Cross-border hiring

A question from Yahoo! Answers:

What are the procedures for an American business to hire non-American International employees?

I would like to know what are the legal procedures for a company based out of America to hire and pay an employee who is not an American citizen and is living in a foreign country.

I am asking with regards to an American company hiring an International employee who will remain in their own country without immigrating to America — I think I have heard this referred to as outsourcing?

There are really no established procedures to follow. The accepted convention in the international law is that, unless otherwise stipulated, labor contracts are governed by the law of the jurisdiction in which the worker is domiciled. Hence, no payroll taxes are assessed and no reporting is required by the U.S. or any U.S. state.

In practice, companies rarely hire foreign employees directly. Smaller companies prefer to hire foreign workers as independent contractors (this shields them from having to establish residence in the foreign country and withhold foreign payroll taxes). Larger companies often hire foreign workers through their foreign subsidiaries, either located in the same country as the worker or domiciled in an international financial center (Caribbean islands, Jersey, Guernsey, Ireland, Switzerland, Luxembourg, Cyprus, Singapore, etc.)

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