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Payroll Taxes for Remote Employees

Written By: MB Group

More and more these days, companies are quickly realizing that not all employees have to live close to the home office. If you, like many other businesses, are starting to hire out-of-state to find the top talent out there, you'll need to get up to speed on payroll taxes when it comes to your remote employees. 

Types Of Remote Workerswoman working remotely on laptop with coffee

Remote workers are any type of worker that does not commute to a central workplace, be it an office, warehouse, store, etc. Remote workers can range from those who live just a few miles away from a workplace location to those who are out of the state, or even out of the country. Because your business is no longer tied to a brick and mortar location, this opens up the possibilities for different types of remote workers for your business.  

Contractor

Remote companies prefer this type of working environment because it passes the role of dealing with taxes, etc., to the employees. However, the United States (and most countries) have strict rules on when a worker should be classified as a full-time employee vs. a contractor. Misclassifying an employee might lead to a hefty tax bill for the employer.

Full-time Worker

In most cases, you have to open a branch of your company in their locality, especially if they live abroad and comply with all local laws and regulations. This may apply even if you are hiring across a state line in the US—your business will need to pay taxes.

Sole proprietorship/ Company

In this case, employees set up their own company and use it for invoicing the work they do for their employer. This is the easiest way to hire an employee, especially when working with someone in a different state. Unfortunately, setting up a company is not easy for employees. In addition, it can be very costly to set up or operate a business in some countries.

Generally, whichever option you decide to go with, make sure you comply with the law to avoid trouble. However, there are specific points you should consider.

How To Pay Remote Workers

Luckily, the advancement of technology in the finance industry has created a world that makes it possible to move money around the globe in minutes and often at low costs.  Therefore, the most important factor to consider when paying your workers is where they live.

Remember that payroll is not just about transferring money into the employee's account. You have to include filling, depositing taxes( typically health insurance, income and unemployment. And withholdings. These are all done by the employee. Also, consider the type of relationship you have with your workforce when deciding to do payroll.

Paying Remote Workers In The US

The best way to do this is by doing it yourself. If you have a handful of employees who are not full-time workers, it all takes setting up payments with your banks. However, an increase in workflow may turn this approach into a logistical and compliance nightmare.

Some firms adopt tools like Payoneer, PayPal Payouts, which simplifies the process of paying multiple people and keeping costs low at the same time. This works best in cases where you don't have full-time workers; otherwise, dealing with taxes, unemployment insurance, etc., might be complex.

As more modern payroll providers maneuver the market with affordable prices,  there is no reason not to start using one as soon as possible.

Paying International Remote Workers

Most options available for local employees also apply to the international ones—using bank wires to pay them is a good option, though costly considering the $30 that is the standard fee for a single wire transfer. With 30 workers, let's assume, multiplying the standard fee, you could pay thousands of dollars just in bank fees.

Various companies choose platforms like LinkedIn or Upwork even if they don't hire through them.

person writing on paper with pen next to laptopTaxes For Remote Employees

As with payroll, the main concern is where your employees are based. Even if they're based in the same nation as you, you have to follow specific directives if they live and work in a different region or state, as is the case for the US.

Taxes For Remote Workers Based In Another State

The main basis is that employees pay taxes in the state where they work and live. Therefore, if your company is in New York, but you're employing a full-time remote employee living in Michigan, you (as the employer) need to file with the relevant tax authorities and deposit taxes in Michigan.

Taxes For Remote Workers Based In Another Country

Hiring full-time workers in another country can be challenging. You will have to open a local branch for your company and comply with all local laws regarding employment. Most firms cooperate with global teams to hire remote employees as contractors. That means the employee has to register as a freelancer or self-employed in their one country, pay income taxes, and any other work-related taxes.

Get Some Relief From Tax Experts

For many businesses, this is a new way of conducting business, and figuring out taxes can make it even more complicated. The team at the MB Group is here to help you with all your tax preparation and tax planning needs so that you can focus on your business. Contact us today to get started. 




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