PAYING FRENCH EMPLOYEES IN THE US

Please note that the guidance below is not a substitute for professional legal and/or tax advice. Any tax advice contained in the body of this e-mail is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

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  When an employee works on US soil, that employee’s compensation is subject to US employment tax. 

Payroll should therefore be processed using a US payroll platform (such as ADP or Paychex) due to the complexities involved. Note that processing payroll requires Federal and State identification numbers and the process of obtaining those numbers can take several weeks. Starting early is therefore highly recommended.

US employment taxes are much lower than in France. The main source is Social Security (known as FICA) and that cost represents roughly 8% of each employee’s total compensation in any given calendar year for the employer (and another 8% for the employee). There is a limit to the amount of compensation on which this tax is assessed each year, and that limit increases each year.

Notable is that US employers are required to carry Workers’ Compensation insurance – insurance that compensates employees in the event of work-related injuries. The cost of such insurance depends greatly on the type of work (manual vs. desk job, high-risk vs. low risk) and each employer’s history of work-related injuries.

Now for the tricky part...what should be included in “compensation” subject to employment taxes? Below is a guideline:

• Remuneration - Payroll,
• Remuneration - Bonuses,
• Remuneration - Commissions,
• Remuneration - Any other payment except expense reimbursements 
• Benefits - Car allowances,
• Benefits - Housing costs,
• Benefits - Country club memberships,
• Benefits - School tuition for children,
• Benefits - Non-business travel costs for the employee and his/her relatives,
• Benefits - French social security paid for in France by the employer,
• Benefits - Health insurance premiums in excess of what is normal for other employees,
• Benefits – Generally speaking: anything else paid by the employer that normal employees would have to otherwise pay themselves.

Failure to include all the above as compensation subject to employment tax is generally interpreted as an attempt on the part of the employer to lower related employer-taxes. For practical reasons, the burden of paying the employee’s and the employer’s taxes often then rests on the employer when past failures to follow these rules are uncovered.

 A rare exception to the above guideline occurs when a French employee intends to stay in the US for a period of one year or less. The idea is that such employees are likely to keep their belongings outside the US (car, home, etc.) and thus continue to incur personal costs in their home-country and once more in the US. Accordingly, the benefits granted to such an employee are deemed to represent reimbursements of US costs rather than compensation. However, in the event such an employee has the intent to stay longer than a year, those benefits become subject to employment tax from that moment going forward (i.e. not retroactively). Said moment can occur upon arrival in the US (e.g. obtaining a five-year visa), or at any time during the employee’s first year in the US.

NOTE: French-American Accountancy has been providing full payroll services as a convenience to its clients since 2001.