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Payrolling US Workers from Abroad? 5 Laws You Need to Know

Posted by Karen McMullen

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May 20, 2019 9:00:00 AM

Payrolling US Workers from Abroad 5 Laws You Need to KnowTalk to almost anyone who employs a worker in the US, and you’ll likely hear about the myriad rules that govern how you pay your team members. Conducting payroll in the US can be a bit intimidating for that reason.

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It’s imperative for international companies to familiarize themselves with the laws, especially if they want to reduce risks and avoid penalties. Review some of the major federal laws you’ll need to be familiar with if you’re planning to pay US workers from abroad.

1. The Fair Labor Standards Act

The Fair Labor Standards Act, or FLSA, was introduced in the 1930s. It’s been updated periodically since then. It’s designed to cover full-time and part-time workers in both the private sector and at all levels of government.

The FLSA sets a federal minimum wage and also governs overtime. Currently, overtime wages are set at one-and-a-half times an employee’s regular hourly wage. The FLSA also governs the number of hours minors can work.

It’s important to note that the FLSA doesn’t cover all workers in the US. It offers individual coverage and enterprise coverage. Workers in certain industries may be exempt from some of the regulations, such as overtime pay.

It’s also important to note that state law can override the FLSA. Many states, for example, have higher minimum wages than the federal rate. In these cases, employers would need to comply with state law.

2. The Federal Unemployment Tax Act

If you are a private, for-profit enterprise operating in the US and employing American workers, you may need to pay unemployment taxes, as per the Federal Unemployment Tax Act. Also known as FUTA, this Act coordinates with state unemployment systems to provide unemployment compensation for people who lose their jobs.

Employers alone are responsible for FUTA payments. Employees don’t pay a portion of these funds through payroll deductions. Requirements vary from state to state, as each state administers its own unemployment program.

3. The Federal Insurance Contributions Act

If you’ve heard someone talk about FICA payroll deductions, you’ve encountered the Federal Insurance Contributions Act. This is the legislation that provides for programs like Medicaid and Social Security.

FICA requires employers to make deductions from their employees’ paychecks. These withholdings are then used to pay into social programs. Employers are asked to provide a match for what they withhold from their employees.

You’re expected to withhold 1.45 percent of wages for Medicare and up to 7.65 percent for Social Security. If your employees earn over $200,000, there’s another surtax as well.

4. Employee Retirement Income Security Act

You may not be subject to the Employee Retirement Income Security Act, but it’s a good law to know if you have US employees.

ERISA governs pension plans offered by companies in the US. While it doesn’t require an employer to offer a retirement plan, it does set up standards for pension plans. This includes how to report on plans as well as disclosure and fiduciary requirements.

5. The Family Medical and Family Leave Act

The Family Medical and Family Leave Act may not seem like it will have much of an impact on your US payroll operations at first. It provides only unpaid leave for your employees, which means you don’t need to worry about paying them if they do take leave.

Nonetheless, it’s a good idea to pay attention to the provisions in this law. It requires you to provide workers with up to 12 weeks of leave following the birth or adoption of a child, or for serious illness of the employee, their spouse, a child, or a parent.

This leave is job-protected, so you’ll need to know how to fill the position while the employee is away.

This list provides a good starting point for international employers. There are many other US laws that affect how you’ll handle payroll for your US workers.

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Topics: Payroll

Karen McMullen

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