4 ms·

Many US companies hiring people from Europe are treating them as de facto employees but paying them as contractors. This is illegal. It’s not something that th

Many US companies hiring people from Europe are treating them as de facto employees but paying them as contractors. This is illegal. It’s not something that the US government has been regularly enforcing. But if the trend continues and ends up on the public’s radar, that will change.

bitL 4y ago
It's not illegal. An EU person needs a legal entity in the EU (it can be either freelancer or a company) and then it's just usual B2B relationship where EU person pays their taxes, insurances etc. in the EU. US company still saves, i.e. instead of paying 200k to a fresh graduate they can pay it to a senior dev in the EU.
- Semaphor 4y ago
  Depends, in Germany chances are that it falls under Scheinselbsttändigkeit (pseudo self-employment) which would be illegal.
  - bitL 4y ago
    That would be if the company were in Germany. But not outside Germany, there the freelancer is classified as "exporter" (both for US and EU clients).
    - gingerlime 4y ago
      the only issue is that you might be liable to pay social insurance (DRV), but only if they can show that you have only one long-term client, and I’m not sure if it applies to foreign clients, especially outside the EU (but it might)
      - bitL 4y ago
        AFAIK it doesn't apply to outside-Germany clients. The freelancer is viewed as exporter and contributes to German export economy. Mind you, a freelancer has no social safety net, no pension, exorbitantly expensive health care (900+ EUR) and no unemployment benefits either.
        gingerlime 4y ago
        I think that’s why the DRV might step in and force a freelancer to pay into the social security system if they have a single client. If I recall it also applies to foreign clients, but I’m not 100% sure how far it extends. It’s definitely easier to bypass the DRV if your client is not German, but not entirely waterproof as I recall.
- meheleventyone 4y ago
  The illegal bit isn’t the pay structure but the treatment of a contractor as an employee. Both the European and US laws make this distinction with similar criteria. This is to make sure companies aren’t avoiding their obligations to employees. And just from a moral perspective if you’re expecting someone to act like an employee you should treat them in kind.
  - csmpltn 4y ago
    > "The illegal bit isn’t the pay structure but the treatment of a contractor as an employee." What's illegal here exactly? 1. US Business Entity conducts business with EU Business Entity. 2. The person (let's call them a contractor) is employed as a full-time employee for the EU Business Entity. They also function as the owner of the EU Business Entity. 3. US Business Entity, EU Business Entity and the contractor - all pay their respective taxes as required by the laws in their jurisdictions. This is the very foundation of how consultancies operate, for example: 1. The consultancy is the employer, the consultant the employee. 2. The consultant gets hired out to different clients, to work on different projects. 3. The consultant's salary gets paid by the consultancy, not the client. 4. The client only ever conducts business with the consultancy.
    - meheleventyone 4y ago
      If the company contracting allows the contracting entity to maintain the autonomy and flexibility required then nothing. Just wrapping people in shell companies doesn’t usually avoid the legal tests for whether someone is being treated as an employee or contractor AFAIK.
      - csmpltn 4y ago
        > "Just wrapping people in shell companies doesn’t usually avoid the legal tests for whether someone is being treated as an employee or contractor AFAIK." What does "wrapping people in shell companies" mean? As a person, you're either employed for a "shell company", in which case you've signed a contract and you get paid a salary - or you're the owner of a "shell company", in which case you get to choose how to manage the company's funds. You can also be both, simultaneously. You'll be paying taxes either way. Paying yourself a salary is a taxable event. I'm still not sure what's illegal here?
- sarchertech 4y ago
  Nope. Contracting through a legal entity doesn’t prevent you from being a defacto employee.
  - tluyben2 4y ago
    Yep, in many places you would need multiple clients to prevent being seen as an de facto employee.
    - bitL 4y ago
      Some companies have different offices in different countries, and one can issue invoices to the one in the US for 6 months and the one in Dubai for another 6 months if that were a problem. I've never heard of anyone in the EU having "exporter" clients in the US to require multiple of them every year though.
      - sarchertech 4y ago
        It’s because no one is looking at this closely yet, because until recently it wasn’t popular enough to pop up on anyone’s radar. The loophole you’re talking about is alas probably tax fraud, if you are paying from multiple companies that you own to make it look like your “contractor” had multiple clients.
        tluyben2 4y ago
        Definitely fraud. I have multiple clients, products and take risks etc; everything associated with a business (a small business but business nonetheless): nothing has been ever faked. Being an employee but trying to disguise it to gain benefits is simply seen as fraud but usually not enough to get caught; many do it. It has been popular, at least in NL for decades now: people invoicing eachother and moving money around just to make the threshold.
        bitL 4y ago
        We are talking about companies operating outside EU. You are still set on companies operating in the same country. So a dev takes a risk, switches to a freelance mode, finds a client abroad, the client pays much better but at the cost of terminating agreement anytime, and for you it's a tax fraud? Smells like a crab bucket to me ("how unjust is it to earn that much more than me!").
Semaphor 4y ago
It is probably doubly illegal. Not just in the US, but also in the country you live in. I don’t know for sure outside Germany, but I assume it’s similar: If you mainly live in Germany, you have to be hired according to German labor law (and pay taxes etc. in Germany)
- krzyk 4y ago
  Same in Poland. But this doesn't stop a lot, and I mean a lot companies from doing that.
  - Semaphor 4y ago
    I once accidentally did it in South Africa (went on a 6 months vacation, kept working for the company in Germany) because I didn’t know, and my boss didn’t either :D
- tluyben2 4y ago
  Yeah, in NL and UK and probably others, you would need to have a company with multiple clients to be not seen as employee.
- distances 4y ago
  It is not illegal in Germany if you follow the usual rules for self-employment. Proper tax registration, multiple clients over a timespan, independent negotiation of the prices, independently deciding working hours/days, and so on.
mrweasel 4y ago
That depends on where you live in the EU, but it is something you need to be aware of. Applying for a US job and work remote could be a legal and administrative nightmare for an employer, especially if you're the only one not in the US. A workaround is to have an employer of record in your country, who will be doing the actual hiring, and you effectively act as a contractor or consultant. It's not a fantastic solution, but it does work. Timezones are a major hassle. You will end up with a lot of weird late afternoon, early evening meetings, which isn't great for family life. That might not matter if you're end up in the top 3% earners and your partner doesn't need to work as a result. For some countries also be aware of things like on call. A US employer might not be ready to deal with the legal requirements in your country.
deleted 4y ago
[deleted]
wooque 4y ago
It's not if it's properly structured. That usually means employee having some kind of legal entity (consulting firm) and having proper B2B contract.
- sarchertech 4y ago
  The structure doesn’t matter. There’s a 20 part test of employee vs contractor. If you are treating the contractor as an employee, they are a de facto employee and you should be withholding income tax, paying payroll tax etc..
  - WHATDOESIT 4y ago
    Then come to Czechia and your problems are solved. There the test is simple - are you using your own equipment or do you have multiple clients or are you your own boss in terms of working hours and arrangements or could your contract end at any time or are you an exporter? Then you're clearly a contractor. Only one of these rules needs to apply.
_nalply 4y ago
In Switzerland you would have to prove that you work as a consultant, this means: You could switch to a different company if the gig runs out or you could take on a different company as a customer. A way would be to work for two different companies at the same time and subcontract to someone else. Then you would be self-employed and would need to pay the mandatory insurance for age, invalidity, pregnancy, and so on yourself (10.6% of declared revenue), exactly as your employer and you, were you employed in Switzerland. To get started as self-employed is a bit difficult. You need to bootstrap yourself with at least two customers. You need to show offers, orders, payments, advertisement for your service, and so on. They want to make sure that what you do is not circumvention of factually being an employee. A workaround could be to ask two friends if they could create an order for you, then you are free to offer yourself to a company and switch every three to five years.

bitL 4y ago

It's not illegal. An EU person needs a legal entity in the EU (it can be either freelancer or a company) and then it's just usual B2B relationship where EU person pays their taxes, insurances etc. in the EU. US company still saves, i.e. instead of paying 200k to a fresh graduate they can pay it to a senior dev in the EU.

Semaphor 4y ago
Depends, in Germany chances are that it falls under Scheinselbsttändigkeit (pseudo self-employment) which would be illegal.
- bitL 4y ago
  That would be if the company were in Germany. But not outside Germany, there the freelancer is classified as "exporter" (both for US and EU clients).
  - gingerlime 4y ago
    the only issue is that you might be liable to pay social insurance (DRV), but only if they can show that you have only one long-term client, and I’m not sure if it applies to foreign clients, especially outside the EU (but it might)
    - bitL 4y ago
      AFAIK it doesn't apply to outside-Germany clients. The freelancer is viewed as exporter and contributes to German export economy. Mind you, a freelancer has no social safety net, no pension, exorbitantly expensive health care (900+ EUR) and no unemployment benefits either.
      - gingerlime 4y ago
        I think that’s why the DRV might step in and force a freelancer to pay into the social security system if they have a single client. If I recall it also applies to foreign clients, but I’m not 100% sure how far it extends. It’s definitely easier to bypass the DRV if your client is not German, but not entirely waterproof as I recall.
meheleventyone 4y ago
The illegal bit isn’t the pay structure but the treatment of a contractor as an employee. Both the European and US laws make this distinction with similar criteria. This is to make sure companies aren’t avoiding their obligations to employees. And just from a moral perspective if you’re expecting someone to act like an employee you should treat them in kind.
- csmpltn 4y ago
  > "The illegal bit isn’t the pay structure but the treatment of a contractor as an employee." What's illegal here exactly? 1. US Business Entity conducts business with EU Business Entity. 2. The person (let's call them a contractor) is employed as a full-time employee for the EU Business Entity. They also function as the owner of the EU Business Entity. 3. US Business Entity, EU Business Entity and the contractor - all pay their respective taxes as required by the laws in their jurisdictions. This is the very foundation of how consultancies operate, for example: 1. The consultancy is the employer, the consultant the employee. 2. The consultant gets hired out to different clients, to work on different projects. 3. The consultant's salary gets paid by the consultancy, not the client. 4. The client only ever conducts business with the consultancy.
  - meheleventyone 4y ago
    If the company contracting allows the contracting entity to maintain the autonomy and flexibility required then nothing. Just wrapping people in shell companies doesn’t usually avoid the legal tests for whether someone is being treated as an employee or contractor AFAIK.
    - csmpltn 4y ago
      > "Just wrapping people in shell companies doesn’t usually avoid the legal tests for whether someone is being treated as an employee or contractor AFAIK." What does "wrapping people in shell companies" mean? As a person, you're either employed for a "shell company", in which case you've signed a contract and you get paid a salary - or you're the owner of a "shell company", in which case you get to choose how to manage the company's funds. You can also be both, simultaneously. You'll be paying taxes either way. Paying yourself a salary is a taxable event. I'm still not sure what's illegal here?
sarchertech 4y ago
Nope. Contracting through a legal entity doesn’t prevent you from being a defacto employee.
- tluyben2 4y ago
  Yep, in many places you would need multiple clients to prevent being seen as an de facto employee.
  - bitL 4y ago
    Some companies have different offices in different countries, and one can issue invoices to the one in the US for 6 months and the one in Dubai for another 6 months if that were a problem. I've never heard of anyone in the EU having "exporter" clients in the US to require multiple of them every year though.
    - sarchertech 4y ago
      It’s because no one is looking at this closely yet, because until recently it wasn’t popular enough to pop up on anyone’s radar. The loophole you’re talking about is alas probably tax fraud, if you are paying from multiple companies that you own to make it look like your “contractor” had multiple clients.
      - tluyben2 4y ago
        Definitely fraud. I have multiple clients, products and take risks etc; everything associated with a business (a small business but business nonetheless): nothing has been ever faked. Being an employee but trying to disguise it to gain benefits is simply seen as fraud but usually not enough to get caught; many do it. It has been popular, at least in NL for decades now: people invoicing eachother and moving money around just to make the threshold.
        bitL 4y ago
        We are talking about companies operating outside EU. You are still set on companies operating in the same country. So a dev takes a risk, switches to a freelance mode, finds a client abroad, the client pays much better but at the cost of terminating agreement anytime, and for you it's a tax fraud? Smells like a crab bucket to me ("how unjust is it to earn that much more than me!").

Semaphor 4y ago

It is probably doubly illegal. Not just in the US, but also in the country you live in. I don’t know for sure outside Germany, but I assume it’s similar: If you mainly live in Germany, you have to be hired according to German labor law (and pay taxes etc. in Germany)

krzyk 4y ago
Same in Poland. But this doesn't stop a lot, and I mean a lot companies from doing that.
- Semaphor 4y ago
  I once accidentally did it in South Africa (went on a 6 months vacation, kept working for the company in Germany) because I didn’t know, and my boss didn’t either :D
tluyben2 4y ago
Yeah, in NL and UK and probably others, you would need to have a company with multiple clients to be not seen as employee.
distances 4y ago
It is not illegal in Germany if you follow the usual rules for self-employment. Proper tax registration, multiple clients over a timespan, independent negotiation of the prices, independently deciding working hours/days, and so on.

mrweasel 4y ago

That depends on where you live in the EU, but it is something you need to be aware of. Applying for a US job and work remote could be a legal and administrative nightmare for an employer, especially if you're the only one not in the US. A workaround is to have an employer of record in your country, who will be doing the actual hiring, and you effectively act as a contractor or consultant. It's not a fantastic solution, but it does work. Timezones are a major hassle. You will end up with a lot of weird late afternoon, early evening meetings, which isn't great for family life. That might not matter if you're end up in the top 3% earners and your partner doesn't need to work as a result. For some countries also be aware of things like on call. A US employer might not be ready to deal with the legal requirements in your country.

deleted 4y ago

[deleted]

wooque 4y ago

It's not if it's properly structured. That usually means employee having some kind of legal entity (consulting firm) and having proper B2B contract.

sarchertech 4y ago
The structure doesn’t matter. There’s a 20 part test of employee vs contractor. If you are treating the contractor as an employee, they are a de facto employee and you should be withholding income tax, paying payroll tax etc..
- WHATDOESIT 4y ago
  Then come to Czechia and your problems are solved. There the test is simple - are you using your own equipment or do you have multiple clients or are you your own boss in terms of working hours and arrangements or could your contract end at any time or are you an exporter? Then you're clearly a contractor. Only one of these rules needs to apply.

_nalply 4y ago

In Switzerland you would have to prove that you work as a consultant, this means: You could switch to a different company if the gig runs out or you could take on a different company as a customer. A way would be to work for two different companies at the same time and subcontract to someone else. Then you would be self-employed and would need to pay the mandatory insurance for age, invalidity, pregnancy, and so on yourself (10.6% of declared revenue), exactly as your employer and you, were you employed in Switzerland. To get started as self-employed is a bit difficult. You need to bootstrap yourself with at least two customers. You need to show offers, orders, payments, advertisement for your service, and so on. They want to make sure that what you do is not circumvention of factually being an employee. A workaround could be to ask two friends if they could create an order for you, then you are free to offer yourself to a company and switch every three to five years.