income to the state. I told her that we did not have income tax here. She said that she understood that, but she believes we still need to report income to the state, and she needed to know how to do that. I explained that her income was of no concern to the state. She went away not believing what I said. I assume she eventually found out that the state simply does not care what she earns as an employee. – Ron Maupin Jun 3 at 3:43

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