Jökull Sólberg

Working for US companies as a resident in Europe
June 5, 2022

The goal of this blog post is to prepare EU- and EFTA remote prospective employees in talks with US employers.

With an increase in the number of companies willing to support remote work there are new complexities around payroll. When everyone is in the same country salaries are negotiated and comparable apples-to-apples, employers have a single payroll with consolidated insurances, worker rights and days off, be it calendar holidays or earned days off. Companies are incorporated in a specific jurisdiction and layer on top their own staff policies for additional benefits. With remote workers local labor laws and tax regulations are vastly different between countries.

The first thing someone might notice is that quoted salaries are completely different. The US commonly quotes annual salaries but in many European countries it’s monthly, and of course in local currency. In Iceland quoted salaries will have significant non-voluntary pension payments which go from the employer directly to the pension fund. Federal taxes are also transferred directly from the employer, and on and on.

Sizzling employee benefits like “paid time off”, “401k/pension contributions” and “medical insurance” can be ambiguous and meaningless for someone that will be working out of a country where these are mandatory, don’t apply or are simply state provided regardless of employement as is the case in many European countries, but even within Europe the situation with healthcare and pensions varies considerably.

Option 1: US company sets up a branch/subsidiary

A startup is unlikely to set up a branch subsidiary in a country they have no previous experience with or presence in. They don’t know how to navigate the environment, find accountants and lawyers that are used to dealing with US companies etc. — and they probably want to focus on their own business, not the most recent union contracts in a European country. For prospect headcounts of 2+ in a particular branch it starts to make more sense however, and talent often knows other talent so startups might find it a good tactic to not cast too wide a net, but drill strategically into local markets, certain cities that are attractive (either because of weather or family welfare).

Option 2: Direct employment

A US company agrees to employ you in your local state without a local branch and with you being a direct employee. Companies will have to ensure they comply with local labor law and pay salaries correctly. This probably requires outsourcing the payroll and employment contract to a specialized party unless the company hires an accountant with a local presence in the jurisdiction of salary payment. There is no way to spend an afternoon to “get everything correct” in such a contract without prior knowledge. There are services that help:

These are services the company opts into at a cost, usually as part of an effort to be “remote friendly”.

Behind these employments are what the US company considers international employment contracts.

Beware of currency risk if you go with this option. You might not want to burden that if your employer is expecting to negotiate in USD. If you do, consider looking at historical swings and add some risk buffers to your salary request.

A “twist” on this Option 2 is going through a recruiting platform that becomes the employer of record:

Option 3: Worker incorporates locally and sets up as an independent contractor

The simplest way, I found, was for the employee to set up as an independent contractor with a sole ownership (limited) company. This way your employer is not really an employer but an importer of vendor services. You export these services by simply issuing invoices from your company. If you are engaging a small startup they might be open to adding someone remote in the EU, but that doesn’t mean they are ready and setup with these services – nor are they likely to have the bandwidth to deal with setting up a branch. For these companies this is your best bet.

This option will require you to set up a company of your own. The complexity, time and cost of this step is very different between countries. In the UK and Iceland, two places I have experience with incorporating, this is simple, fast and relatively cheap. It is advisable to talk to a local accountant and have them guide you through the setup. This will reduce the risk of you doing anything wrong.

You should still get setup with a contractor agreement between your company and theirs that outlines:

  • Time length and contract termination clauses
  • Your working hours and holidays
  • Intellectual property rights of what you produce

The company you deal with should be the one to set this up with the help of a lawyer though you should always get your own representation to ensure the contract is in your best interest, not just the companies.

There is nothing stopping a company from also granting a stock option agreement alongside this, which should then be to you as a person. There may be language in there about “continuous services”. Clarify that this relates to the contract in question and that the continuous employment covers or pauses-then-resumes for any paternal leaves or shorter breaks in the contract. You should get absolute transparency on a number of facts if you are interested in receiving a mixed compensation including options.

Is it legal to set up as a full time independent contractor? It depends on your jurisdiction. In Germany there are provisions in the law to ensure that solo contractors cannot be left outside the labor law when working for foreign entities, which I guess is meant to bring those companies close to German law by setting up as branch subsidiaries, which are easier to monitor by unions. In other countries contracting on behalf of your own company is extremely common and completely legal.

The invoiced amount will need to cover all expenses related to your work. If your remote work includes offsite or onsite travel to sync with your team you’ll want to make it crystal clear who covers those irregular expenses. If you rent a desk or office space ensure this cost is covered by your contract fee. Same goes for any hardware, equipment, both laptops and remote conferencing stuff and also internet connectivity. In some countries you can make your company support you as an employee with green commuting stipends and fitness activities. Again, talk to your accountant about all these claims to ensure you are as tax efficient as other employers.

Some sole proprietors go crazy with expenses, letting it creep into their personal lifestyle. In Europe it makes a huge difference in total cost since there are VAT refunds and high taxes on income. With the help of your accountant you should ensure you are fully compliant with local laws.

Another common way independent contractors reduce taxes is to suppress salary income and book a high annual profit which can be paid out at a lower tax in some European countries. Talk to your accountant about the industry salaries and what you both feel comfortable with as a salary. Building up a buffer of cash is fine as long as your salary is not below industry standard.

Invoiced fee vs. Salary

In many countries there is a significant cost of paying salaries both for employer and employee. In Iceland there is a handy calculator that breaks down what is paid from which party. You enter in what is colloquially known as “the salary” and then you get an employer cost salary and the final transferred amount. When you negotiate you should be focusing on the total cost, as you’ll need to bear the “employee cost” of the salary.

Again, your accountant can help you calculate numbers. Point being; negotiating a salary is not the same as negotiating a contractor fee.

The contractor fee should include

  • Your monthly salary base
  • + payroll taxes …
  • + health insurance (if applicable) …
  • + pension or other savings payments …
  • + office, equipment, hardware …
  • + accounting and legal services …
  • + any other business expenses that are considered required for you to do your job

Bonus: Tips for remote workers

  • Set up expectations about national holidays, daily syncs and annual visits.
  • Find a space where you are productive and set up with a good conference call setup. I recommend Shure MV7-S and SAMD5 desktop stand. I find external camera’s overkill if you have an LG UltraFine, MacBook Pro M1 or similar built in camera. Builtin camers are finally getting a bit better.
  • Use Raycast shortcuts to quickly log into scheduled meetings and create meeting links to jump on calls. Live and die by the calendar invites.
  • Align on the notification culture - are people expected to answer outside of local work hours? Probably not. Agree on how to elevate super important things.
  • Get your employer company to accept and process an invoice 1-2 business days before the last business day of the month. That way a wire transfer will clear before you have to pay bills.