Ask HN: How do you pay remote employees in different countries?
I'm on of the founders of a small but fast growing startup. We're a team distributed across Europe, and so far we've had the fortune that everybody we employed had a sole proprietorship lying on the shelf somewhere.
But as we're growing, we can't keep asking every single employee to begin a company, right? Also, starting a mailbox firm in every country where >0 employees live sounds like administrative hell. How do other distributed teams (across borders) solve this?
58 comments
[ 3.3 ms ] story [ 55.7 ms ] thread(I don't work for Transferwise, just a huge fan of their service)
They freelance, you pay them what you promise and that's it.
They just handle cross currency transfers. Very far removed from payroll.
I'm not sure how you got this confused, but it sounds like you need to speak to an accountant.
As far as how you pay people, you just transfer them money from your bank account. All of their accounts will have SWIFT or IBAN numbers or both, and you just transfer the funds.
Your accountant will take care of the rest, and they will be responsible for taxes on their end. No, they will not need to be companies, but you will need to pay them as companies, as these individuals will be responsible for their own expenses typically covered by a business (healthcare, union, taxes, etc.)
Are you talking about the US? As this is not the case in Sweden at least.
Mostly because it holds for zero of the countries our current team lives in. :-) I appreciate your help though, but so far accountants have been less than helpful. The ones I talked to seem to know international employment stuff worse than I do.
Why would you need to start a mailbox firm in every country with employees?
Lets say you have a German company and you have people working across Europe. For the sake of argument lets say that you have 15 people in France. Let say that all the people work for you 100% of the time, so they are effectively employees.
On the employment taxes/benefits front how are you paying the French state those 14 peoples payroll tax, and how are you paying in for their state pension? Pragmatically, you can't do this (AFAIK) without establishing a company in the jurisdiction and registering them as employees.
On the employment rights front, which jurisdictions are you following? As you have 15 people in France they are due to have a workers representative, does that fall under the French or the German system? If you have an issue with one of the team do you follow French or German employment law? Again, pragmatically each jurisdiction assumes that you fall under their employment laws and logically they'll assume you have a company in that geo.
https://open.buffer.com/salary-formula/
it's basically: base reference salary * cost of living * role * experience
edit: oh you where talking about payrole, sorry, I'm OT
If you just pay them without an invoice but as payroll then congratulations you're now on the hook for all taxes and social security payments in the country your now-employee works in, no matter what's in the contract. In fact you might have committed a crime against local labour law by putting in the contract that you're explicitly not liable for social security payments, benefits or business-side taxes. By not registering a mailbox firm in that country you're probably also committing some crime because this means you couldn't meet any of the local labour law obligations.
This may work while everything is peachy while you pay them a higher amount which they can use to pay their social security themselves, but if your now-employee ever gets a grudge against you, they can easily file a lawsuit against you, and it'll be hard for you to defend. Your now-ex-employee will keep the inflated salary, having not paid the security benefits, and you'll be on the hook for back-paying all tax and social security payments with interest plus a fine.
Especially as a startup you don't want to deal with all these administrative overheads. Just request that each person sets up a business from which they can invoice you, and that they get an accountant to help them with whatever obligations that comes with. You can suggest to pay for the accountant. It's not actually that big of a deal and will allow each person to meet the local obligations, which they (or the local accountant) will know better than you. Note that they themselves then become liable for taxes and social security payments, as someone always is.
As you note, the other big problem is that it places you in a very uncertain situation with labour law / labour relations.
the remote country would have to have an agreement with my country to be able to force me to change anything.
(the european union counts as one country here, so i am asking about the case where at least one party is outside)
greetings, eMBee.
For a small team it's unlikely as the cost of enforcement outweighs the benefit. But as you grow the amounts become more significant and there are plenty of impacts of not doing things properly. Here are way this could impact a business:
* The business won't be able to legally carry out business (e.g. sales) in the jurisdiction because there'll be an outstanding court judgement or tax judgement against you.
* The business' auditors or professional company directors may either (a) ask you to keep money on your balance sheet to account for the outstanding judgement, (b) or refuse to sign-off your accounts.
If you refuse to tell them about the outstanding fines/judgement then you will be taken to have lied to them at which point you may be struck off as a company director. It's extremely difficult to find a professional finance professional to work for a business where ethical and reporting standards are not followed because they will risk being censured and losing their livelihood.
* You won't be able to travel to the jurisdiction (if you are a director/owner of the business) as you'll risk being put in jail/civil fine.
* The state in question can use international tax treatments and bring a court case or enforcement against the company within their main jurisdiction. Unlikely for a small company.
There are other ways to hire someone, but it's a legal and paper work nightmare.
Of course you have to treat them as real contractors and not employees. This means they chose where and when to work.
One thing to be aware of is that in many European companies a person who works for you full-time is considered to be an 'employee' even if they come in through an individual service company. In particular if they have no other active 'customers'.
The more you treat people as 'employees' the more at risk you are: if you give them holidays, if you monitor their work closely etc, if they don't invoice you, etc.
The risk is that you will have to pay employment taxes and benefits and you may be fined.
Pragmatically, you are unlikely to be at risk at a low number of team members within a jurisdiction: say up to 10-15. But, at some point you will be considered to have created a permanent establishment from a tax position.
2. PE vs Limited Company
Many people talk about establishing a company in a jurisdiction and then employing people etc. There's actually a state before this where you have a 'permanent establishment' from a tax position even if you don't have a limited company in the jurisdiction. You can be considered to have employees at this point and you are responsible for payroll taxes, but don't yet incur the business taxes (e.g. corporation tax). Unfortunately, it varies by European jurisdiction how likely this is.
This state is essentially supposed to handle the idea of someone having an employment contract in one jurisdiction (say France), while living in another (say Germany). Practically, it doesn't work yet because the rest of the employment rights assume that you have a company in each jurisdiction. You can sort of hack it for an intermediate step.
3. Pragmatically expanding in Europe
How you handle this is up to you in terms of how comfortable you are with the risk profile. The elements are too long (and boring) to go into here.
In my personal opinion it makes sense to:
1. Hire team members in a limited number of jurisdictions. Basically where you believe you will eventually establish a full company: you might pick three jurisdictions you're comfortable with.
2. Handle team members as employees: this is a basic decision about how you want to handle your remote team but it has big impacts. If you treat them as 'employees' then make it clear to them that they are responsible for their employment tax, pensions, etc.
3. Risk the permanent establishment tax problem
4. When a jurisdiction gets to 10 or so people form a company. In many European countries this is around the stage where employment rights also kick in.
5. Reverse the people into the company and pay the employment taxes/benefits etc. This will cause problems because you will have to adjust pay since you will now be incurring payroll taxes and public pensions etc.
Oh and I find it so odd that none of the famous "remote first" bloggers/talkers address these operational issues.
I'm surprised that there isn't already some sort of service that handles this although it does sound like quite an administrative entanglement.
Off topic: Do you get requests around embedding AI/NLP in your chat program?
Occasionally, but not too often. Thing is, relatively few of our customers use TalkJS for customer support - the usual suspects (Intercom, Zendesk, etc) are usually better than TalkJS for those use cases. Turns out most services that need the flexibility that TalkJS offers (eg for user-to-user chat instead of user-to-helpdesk chat) need it for direct communication between real humans.
But there's a number of edge cases, so we do have a few customers who've connected TalkJS to chatbot AIs via our REST API / webhooks.
There are other fields that AI could solve that we get requests about more frequently though. For instance disallowing people to share "real world" contact information such as street addresses (some of our customers are marketplaces who are afraid to lose their transaction markup if customers can easily bypass them). Given how insane street names can be this is an impossible problem, but decent AI could do better at that than any regex can.
Curious why you ask!
The detection of contact information is an interesting one although would not be able to solve this by just pinging the Google Maps API and then if it shows up, assume that it's an actual address at which you can discard it?
Will the contractor model still work?
N:B I’ve created a company in the UK but I’m thinking of moving to Denmark.
Unfortunately by moving to Denmark the company is viewed as having an office here.
I therefore work for and get paid from an ApS (Danish limited company) which is wholly owned by the UK Ltd.
This is called a 'datterselskab' in Danish. Look at Danløn for payroll.
Unfortunately EU currently has no framework for cross-border remote employees, local laws are too different to unify them all. This is not going to change soon.
1. Hire them as "freelancer/self employed" and let them invoice your company. They can either invoice as individuals or through their own company if setup. But laws get tricky depending on countries. For example, if you are an employer-based out of the US and the freelancer is NOT a US person (US person has a specific definition) , you need them to fill out something called W8-BEN form but you need to talk to a CPA/tax lawyer to determine if that's the right setup.
2. If you have more than 1 person from the same remote country, you may have to setup a subsidiary of some sort which again depends on where your business is setup and where the remote team is setup. That subsidiary can then still provide services to the parent company etc. But it then adds tons of overhead for the remote country laws, business setup and also something called "Transfer Pricing". Can get complex for smaller companies. But the advantage of this option is that you have an official local company that can pay employees on payroll, follow the local employment and tax laws etc.
EDIT: I think the comment is wrong actually, trinet only offers this service for companies and employees in the US.
greetings, eMBee.
This isn't legal in the Us except under specific circumstances. Whether I'm a contractor or an employee isn't my choice – the IRS has a pretty clear distinction between the two.
https://www.irs.gov/newsroom/understanding-employee-vs-contr...