A U.S. company can't necessarily add an employee in Germany, Canada or Brazil to its existing U.S. payroll and start sending them dollars. The employee's location determines which employment laws apply, where payroll taxes need to be paid, what benefits are mandatory and even how often the employee must be paid.
For most U.S. companies, there are a few practical ways to hire and pay someone abroad: use an Employer of Record (EOR), employ them through an existing foreign entity, establish a new local entity, or hire them as an independent contractor when the working relationship genuinely qualifies.
The right option depends on where the worker lives, whether they're an employee or contractor, whether your company already has an entity there and how large you expect the team to become.
This guide walks through each option and what U.S. employers should consider before putting an international worker on payroll.
Can a U.S. company hire and pay an employee in another country?
Yes. U.S. companies can employ people who live and work in other countries.
The bigger question is how the employment relationship is structured.
When someone works permanently from another country, the fact that their employer is American doesn't mean U.S. employment rules automatically replace the rules where the employee works.
A company may need to account for:
- Local payroll taxes and withholding
- Employer social contributions
- Mandatory benefits
- Local employment contracts
- Minimum vacation and leave entitlements
- Termination and notice requirements
- Payroll frequency requirements
- Local-currency requirements
- Data privacy rules
- Corporate tax and permanent-establishment considerations
That's why paying an international employee isn't simply an international wire transfer. You first need a legal structure through which the person can be employed and payroll can be run.
Before paying someone internationally, answer these four questions
Before choosing a payroll provider or sending an employment agreement, determine:
1. Is the worker an employee or an independent contractor?
This distinction always matters.
If the person controls their own schedule, serves multiple clients, provides their own tools and works on clearly defined projects, an independent contractor arrangement may be appropriate.
If they work regular hours for your company, report to your managers and function like the rest of your employees, they may need to be treated as an employee.
Worker classification rules differ by country, so a U.S. company's preferred classification isn't necessarily the one local authorities will accept.
2. Where will the person physically perform their work?
This is particularly important for U.S. tax purposes.
For nonresident aliens, the IRS generally treats compensation for services performed outside the United States as foreign-source income. By contrast, services physically performed in the United States can create U.S. withholding and reporting obligations.
In other words, where the work happens can matter more than where the company paying the worker is headquartered.
3. Is this a foreign local hire or an existing U.S. employee moving abroad?
These aren't the same situation.
Hiring a Canadian resident who has always lived and worked in Toronto is different from sending an existing U.S. employee from New York to work in Toronto for two years.
Existing U.S. citizens and resident aliens working abroad can continue to have U.S. tax considerations, while a foreign national working entirely outside the United States will generally be treated differently.
4. Do you already have a legal entity in the employee's country?
If you have a local entity capable of employing the person, you can generally put them on that entity's payroll.
If you don't, you'll typically need to decide between:
- Using an Employer of Record
- Establishing a local entity
- Using a contractor arrangement if the relationship qualifies
That one question can significantly narrow your options.
How international hiring differs from U.S. hiring
One of the easiest mistakes U.S. employers make is assuming that an international employee can be managed using the same rules as an employee in the United States.
Many familiar U.S. payroll assumptions don't travel well.
So while the employee may report to a manager in San Francisco and work entirely inside your U.S. organization, their employment may still need to comply with the rules in the country where they actually work.
Can you put an international employee on U.S. payroll?
Sometimes the bigger question isn't whether you can technically transfer their salary. It's whether U.S. payroll alone satisfies your obligations in the employee's country.
Usually, simply adding a foreign employee to your existing payroll system doesn't solve issues such as:
- Local income-tax withholding
- Employer social contributions
- Statutory benefits
- Local employment contracts
- Payroll registration
- Required leave
- Termination protections
- Local reporting
For example, imagine a Delaware-based software company hires a full-time developer who lives and works permanently in Spain.
The company can certainly send money from the United States to Spain. But sending the salary doesn't by itself address Spanish payroll, employment and social-security requirements.
The company still needs an appropriate employment structure.
That's where an EOR or foreign entity typically enters the picture.
5 ways U.S. companies can pay international workers
1. Hire the employee through an Employer of Record
An Employer of Record becomes the employee's legal employer in their country while your company continues to manage their day-to-day work.
The EOR generally handles functions such as:
- Local employment agreements
- Payroll
- Tax withholding
- Employer contributions
- Statutory benefits
- Leave administration
- Employment documentation
- Local compliance requirements
This means a U.S. business can hire an employee in another country without first establishing its own local entity there.
When an EOR makes sense
An EOR can be particularly useful when:
- You're making your first hire in a country
- You only expect to hire a small team there initially
- You want to test a new market before establishing an entity
- You're hiring across several countries at once
- You need someone to start before an entity can reasonably be established
Instead of building an employment infrastructure for every new market, the company uses the EOR's infrastructure to employ the worker locally.
Example
A New York technology company wants to hire its first sales employee in the United Kingdom.
It doesn't have a UK subsidiary and doesn't expect to establish one this year.
Rather than creating an entity for one employee, the company could use an EOR to employ that person in the UK, administer local payroll and benefits, and provide the required employment documentation.
The U.S. company still directs the employee's work. The EOR handles the local employment administration.
2. Pay employees through an existing foreign entity
If your company already operates an appropriate legal entity in the country, you may not need an EOR at all.
Instead, the employee can generally be employed by that entity and paid through local payroll.
A global payroll platform can help consolidate payroll operations across countries by managing calculations, reporting, payments and payroll data within a common system.
This is usually best suited to companies that already have established international infrastructure.
For example, a U.S. business with subsidiaries in Canada, Germany and France could use global payroll technology to bring payroll data from those entities into one operating environment.
The important distinction is:
Global payroll helps you pay employees through entities you already have. An EOR gives you an employment structure in countries where you don't have one.
Some companies use both.
They may employ five people through an EOR when entering a country and later transition those employees to their own entity once the local operation becomes large enough.
3. Establish your own foreign entity
For companies making a significant and long-term investment in one country, creating a local subsidiary can eventually make more sense.
Your organization becomes the direct local employer and controls payroll, benefits and employment administration itself.
But establishing an entity creates responsibilities beyond payroll.
Depending on the market, you may need:
- Corporate registration
- Payroll registrations
- Tax registrations
- Local directors or representatives
- Local accounting
- Bank accounts
- Employment counsel
- Annual corporate filings
- Local benefits administration
- Ongoing corporate compliance
That's why entity creation is usually a strategic decision rather than something companies do for every international hire.
A U.S. company planning to build a 100-person operation in Germany has a very different business case from one hiring its first German engineer.
4. Hire the person as an independent contractor
For genuinely independent work, a contractor relationship can be the simplest way to engage international talent.
The contractor invoices the U.S. company and is generally responsible for managing their own taxes and business obligations.
But calling someone a contractor doesn't necessarily make them one.
Local authorities may look at factors such as:
- Who determines working hours
- Who controls how work is completed
- Whether the individual serves other clients
- Whether the company provides equipment
- Whether the relationship is ongoing
- How integrated the person is into the organization
- Whether the worker carries genuine business risk
A full-time worker who reports to a manager, works exclusively for one company and operates like everyone else on the team may be difficult to defend as an independent contractor simply because the company doesn't have a foreign entity.
Misclassification can result in unpaid employment taxes, benefits, vacation pay, penalties and other liabilities.
The safer principle is simple:
If the relationship functions like employment, structure it like employment.
5. Send an existing U.S. employee abroad
International expansion doesn't always involve hiring a new foreign worker.
Sometimes a U.S. employee relocates abroad temporarily or permanently.
That creates a different set of considerations because the worker may continue to have U.S. tax or Social Security obligations while also becoming subject to rules in the destination country.
For U.S. citizens and resident aliens employed abroad by a U.S. person, U.S. federal withholding rules can continue to apply, although exceptions and foreign-country withholding rules can change the outcome.
If an employee is being transferred internationally, companies should review the assignment separately rather than treating it like a new foreign local hire.
What U.S. tax rules apply when you pay an international worker?
There isn't one IRS rule that applies to every "international employee."
The answer depends on:
- The worker's U.S. tax status
- Whether they're an employee or contractor
- Where they physically perform their services
- The type of income being paid
- Whether a tax treaty applies
Here are some of the most common scenarios.
Scenario 1: A foreign employee works entirely outside the United States
Suppose a U.S. company hires a French national who lives in France and performs all of their work from France.
According to the IRS, wages earned by a nonresident alien for services performed outside the United States are generally foreign-source income and aren't generally subject to U.S. federal income-tax reporting and withholding as wages.
That doesn't mean there are no payroll obligations.
It generally shifts the focus toward France, where the employee works and where local employment and payroll requirements need to be addressed.
Scenario 2: A U.S. citizen or resident employee works abroad
The analysis changes when an existing employee is a U.S. citizen or resident alien.
The United States generally taxes U.S. citizens and resident aliens on worldwide income, and special withholding rules can apply when they're employed overseas.
Foreign tax rules may apply at the same time.
That's why sending a U.S. employee abroad should trigger a separate review of U.S. and host-country payroll requirements rather than simply moving the employee's home address in HRIS.
Scenario 3: You hire an international contractor
Contractors create another set of rules.
The source of compensation for personal services generally depends on where the services are performed.
That distinction matters when determining potential U.S. withholding and reporting requirements.
Documentation can also vary based on the arrangement and circumstances.
It's therefore better to determine the correct IRS documentation for a particular worker than to apply one form universally to every person outside the United States.
Scenario 4: A foreign worker performs services inside the United States
If the individual physically performs services in the United States, the tax analysis can change considerably.
The IRS generally treats compensation for services performed in the United States as U.S.-source compensation, subject to exceptions and applicable tax treaties.
This is why a remote employee who occasionally works from the United States shouldn't automatically be treated the same way as someone who performs 100% of their work abroad.
Do international workers need Form W-8BEN?
Not every international worker should automatically be handed a W-8BEN.
The correct documentation depends on factors such as the worker's classification, tax residency, income type and where services are performed.
Rather than making W-8BEN collection a blanket onboarding step for every foreign employee and contractor, U.S. businesses should determine the appropriate documentation for each arrangement with their payroll or tax provider.
What are Social Security Totalization Agreements?
Social Security creates another issue for U.S. companies moving employees across borders: the possibility of paying into two countries' social-security systems for the same work.
The United States has bilateral Social Security agreements, commonly called Totalization Agreements, with 31 countries.
These agreements coordinate coverage between the two systems and can prevent qualifying employees and employers from paying Social Security taxes to both countries on the same earnings.
They can be particularly relevant when an existing U.S. employee is sent abroad temporarily.
For example, if an agreement keeps an employee covered by the U.S. Social Security system, the employer may be able to obtain a Certificate of Coverage demonstrating that the employee is exempt from the corresponding foreign social-security tax.
Whether an employee qualifies depends on the agreement and the circumstances of the assignment.
How should U.S. companies pay employees in local currency?
Once the employment structure is established, the next challenge is actually moving the money.
International payroll can involve:
- Multiple currencies
- FX conversion
- Local bank rails
- Funding deadlines
- Country-specific payroll schedules
- Statutory bonuses
- Employer contributions
- Employee withholding
You shouldn't assume that every employee can simply choose to receive their normal salary in U.S. dollars.
Local rules and employment agreements can affect what currency must be used, and paying employees in a foreign currency can expose them to exchange-rate swings or conversion fees.
A global payroll or EOR provider can handle the conversion between the company's funding currency and the employee's payroll currency as part of the payroll process.
Don't assume every country follows U.S. payroll frequency
U.S. companies also need to adjust their expectations around pay cycles.
Biweekly and semimonthly payroll are familiar to American teams, but payroll schedules vary significantly internationally.
Some employees are paid monthly. Other countries or employment arrangements can have additional statutory payment requirements.
Certain markets also use mandatory additional salary payments or bonuses that don't resemble standard U.S. compensation structures. Those costs should be understood before an offer is finalized.
How much does it cost a U.S. company to employ someone abroad?
An employee's salary is only one component of their total cost.
Suppose a U.S. company budgets the equivalent of $100,000 for a new international employee.
Its total employer cost may also include:
Base salary
- employer payroll taxes
- social-security or pension contributions
- statutory insurance
- mandatory benefits
- additional statutory salary payments where applicable
- supplemental benefits
- payroll or EOR fees
The exact calculation changes dramatically by country.
That's why comparing an $80,000 employee in Texas with an $80,000 employee in France based on salary alone can be misleading.
Before extending an offer, calculate the total employer cost in the employee's country.
This is especially important when compensation teams are benchmarking multiple markets. A location with lower average salaries can still carry relatively high employer contributions, while another market may have higher salaries but lower payroll overhead.
What U.S. companies need to know about local employment laws
Payroll is only one piece of compliant international employment.
Employment contracts
U.S.-style employment documentation doesn't necessarily work abroad.
Many jurisdictions require employment contracts containing specific information about compensation, hours, leave, notice periods and other employment conditions.
Terms that are common in a U.S. agreement may also be restricted or treated differently elsewhere.
Termination
At-will employment is particularly important to reconsider.
While at-will arrangements are common across much of the United States, many countries impose statutory notice, severance, procedural requirements or restrictions on the circumstances under which an employee can be terminated.
A U.S. manager therefore shouldn't assume that an international employee can be separated using the same process as a U.S. colleague.
Mandatory benefits
Statutory benefits can include:
- Paid annual leave
- Sick leave
- Parental leave
- Pension contributions
- Healthcare
- Social insurance
- Statutory holidays
- Severance
Your company may choose to offer benefits above the statutory minimum, but it generally can't replace mandatory local entitlements with the U.S. benefits package.
Intellectual property
IP provisions should also be localized.
Rules governing employee inventions, copyright and assignment of intellectual property vary between countries. A clause copied from a U.S. employment agreement may not have the same effect elsewhere.
Data protection
International payroll requires processing sensitive employee information.
Depending on where workers are located, local privacy frameworks can affect how employee information is collected, transferred, stored and accessed.
For global employers, this should be built into payroll operations rather than treated as a separate issue after hiring.
Does hiring an international employee create permanent-establishment risk?
Potentially.
A permanent establishment, or PE, is generally a taxable business presence that can create corporate tax obligations in another country.
Hiring one international employee doesn't automatically mean your company has created a PE.
The analysis can depend on factors such as:
- What the employee actually does
- Whether they negotiate or conclude contracts
- Whether they generate local revenue
- Whether your company has a fixed place of business
- The country's domestic tax laws
- The applicable tax treaty
An EOR can help manage the employment infrastructure for a worker, but it should not be treated as a blanket guarantee that permanent-establishment risk disappears.
If an international employee will have significant sales authority, contract authority, senior management responsibility or local business operations, get tax advice specific to that market.
Three examples of how U.S. companies can structure international hires
Example 1: A U.S. SaaS company hires one developer in Spain
The company has no Spanish entity and expects the developer to work full time.
A contractor arrangement could introduce classification concerns if the developer operates like a normal employee.
Establishing a Spanish entity for a single employee may also be more infrastructure than the business needs.
An EOR could employ the developer locally while the U.S. company manages their day-to-day work.
Example 2: A U.S. company builds a 40-person Canadian team
The company initially enters Canada using an EOR.
As headcount grows and the Canadian operation becomes permanent, management may determine that establishing a Canadian entity makes economic and operational sense.
Employees can then potentially transition to employment through the company's own Canadian entity and local payroll.
International employment doesn't have to be an EOR-versus-entity decision forever. The right structure can change as the business grows.
Example 3: A U.S. company hires a freelance designer in Argentina
The designer operates their own business, controls their schedule, serves several clients and is hired for clearly defined projects.
A contractor relationship may make sense.
The company should still document the arrangement properly, determine the appropriate U.S. tax documentation and confirm that the relationship satisfies relevant local classification rules.
How to choose between an EOR, entity, contractor and global payroll
A simple way to think about the decision is:
There isn't one right model for every stage of international expansion.
A growing business may use contractors for project work, EOR for entering new markets, global payroll for existing entities and eventually establish new entities when headcount justifies it.
The important part is matching the employment model to the actual working relationship and the company's footprint.
How Borderless AI helps U.S. companies hire and pay internationally
International hiring shouldn't require your HR and finance teams to become experts in the payroll rules of every country they enter.
Borderless AI brings Employer of Record, global payroll and contractor management into one global employment platform.
For U.S. companies expanding internationally, Borderless AI can help manage:
- Employee onboarding
- Localized employment agreements
- International payroll
- Payroll calculations and deductions
- Benefits administration
- Contractor management
- Compliance monitoring
- Multi-country employment operations
AI-powered workflows help reduce manual administration across contracts, onboarding, compliance and payroll, while giving HR and finance teams a centralized view of their international workforce.
That means a U.S. company can expand into a new market without building an entirely new HR and payroll operation each time it makes a hire.
FAQs
Can a U.S. company legally employ someone in another country?
Yes. However, the company generally needs an employment structure that satisfies the laws and payroll requirements where the employee works. Depending on the situation, this could mean using an EOR or employing the person through the company's local entity.
Can I pay an international employee directly from the U.S.?
Being able to send the payment doesn't necessarily mean you've satisfied local employment requirements. If the individual is an employee, you may still need to handle local payroll withholding, employer contributions, benefits, contracts and reporting.
Can I put a foreign employee on my U.S. payroll?
It depends on the circumstances, but U.S. payroll alone may not satisfy the employment and payroll requirements of the country where the person works. Companies should determine the appropriate local employment structure before hiring.
Do foreign employees need a W-8BEN?
Not universally. The appropriate U.S. tax documentation depends on the person's status, classification, type of income and where the services are performed. Employers should determine the correct documentation for each situation rather than using a W-8BEN as a blanket requirement for every international worker.
Do foreign employees working abroad pay U.S. income tax?
For a nonresident alien performing services entirely outside the United States, wages are generally considered foreign-source income and aren't generally subject to U.S. federal wage withholding. Different rules can apply to U.S. citizens and resident aliens working abroad or individuals performing services inside the United States.
What is the easiest way to hire one international employee?
For a U.S. company without an entity in the employee's country, an Employer of Record is often one of the most straightforward options. The EOR employs the worker locally and manages payroll and employment administration while the U.S. company directs their day-to-day work.
When should a company establish its own foreign entity?
An entity can make more sense when a business has a substantial, permanent workforce or broader commercial operation in one market. Companies often compare the ongoing cost and operational requirements of an entity against continuing to use an EOR.
Can I hire an international worker as a contractor instead?
Yes, if the actual working relationship qualifies as independent contracting under the applicable rules. Using a contractor agreement purely because your company doesn't have an entity in the country can create misclassification risk.
What are Social Security Totalization Agreements?
They're bilateral agreements between the United States and certain countries designed to coordinate Social Security coverage and help prevent qualifying employees and employers from paying into two social-security systems on the same earnings.
Does using an EOR eliminate permanent-establishment risk?
Not necessarily. An EOR can provide the local employment structure, but permanent-establishment analysis depends on factors including the employee's activities, authority, local tax rules and applicable tax treaties. Companies with employees conducting significant commercial activity in another country should obtain appropriate tax advice.
