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The recent news on June 22, 2020, about US President Donald Trump H-1B visa suspension raised concerns within US companies. H-1B visa is issued by the United States to foreign nationals hired by the US companies in specialty occupations requiring specialized knowledge.
What does the new H-1B visa suspension mean for foreign workers?
Every year, 85,000 H-1B visas are issued by the US government. In 2020, the government received over 200,000 applications, which is more than double of the spots available. With that said, it's easy to think that the suspension resulted in cutting off a critical source of highly skilled foreign nationals.
We have seen many complaints from companies who raised concerns about tech talent shortages even before the ban has taken place. Those who planned on moving to the United States and work for companies will need to seek alternatives and work together with their employers to resolve the presented issues.
How does H-1B visa suspension affect companies?
Sourcing talent is not an easy task under any circumstances, let alone in those which prevent relocation. With the H-1B executive order in place, those looking to hire foreign nationals have two options- either to resort to hiring within the country or to hire remotely. If you opt to hire a foreign national within the country, take a look at the ones who already have an H-1B visa or can apply for another type of visa when already in the US.
Alternatively, you can source your talent overseas and start the working relationship with your desired candidate remotely until the visa ban has been lifted. We have seen in increasing trend of companies moving their operations remotely, so it's worth considering taking this path.
How do I hire remotely?
Three significant factors need to be taken into account if your company is looking to hire remotely: contractual agreement, compliance documentation (including tax form), and payment. In this article, we will guide you through each factor and present the paths you can take.
Open a subsidiary
Opening a subsidiary is the least common path for companies hiring remotely. If you consider hiring one person in a foreign country, the costs of opening a subsidiary are high, and the ROI is low. This is a good option if you are thinking about outsourcing one of your departments to a specific country in the future.
Hiring a PEO agency
Hiring a Professional Employer Organization or PEO for short can be an excellent way to go if you are looking to hire a full-time employee overseas. This agency will provide you with a local employer of record setup (EOR) and take care of necessary documentation, payroll, and employee benefits on your behalf. The cost of hiring a PEO service will, however, considerably raise the cost of employment. Having a PEO handle your international hiring is a good option if you are unable to hire them with a different setup.
Hiring an Independent contractor
Hiring a person as an independent contractor is the most common solution, especially with SMEs partially or even fully distributed. An independent contractor is a person (or an entity) that is hired to perform services under a contractual agreement. In most cases, they are responsible for covering their taxes and benefits. The company (client) is only invoiced for the work that is performed. By hiring an independent contractor, you might expose yourself to misclassification risks. Still, with the right setup, you should be well on your path to work with just about anyone anywhere.
How to Hire an Independent Contractor
As mentioned before, three key factors determine the adequate setup: contractual agreement, compliance documentation, and payments. Let's take a look at each of them individually in the context of hiring an independent contractor.
How to create a contract for independent contractors?
Having an iron-clad contract is the foundation of a successful working relationship. When you are onboarding a new hire, it is detrimental to have a contract that takes into account the US and local labor laws of the person you're working with. Ensuring localized compliance for both parties is crucial because you need to make sure the right setup is in place and you are not violating local regulations, such as IR35 in the UK, or Independence test in Serbia.
What compliance documentation do I need to hire an independent contractor?
This is when the local realities really kick in. Each country has a set of requirements that an independent contractor needs to have in order to provide services. (We covered many of them on our blog) Some countries need individuals to register their entity, whereas others can offer services as a natural person. Invest time into learning about this and make sure your contractor has all the necessary documents right from the start.
Some of the most common steps are registering a business in the Business Registry of the country, applying for tax, and/or registering for benefits, such as medical insurance, pension, etc.
Collect W-8BEN(E) Tax Forms for independent contractors
In addition to compliance documentation related to proper setup, as a US company, you are required to collect Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting, also known as W-8BEN Form. This form serves as a proof that the service provider is a foreign national who is providing services for a US company. There are two versions of the form: W-8BEN for individuals and W-8BEN-E for entities.
Do I need to collect 1099-NEC for foreign independent contractors?
Yes, you are required to collect and submit Form 1099-NEC to the IRS for every contractor who has earned more than $600 within a tax year. This includes both US and foreign service providers.
Note: This used to be reported with Form 1099-MISC, but the IRS reintroduced Form 1099-NEC for tax reporting in 2020.
How to pay independent contractors?
Now comes the tricky part. Paying your foreign independent contractors is a lot more than merely sending money to an international bank account. Firstly, you need to check if the person you want to work with is allowed to receive money from the US.
Once that's confirmed, you should find the best payment method that suits both you and the other party. When you send an international transfer, the money is going through SWIFT (intermediary banks), which results in hefty fees that can go as high as $80 per transfer. This fee will most likely be charged to the receiving party, which is not ideal.
Looking for alternative solutions such as Transferwise, Revolut, PayPal, Payoneer, etc. is worth looking into. These payment providers often enable local payouts in multiple currencies, streamlining the process on the receiving end and minimizing the fees and conversion rates applied by the traditional banks.
Keep your accounting clean
Don't forget to keep a record of all the translations you make to your foreign contractors. This helps alleviate hurdles on both sides, as sometimes payment confirmations are requested by the banks or payment providers to release the money to your workers. You should consider investing in a digital bookkeeping solution such as Quickbooks or Xero.
Streamline the process and keep everything in one system of record
We understand labor law complexities and managing operations for remote hires can be a burden. We want to help lift off some of that. Deel is proudly supporting 400+ companies of all sizes to manage their payroll and compliance globally.
When you decide to hire outside of the US, Deel can offer the following:
- Localized contracts for 160 countries, reviewed by an expert legal network
- Easy compliance and tax documentation with the option to file form directly to the IRS
- Unmatched payment experience with 15+ payment providers and 100 local currencies
- Mass pay that enables you to pay your whole team (local or global) in a click of a button
Are you interested to learn more about Deel? We would love to show you around!