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I`m living in Europe (Austria) and I am thinking about doing remote work for an US company as an employee or contractor (I don't have a work visa for the US).

I'm trying to figure out how much I would actually get before and after taxes so I can negotiate my salary.

Let`s assume the company wants to pay an annual salary of 60k USD. In my country I would get about 37k USD as an employee after paying my taxes.

However, these numbers would not include the additional non-wage labor costs. In my country a company would be obligated to pay about 18k extra for social security, medicare, etc. They call this "Lohnnebenkosten" (incidental wage costs) and this payroll tax is usually not subtracted from the annual salary. The employer has to pay the 18k and the 60k, so I can get my 37k.

How's the situation in the US? Is there much of difference? Is there some kind of best practice how to handle the difference while debating salaries?

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    Can you say for certain if you would be an employee or contractor? Or are you hoping for answers to both? – Dan Getz Feb 16 '15 at 12:25
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    If you really are a contractor (the company would send you a 1099 if you were in the US), its likely they won't withhold anything and you'd be solely responsible for paying any taxes. – Andy Feb 16 '15 at 15:16
  • @DaNGetz careers.stackoverlow has a "allows remote" search filter. Some of the positions listed are described as a "full-time, fully remote, 8h/day, 40h/week, 160h/month offer", so I guess it's an employment. But most of the time it's really not clear. – armin Feb 17 '15 at 21:53
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In the US we have social security taxes, where for a full time employee the company pays half and the employee pays half. When you work as a business, what we call 1099 for the form that the wages are reported on, then the contractor pays the full amount of social security tax.

There are times when a contractor can negotiate a higher rate because the company does not have to pay that tax. However, most of the time the company just prefers to negotiate the rate based on your value. If you are a 60K year guy, then that is what they will pay you. From the company's perspective it does not matter what your tax rate is, only the value you can bring to the company. If you can add about 180K to the bottom line, then they will be happy to pay you 60K, and you should be happy to get it.

Here in the US a contractor can expect to make about 7.5% more of an equivalent employee because of the social security tax savings to the company. However, not all companies are willing to provide that in compensation. Some companies see the legal and administrative costs of employees as normal, and the same costs with contractors as extra so they don't perceive a cost savings. There are other things that would preclude employers from giving the bump although it is logical to do so.

First you will really have to feel out your employer for the attitude on the subject. Then I would make a logical case if they are open to providing extra compensation in return for tax savings. If I am an employee at 60K, you would also have to pay the government 18K. How about you pay me 75K as a contractor instead?

That would be a great deal for all in the US.

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  • A U.S. employer pays 7.65% company paid social security, often provides medical insurance, paid holidays, vacation and personal days. There are 260 weekdays, so 7 holidays, 10-15 vacation and 5 personal add add about 10% to the cost for an employee. Thus a contractor needs to be paid about 20-30% more, that is 1/(1-.20) to 1/(1-.30) more than an employee to earn the same. And a contractor would need another 10-20% for medical coverage. So the total differential should be 20-50% more, that is 1/(1-.20) to 1/(1-.50) more remuneration than an employee. – ChuckCottrill Feb 16 '15 at 19:39
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    Agreed @ChuckCottrill. However contractors are also able to write off certain costs that a W-2 cannot claim on their taxes. Additionally contractors can receive overtime compensation where many W-s cannot. Still my experience has been that the pay is pretty close. – Pete B. Feb 16 '15 at 20:32
  • Correct @PeteBelford contractors (1099) do gain tax advantages not available to employees. Harder to quantify; perhaps 2-3% but YMMV. – ChuckCottrill Feb 17 '15 at 16:57
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An employee costs the company in four ways: Salary, taxes, benefits, and capital.

Salary: The obvious one, what they pay you.

Taxes: There are several taxes that an employer has to pay for the privilege of hiring someone, including social security taxes (which goes to your retirement), unemployment insurance tax (your unemployment benefits if they lay you off), and workers compensation tax (pays if you are injured on the job). (There may be other taxes that I'm not thinking of, but in any case those are the main ones.)

Benefits: In the U.S. employers often pay for medical insurance, sometimes for dental, life, and disability. There's usually some sort of retirement plan. They expect to give you some number of vacation days, holidays, and sick days where they pay you even though you're not working. Companies sometimes offer other benefits, like discounts on buying company products, membership in health clubs, etc.

Capital: Often the company has to provide you with some sort of equipment, like a computer; furniture, like a chair and desk; etc.

As far as the company is concerned, all of the above are part of the cost of having you as an employee. If they would pay a domestic employee $60,000 in salary and $20,000 in taxes, then assuming the same benefits and capital investment, if a foreign employee would cost them $0 in taxes they should logically be willing to pay $80,000. Any big company will have accountants who figure out the total cost of a new employee in excruciating detail, and they will likely be totally rational about this. A smaller company might think, "well, taxes don't really count ..." This is irrational but people are not always rational.

I don't know what benefits they are offering you, if any, and what equipment they will provide you with, if any.

I also don't know what taxes, if any, a U.S. company has to pay when hiring a remote employee in a foreign country. If anybody on here knows the answer to that, please chime in.

Balanced against that, the company likely sees disadvantages to hiring a foreign remote employee, too. Communication will be more difficult, which may result in inefficiency. My previous employer used some contractors in India and while there were certainly advantages, the language and time zone issues caused difficulties. There are almost certainly some international bureaucratic inconveniences they will have to deal with. Etc. So while you should certainly calculate what it would cost them to have a domestic employee doing the same job, that's not necessarily the end of the story. And ultimately it all comes down to negotiations. Even if the company knows that by the time they add in taxes and benefits and whatever, a domestic employee will cost them $100,000 a year, if they are absolutely convinced that they should be able to hire an Austrian for $60,000 a year, that might be the best offer you will get. You can point out the cost savings, and maybe they will concede the point and maybe not.

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  • So the employer may have to pay like 20k extra (taxes and benefits; office and equipment costs excluded)? That's more or less the same the employer has to pay in my country. Interesting. I thought there's a bigger difference between "social democratic" Austria and the turbo-capitalistic USA (just kidding). – armin Feb 17 '15 at 22:10
  • I just made up the $20k as an example, didn't intend to give the impression that's the real number. In real life, social security taxes are 6.2%, Medicare tax is another 1.45% (higher for higher-income employees), unemployment tax varies by state and the company's past history but here in Michigan the rate for a new business is 2.7%, workman's comp varies but I understand tends to run around 1 to 2%. So add that up and you get somewhere around 12%. – Jay Feb 18 '15 at 14:25
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    The biggest-cost benefits are paid time off and health insurance. Figure most employees in the U.S. get 7 to 10 holidays and 2 to 3 weeks vacation, total roughly 20 days off per year out of 260 weekdays, so about 8% of pay is for non-working days. Medical insurance varies and the cost has skyrocketed since the government took steps to reduce the cost, but my last employer paid about $500 per month toward insurance for employees with families, less for single employees. If the average employee makes $50k, that's about 12% of salary. – Jay Feb 18 '15 at 14:29

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