Important Considerations for U.S. Companies Employing Workers Abroad

Harris Beach PLLC

U.S. immigration law recently has resembled a minefield, with potential risks and obstacles popping up nearly every week. Both employers and employees have been struggling to navigate these new rules and find ways to obtain and maintain valid visa status and work authorization for employees present in the U.S. Fortunately, the availability of “changes of status” or “extensions of stay” within the U.S. has remained relatively unchanged throughout the COVID-19 pandemic and the resulting fallout.

The more challenging scenario has been obtaining a visa for employees who were outside of the United States when the pandemic hit and who therefore may have become subject to the June 2020 Presidential Proclamation that limited the issuance of H-1B, H-2B, L-1, and many J-1 visas to employees of U.S. companies. Although significant exceptions have developed to this and other visa/travel “bans,” even those employees who may qualify for an exception will likely find it difficult, if not impossible, to schedule a visa appointment at a U.S. consulate/embassy abroad, due to the global closure of U.S. consular posts for routine visa processing. While the resumption of routine visa services was recently announced by the Department of State, with consular posts beginning to schedule routine visa appointments as resources and local conditions permit, as of the writing of this post nearly all U.S. consular posts are still scheduling emergency visa appointments only.

Consider the following scenario: A U.S. employer has filed an H-1B visa petition for a new employee who is currently living outside of the U.S. That petition has been approved by USCIS, but as a result of the Presidential Proclamation banning the issuance of new H-1B visas, the employee is unable to secure a visa in her passport to be able to enter the U.S. and take up her employment with the U.S. employer. The employee’s work can be performed remotely; her physical presence is not required at the U.S. employer’s worksite. Can the employee legally start working for the U.S. employer from abroad, before obtaining a U.S. work visa?

The short answer is, usually, yes. U.S. immigration law, and in particular the provisions governing the employment of non-U.S. citizens, applies only to individuals physically present in the United States. These laws dictate that no foreign national may accept employment in the United States unless they have been authorized to do so.

This is further clarified/corroborated in the Department of Homeland Security’s I-9 guidance. Generally, U.S. employers are required to complete Form I-9 each time they hire any person to perform labor or services in the United States in return for wages or other remuneration. Completion of the I-9 is the mechanism by which the employer confirms that its employee does in fact possess legal authorization to work in the United States. However, the I-9 Handbook for Employers confirms that U.S. employers should not complete Form I-9 for employees who are not physically working on U.S. soil. Despite the fact that the employer may be located in the United States, if the employee is not physically present in the U.S. performing work, the employer is not required to complete a Form I-9 for that employee; it follows, then, that the employee is not required to possess a U.S. work visa or U.S. work authorization. The employer’s obligation to complete the I-9 – and the requirement that the employee possess U.S. work authorization – would kick in only upon the employee’s physical entry to the United States.

While such an arrangement may be acceptable purely from a U.S. immigration perspective, employers should be mindful of the other issues that may be implicated in hiring or employing a worker who lives in a foreign country but who would be working entirely on assignments for the U.S. employer. For example:

  • How can a U.S. employer pay an employee working abroad? What payroll hurdles must be overcome? What are the payroll laws in the host country?
  • What are the tax implications on the U.S. employer? What are the employer’s tax withholding and reporting obligations to the IRS and to foreign tax authorities?
  • If an employee working abroad recently relocated from the U.S. to a foreign country, will any of the employee’s compensation (such as incentive compensation) be treated as taxable by the employee’s former state of residence? What are the tax implications for the employee? Where is the employee subject to taxation on his or her compensation, and is that employee subject to tax as a citizen or resident of the U.S. (residency for tax purposes often being different from residency for non-tax purposes) or of the foreign country where he or she works and/or resides? How should the employee’s compensation be allocated among various taxing jurisdictions? Are any tax treaties relevant to the taxation of the employee’s compensation?
  • Is the U.S. employer subject to/in compliance with the labor & employment laws of the employee’s host country, or other laws governing privacy and information security (such as GDPR)? If the employee is working in a country other than his or her home country, does the employee require a visa from the host country to perform work while there?

These related issues are often significantly more complex than the visa/immigration question of whether a foreign employee may legally perform work from abroad for an employer located in the United States. As a result, employers would be best served by consulting with experts in international tax as well as those well versed in the labor & employment laws of the host country.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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