Hiring as an International Business Owner: What No One is Telling You

Aug 29

Introduction

Expanding into the U.S. comes with incredible opportunities—but also unique challenges when it comes to hiring. In this episode of the TaxStudio Podcast, Jason Booth and Jordan Tucker discuss what international companies need to know before making their first U.S. hire. From benefits like healthcare and retirement plans to the true cost of hiring and the impact of state-by-state rules, this conversation helps demystify one of the biggest steps in U.S. expansion.

Dialogue

Jason:
Welcome back to the podcast. Today I’m joined by my colleague, Jordan Tucker. We’re talking about one of the most critical parts of U.S. tax compliance—and just doing business here in general—which is hiring your first employee in the U.S. Whether you’re bringing someone over from your home country or hiring locally, we’ll walk through key points to help you navigate the process.

Jordan:
Hiring in the U.S. brings a lot of issues you might not expect: operational costs, cultural differences, and a system that can feel more complicated than elsewhere. We’ll break it down and show that it doesn’t have to be as overwhelming as it seems at first.

Jason:
Let’s start broad and then dive into the details. Imagine an Australian business looking to enter the U.S. market. What do they need to think about?

Jordan:
The first question is usually: when do we actually need to hire in the U.S.? It depends on business needs. But once a company decides it’s time, they need to understand the implications—everything from payroll to benefits to compliance.

Key Discussion Highlights

1. Benefits: Healthcare & 401(k)

401(k) retirement plans: Not mandatory, but essential for attracting and retaining talent. Employers typically match up to 4%.
Healthcare: Complex and costly compared to many other countries. Options include group plans or reimbursement structures (like ICHRAs), but cultural expectations mean employees usually expect employer-provided coverage.

2. True Cost of Hiring

Hiring an employee for $100,000 in salary often costs closer to $120,000 after factoring in:

401(k) contributions
Social Security & Medicare taxes (~8%)
Healthcare coverage
Workers’ comp, unemployment, and other state-specific obligations

3. Contractors vs. Employees

Contractors can be a good bridge when entering the U.S., but companies must be cautious. If a contractor is treated like an employee, the IRS can reclassify them—creating compliance risks and unexpected costs.

4. Where You Hire Matters

Hiring in multiple states creates nexus—and with it, payroll, sales tax, and income tax obligations in each state.
Strategic hiring in one or two states (e.g., Texas, Oregon) can significantly reduce administrative burden.
Example: Five employees hired in five different states resulted in a 120-page tax return—versus much simpler compliance if all were in Texas.

Closing Thoughts

Jason:
Hiring in the U.S. can feel daunting—but with the right preparation, it doesn’t have to derail your expansion. The key is understanding the benefits you need to offer, the true cost of hiring, and the importance of where you hire.

Jordan:
Exactly. It’s about being strategic. With good planning and the right advisors, companies can navigate U.S. hiring confidently and focus on growth.

Jason (00:00):
Welcome back to the podcast. Today I am joined with my colleague Jordan Tucker. We will be talking about one of the most critical things of US tax compliance and just doing business, which is hiring your first hire here in the us whether you're bringing somebody from home country or hiring locally. We're going to address a few of the key points of how to navigate through that.
Jordan (00:22):
There's a lot of issues involved with hiring in the us, operational costs that you wouldn't even think of. There's different cultures in [00:00:30] the us. Things here would seem a lot more complicated and they are, we're going to go through some of the ways that we can navigate that and so it's not as terrifying as it seems to be at first.
Jason (00:40):
So let's just kick it off and talk about it in a general context of the key areas and then we'll dive down in some of the details to help our client base, our network kind of navigate through this. So we've got a [00:01:00] Australian business that's looking to enter the US market. What do we need to think about?
Jordan (01:05):
They're going to have needs in the US that they haven't addressed yet. They haven't hired in the US is what we're assuming yet. No US entity. So I guess the question would be that they're probably wondering is when do they actually need to hire in the us? It depend on their business needs, but what do they need to think about once they learn that they need to hire in the us?
Jason (01:25):
Let's start that and kind of pose that question. And I'll start off of saying we've got [00:01:30] a potential client that's going to come into the US market. They know nothing about the US in terms of hiring, in terms of cultural know-how. So I think the first area that we often field from a payroll side is benefits. And it's a tricky one because in the US healthcare is complex as all hell. Our retirement system is somewhat twofold [00:02:00] or two layers and it could be very different from, for example, Australia or most of the European Union where you've got some element of national healthcare and some element of sort of a consistent social security or in Australia superannuation program. So I'll start off by just giving these two big areas of benefits that we talk about. The one is how do we provide healthcare for our client? Or excuse me for our employee that we're going to hire, what do we need to know [00:02:30] and what the hell is 401k,
Jordan (02:33):
Right? Yeah,
Jason (02:33):
Everybody says it, but what is the sort of details there and how much of that do I need to know? And the two important factors that I would look at from a business decision making is both of those things are critical to have to attract and retain talent. You need to understand how you have some level of both of them in order to go out to the market. [00:03:00] And we'll talk about cost of hiring in a second, but to go out and actually find and attract talent, these two things are common American things to have.
Jordan (03:10):
And so the cost associated with that, how much higher are they in the US than they are in another country?
Jason (03:17):
That's a good question. I think,
Jordan (03:19):
And it probably depends right on where they hire and
Jason (03:22):
Yeah, I think I would reframe or I'll answer your question slightly, sort of deviating [00:03:30] from what you just asked, which is 401k. And just to clarify, maybe let's actually take a full step back and let's not dive into the cost yet. We'll get to the cost in a second. Let's just talk about and describe what each of these areas are of benefits. So 401k is a supplementary retirement plan
(03:48):
That you can offer for your employees. We have social security contributions that are mandatory, which is 7.65% or actually 6.2% [00:04:00] into the US that both the employee and employer pay, and we'll cover that in a second. A long time ago, the US tax system rules came into play and the 401k became popular because it was a way to supplement that social security plan. I like to use the comparison with Australia of superannuation that the combination of our social security and 401k is what superannuation is. Superannuation [00:04:30] is a contribution of 11 one out 12%. The combination of both of these is kind of about the same. So 401k is a plan that the employee gets to decide how much he or she wants to contribute to it, and then the employer may through the process of setting up the plan, decide how much it wants to match that contribution. So easy math and typical approach [00:05:00] in the US in the way which we would recommend our client bases match up to 4%.
Jordan (05:04):
To be clear, it's not mandatory for the 401k, but if you want to retain the talent, then it's a cost that you need to expect.
Jason (05:10):
Correct. Thank you for clarifying that. So if somebody is making a hundred thousand dollars and the individual has decided to let's say contribute 10% of their salary, there's a salary sacrifice of 10 grand on an annual basis for he or she to put into their 401k. The benefit for them [00:05:30] is that they're only taxed on 90 grand and that 10 grand goes into the 401k system. And then if employer or the company is matching up to 4%, then that means that's a $4,000 cost
Jordan (05:43):
For
Jason (05:43):
The employer. So now the employee is getting an indirect benefit or compensation of four grand or 104 grand and they've got 14 grand at the end of the year in their retirement plan. Now you said this [00:06:00] earlier too, and I just want to emphasize this is a plan in which the employee can elect into, there are certain states that now require that you provide this. I wouldn't even go into this category of which states do require in which states, no, it's too many pointless. There's too many damn states. Too many states one, but two, our advice and recommendation is just set the damn thing up because you need to provide this as a offering [00:06:30] to attract and retain talent and therefore if you're setting it up, who cares which requires it or not, and you can decide on the matching concept. So you could actually not match
Jordan (06:42):
Anything
Jason (06:44):
And there's no additional cost to the company other than just some annual administrative costs to administer the plan. But to what we were saying earlier, that might not help attract and retain talent.
Jordan (06:55):
And then there's costs associated with not retaining your talent too. And if you lose [00:07:00] 'em, then it may not be worth the cost that you tried to save, but it's a cost that you should expect coming into the US when you're hiring.
Jason (07:08):
Yeah,
Jordan (07:08):
Yeah,
Jason (07:10):
Employee or hiring process, it's a benefit you should expect to offer.
Jordan (07:16):
I like that phrasing better,
Jason (07:17):
Sounds more positive. Alright, so that was the first one man. And that one's just frankly a much easier one to understand because our healthcare system is [00:07:30] a train wreck. It is really hard to navigate. I mean you and I have lived here our whole lives.
Jordan (07:36):
I don't know anything about it really as far as my own personal one. Yeah,
Jason (07:40):
It's hard. I mean even if you have to go take somebody in your family to the doctor, you probably always are sitting there talking to your wife, is this in network? And you're like, I have grown up in the healthcare system my entire life and it's still challenging,
Jordan (07:55):
Not easy to navigate at all,
Jason (07:58):
But if we [00:08:00] tax studio are going to go out and hire a new team member to join us, there is a level of expectation that we would offer healthcare in some way, shape or form.
Jordan (08:10):
Everybody would expect that. Yeah, that's getting hired. Yeah,
Jason (08:13):
Correct. As somewhat of an educational process here, a individual typically, or I should say has two ways of gaining healthcare coverage. The first is going out into the open market as an individual and buying their own healthcare insurance, paying a monthly [00:08:30] premium and having a network of providers. The second and more common is through their employment. Their employer provides a group plan and that group plan they then enter into some element of cost sharing between employer and employee, which we can talk about later. And then that employee then has coverage through their employment
Jordan (08:53):
And that's all integrated into the payroll system.
Jason (08:55):
Yeah,
Jordan (08:56):
It's all
Jason (08:56):
Streamlined and companies [00:09:00] that come into the US market see is somewhat of that chicken in the egg
(09:05):
Aspect where they can't go necessarily and immediately get healthcare benefits. They don't have employees for the underwriter to underwrite them, but then you need the insurance available to attract and retain the talent. So there is a, I'll say a bridge or a path to where a company can provide healthcare [00:09:30] benefits, a reimbursement for their employee or employees to go out to the open market and buy healthcare, it has to be through a formalized plan through a third party administrator, and that has this acronym of an icra. It's essentially a reimbursement program. So say we hire the next person on the team and we say, look, we don't have a group healthcare plan, but we are going to give you 500 bucks a month
(09:59):
And you go out [00:10:00] and buy healthcare in the open market in order for that $500 to be tax free to the employee and a valid deduction for the employer, it needs to go through a third party administrator. What that means in somewhat simplest terms I can think of is the employer cannot see or shouldn't see the expenses related to medical of their employee. It could create discriminatory issues, it can [00:10:30] create biasness, et cetera. So that third party administrator acts as like a gatekeeper. The employee submits it through that platform with the administrator says, here's my monthly expense for my premium. The administrator turns around and says, Hey, company employee had these expenses, and then we get to reimburse them. And that's great of a setup because it allows you to hire that first person
Jordan (10:54):
And it's an acceptable alternative to the employee.
Jason (10:57):
Correct?
Jordan (10:57):
Yeah.
Jason (10:58):
Is it the best thing to [00:11:00] the employee?
Jordan (11:02):
Probably not. And then if you're running it through the third party, are there greater administrative costs then? Yeah,
Jason (11:09):
Yeah. There's a little bit of administrative costs and I'm generalizing this statement. Of course there's always going to be outliers of attracting talent, but if I'm the talent and you are hiring me, I have this American cultural norm and expectation that you're going to have healthcare
(11:30):
[00:11:30] And then when I get the offer letter, you have this sort of vague statement that you're going to reimburse me and now you put the burden on me to go to the open market and buy healthcare. What if the state I live in has shitty healthcare in the open market, which we're not going to dive into here, but there are states that have far better open markets than others. So could be at a disadvantage if I'm a remote employee working in this state and I can't get your group healthcare plan and now [00:12:00] from our world we might see that yeah, you're compliant, you're giving 'em benefits, but for them there's already a negative tone to what you're offering simply because you aren't in that group healthcare plan.
Jordan (12:13):
So it's not as ideal for the employee, especially depending on the state. And that's going to be the answer for a lot of the questions in our world as it depends on the state. So something to consider once you determine where you want to hire or identify talent to hire.
Jason (12:29):
Correct. [00:12:30] It's easy to really dive into the weeds here and kind of get lost.
(12:34):
What is important as the takeaway here for this topic on healthcare is it is very important to address as early as possible. You need to have the patience as the employer or the company coming into the US that it's going to take a few months to get this up and running. It's going to take a little bit of a leap of faith likely with your first hire, especially if they're American, perhaps a different conversation. [00:13:00] If you're bringing somebody from home country into the us, they don't know any different. They might just be able to buy into the fact that, yeah, I'm taking the leap of faith with company, I'm all in, but you're hiring somebody local, it's going to have a little bit of a challenge. Going back to that reimbursement process, it is very critical to go through that administrator because if you don't and you just say, Hey, employee, here's 500 bucks a month, not only are you at risk of that being taxable, [00:13:30] you also are outside of the compliance of healthcare rules of not making sure that there's a wall between medical expense and employer and that penalty is steep and I haven't seen that penalty be assessed, but it's not, I wouldn't want to take the risk.
(13:51):
We've talked about it a bit and we kind of have punted it a little bit, but let's kind of pivot back to I guess the way you and I think as [00:14:00] accountants and having math going through our heads a lot, we get this question a lot too, not just, okay, what do I need to offer them? How much does it cost?
Jordan (14:10):
Right?
Jason (14:12):
And that one can be somewhat of a sticker shock,
Jordan (14:16):
So more or less than other countries right off the bat. From a high level,
Jason (14:23):
My reaction is probably, it depends. Yeah, because what we always say to people, [00:14:30] I wouldn't maybe answer it that way of is it more or less our job, in my opinion, why we're sitting here is to educate and be an advisor and be available. And that decision of hiring in the US versus hiring in Europe or the Philippines or Australia is that business decision that is made by C-suite or [00:15:00] owner, founder, entrepreneur. But our job is to advise on the US side and then get those facts on a piece of paper so then our client can make that decision, the cost that up. So let's just use hopefully a basic example and hopefully my math works out. We hire somebody here for a hundred thousand dollars. There are first hire, [00:15:30] what other costs are involved in that hire? So we've talked earlier about 401k. We said that just roughly as a general response, the norm would be to match around 4%. So we now have four grand of additional costs for that headcount.
Jordan (15:53):
So 104 grand
Jason (15:54):
Right now. So we're at 104
Jordan (15:55):
Just with the 401k matching.
Jason (15:58):
Then let's focus on the [00:16:00] social security and Medicare taxes. That has somewhat of a complexity to it, but a general statement on a hundred grand, 6.2% social security, 1.45% Medicare mandatory required, so that's an extra 7.6. Let's round up to 8%. There's a little bit of small federal unemployment tax that is on a per head count basis, but it's fairly immaterial. So let's just say 8% for our social security system.
Jordan (16:30):
[00:16:30] Alright, so now we're at 112 grand, more or less.
Jason (16:34):
So an extra 12 points, 112 grand and add another percent for random things, workers' compensation, state level unemployment insurance. Depending on the state, you might have some particular costs that are indirect like family paid, family leave, those kinds of things. So just add another point to it. So we're at 113, 113 and then you've got the wild card [00:17:00] that we talked about on healthcare. And healthcare is a tricky one because if we're going through the reimbursement plan, you just define a number and say I'm going to reimburse 500 bucks a month and now I can then say, well 500 bucks a month is 6,000. 6,000. Additional costs on a hundred is an extra 6%. But our goal ultimately or likely is to have and offer group healthcare [00:17:30] as an employer and that's where optionality comes in. I would say it's very, the common practice would be that the employer covers the majority of the employee's premium and then the employee covers dependence that he or she might have on their plan. The determination of how much that premium is can vary wildly based off of the tiered [00:18:00] plan that you consider as your base plan and then frankly the age and demographic of your employee. For argument's sake, let's just say that it's roughly 500 bucks here that they are of equal in my example of a reimbursement plan and the cost of a group healthcare plan in which the company is covering essentially a $500 a month premium for the employer. Sorry, the employee.
Jordan (18:28):
Yeah.
Jason (18:29):
So we're [00:18:30] back to the six grand, what's our math?
Jordan (18:32):
I think it's 119 grand.
Jason (18:34):
Okay, so 19%. So add an extra point just for odds and ends, workers' compensation, other unemployment taxes or paid family leave that might be specific to a estate. So we got 120,000. So if I'm going to hire somebody for a hundred thousand, expect to pay 120,
Jordan (18:52):
But somebody may be listening and thinking to themselves, why even bother with the process? Why can't I just do a contractor in the US to avoid [00:19:00] the payroll aspect, to avoid the social security, to avoid all that. Can they just do a contract? What would you say to them?
Jason (19:07):
Two points, two responses. The first one, let's just stick to the numbers. And the numbers would be, okay, I'm not paying 120 grand, I'm only paying a hundred because I'm just paying that person to compensation. And then he or she as a sole proprietor or contractor has their own income statement that they're paying tax on. [00:19:30] They have a hundred thousand of revenue or consulting income and have some expenses and they're paying self-employment tax, which is the employer and employee equivalent of social security and Medicare that we just laid out. So is it possible? Yes. The second response connected to the is it possible? Yes. Are they actually an independent contractor? And we have seen from time and time again, [00:20:00] oh yeah, it's a contractor. And then you'll see an email like, hey, talk to my team member, he or she is doing this or we need to give options to this contractor, or this person has a reimbursement and on there is some PTO reference or something where it's like, look, everything you're doing is screaming that this person is a defacto employee and not truly independent.
Jordan (20:23):
So they've got control of them.
Jason (20:25):
Correct.
Jordan (20:26):
And they control their schedule. Maybe they have hours or certain tasks [00:20:30] they need to complete that are more within the realm of an employer.
Jason (20:35):
So I mean I love the market entry into the US of finding an independent contractor, finding somebody that is in the business of promoting sales and marketing in e-commerce health products. Cool. Hire that person. Get your traction before you jump in and hire. That's a valid business decision. What you want to make sure of is that you're not putting that person out in the market and [00:21:00] internally in all contractual terms or basically screaming that you have control and supervision and their behavior is dictated by the way in which you're communicating with them. They work exclusively for you. All of those pretty typical common law factors about whether a person is truly independent or not. If you can get to the comfortability that they are independent, then everything that we've talked about about how much does it cost to employ somebody can kind of [00:21:30] get set aside until you are ready to hire them as an employee.
Jordan (21:32):
So it can be a good bridge, but you just have to be careful that you're not treating them like an employee. Correct.
Jason (21:38):
Yeah, correct. I would counter that as if I am the independent contractor, am I worth more than a hundred K? Is my invoicing 108,000, 110,000 because I'm bearing the self-employment tax that would otherwise be born by the company if I was an employee. [00:22:00] Do people think that way? Like us thinking it from a tax perspective? Probably not, but I would probably, if I had to think about it economically of if we are creating some element of a budget or forecast for our client going into the us, you can probably think of it as somewhere closer to a hundred thousand and definitely not to the 120.
Jordan (22:22):
And then there's a risk there too, right? Because the IRS could come back and say, Hey, this guy's really an employee and you could potentially pull your foreign entity now [00:22:30] into the net of the us
Jason (22:31):
Correct?
Jordan (22:32):
Yeah.
Jason (22:33):
And that goes into a much deeper conversation about if we're coming from a treaty country, do we have enough presence here by that independent contractor that's not really independent and is more of a keen to a dependent agent under treaty nomenclature terminology, whereby then the answer ends up is that the foreign parent or the foreign entity as a taxable presence now because that person is truly [00:23:00] a dependent person. So yeah, definitely something you want to be mindful of that classification.
Jordan (23:08):
It doesn't kill the tool as an independent contractor as a tool, but it's just understanding that there are, if you're not careful and treat it properly than there are risks.
Jason (23:19):
And sometimes what we have seen in the past where it has become a risk is using the term that we might use within our world is a bit of a scope creep. I hired this person [00:23:30] or I engaged this person as a contractor or she was there helping me promote my e-commerce health product out of New Zealand. She was working 20 hours a week initially, then she started billing me 25 hours a week and she was billing 28, 30 hours. We were growing the product, I didn't care. We were getting zeros to the end of our sales. And next thing you know, I look back and for the last six months she's since terminated her other contracts with other clients because she's [00:24:00] focused on our product killing it. And then next thing you know we've inadvertently stepped into dependency relationship.
Jordan (24:08):
Yeah,
Jason (24:08):
Was it intentional? No. Does it happen? Yeah. So going back to your comment, it's like this is a great bridge and a tool I think to get into the us but you got to be mindful and you got to keep looking at it regularly, not just the initial time you signed the contract. It's like six months from now, are they actually doing exactly what they were doing six months ago is probably no [00:24:30] is the answer. It doesn't mean that's a negative thing, but it's probably some change to it. Be careful, be careful 20% is what I would, it's what we as for tax studio, what we consider,
Jordan (24:47):
And it's pretty consistent across the board that you see at least within that a reasonable range of being around 20% on top of whatever their salary was.
Jason (24:56):
So I don't look at this to sort of say like, well shit, [00:25:00] an extra 20 grand means that I shouldn't go into the US market. It should be a factor about you going into the us. It should be a factor of how you hire and retain talent, the location of your talent, which we can talk about in a second. It's just having the knowledge. I mean we've had clients to come to my mind just this year alone that went through the cost of setting up a company, went through the cost of the formation, corporate governance, getting [00:25:30] a tax ID number going out and then not having the right budget when they went out to hire somebody, they hired somebody in the US at a high price point, let's just round it to 200 grand and then did not realize that they were short an extra 30 k and then they went back to their board.
(25:51):
Both of these examples were out of Australia. They went back to their board in Australia and said, we're 30 K short on this headcount. [00:26:00] Well Australian board looks at it and says, well 30 K is 30,000 US take that and multiply it by 1.5 to get to what an A UD additional cost is. And the decision was pull the ripcord, look at the cost that we did to set up the entity and just call it a sunk cost. Let it sit there, mothball it, keep it quiet, we'll figure it out another day they let the person go. They just gave up. They just gave up.
Jordan (26:25):
Yeah, they didn't plan properly.
Jason (26:27):
Because they
Jordan (26:27):
Didn't know
Jason (26:28):
Exactly. I'm not saying [00:26:30] that money grows on trees and who cares? Go find the other extra 45, 50,000 a UD. Well you disrupted somebody's hiring or their employment here. Somebody probably quit a job, came on board and then two months later realized that their company's letting 'em go because they didn't have the right funding approved for their hire
Jordan (26:51):
And they incurred all these extra costs that they wouldn't have if they hadn't gone down this road.
Jason (26:57):
So that's one of the main reasons why the hell we're sitting [00:27:00] here, is to try to be vocal as much as we can. We don't want to scare people away from the US market. We just want them to be educated in knowledge, have the knowledge that a hundred thousand is going to cost you 120, let's kind of move over. We now have our client that has been educated on healthcare, educated on benefits, knows the cost to hire, goes and gets the approval and they're going to go hire five people here in the US and they come to tech studio and they say, cool, we're going [00:27:30] to hire five people. Oh, okay, cool. Where are you going to hire? Dunno, we're just going to find five people. This question comes up all the time. What do you say to them?
New Speaker (27:40):
There's a few things. So you've got five people you want to hire, you've got a business purpose for these people and then depending on their industry, then you've got a talent pool. So if it were up to me, I would love to be able for them to hire all in one state, something called Nexus. [00:28:00] So when you hire somebody in a state, you create Nexus with that state or a connection to that state and now you've created a lot of administrative obligations with that state statutory obligations. So once you hire in that state, you are going to have income tax costs, which we could talk about a little bit later. Sales tax costs, it's going to open up the door to a lot of these government agencies to incur additional administrative costs, administrative burden. [00:28:30] And if a lot of times a company will come in and they won't even think about this because they don't know, they assume that it's kind of like their country where maybe it's the same all across the board, but you come into the US and you pepper the US with all these employees and you unintentionally create a ton of administrative burden.
Jason (28:47):
But what do you say to the client that says, well look, I need somebody in central time zone. I need somebody on the east coast. I need somebody on the west coast. The US is big.
Jordan (29:00):
[00:29:00] And so that's why I say for their business purpose, it may be necessary to hire in all those different states if maybe that's how the talent pool, it's just the hand you were dealt. So you may be able to hire in favorable states because all the states are maybe more or less favorable, meaning they may have higher costs or higher administrative burdens that even operate in those states. So if you can be strategic about where you hire, even if it's across the country or multiple states, then you're going to give yourself an advantage coming into the us.
Jason (29:30):
[00:29:30] So I like examples.
Jordan (29:32):
Sure.
Jason (29:33):
I'm going to give you an example. Let's have that dialogue of what is the outcome as a result of that company out of the UK expands into the us again hiring five people, let's just keep using that. And they are in the business of let's use software as a service and they [00:30:00] need boots on the ground just from a sales and marketing perspective. There's no physical product or warehouse or inventory of stock. And they come to us after they have hired their employees and they've hired in Texas, California, New York, Nevada and Oregon. How I came up with those last two, I have no idea [00:30:30] now it's exactly what you just described of creating Nexus. What does their footprint as we like to use that term, what does it look like?
Jordan (30:44):
Well, some of those states, like Texas for example, that's a good state and I say it's a good state. You live in Texas, so there's no income tax in Texas for the employees, which is great. And then [00:31:00] for the company itself, there's a franchise tax, I just say this as an example to demonstrate the variability among the states. And so that's a good state to hire in for those reasons. It does. Then you can bring in sales tax. You've also got that problem if you just look at income tax versus sales tax, that creates a sales tax problem in Texas for software, but maybe you don't have that many sales in Texas, so maybe it doesn't matter. So you see a little bit of the complexity at play and [00:31:30] for administratively the payroll burden, I believe in Texas pretty low compared to somewhere like California. That can be a quagmire California. And you can have all these discussions about all these states.
Jason (31:43):
I mean let's actually just go through each of these five. I actually think it's helpful to see just the slight changes or differences.
Jordan (31:53):
So California, so you have a minimum tax in California. So if you hire there now you got to pay a minimum [00:32:00] $800 a year
Jason (32:01):
Regardless of profitability, regardless of you just paying 800 bucks or the level of activity, you can have nothing going on. Yeah.
Jordan (32:08):
Then you can bring in the sales tax issue for California, if you're a software company, you don't have to pay sales tax on software in California. You do in Texas. So then if you've got a lot of software sales, wait,
Jason (32:18):
Yeah, just explain that one more time. Software as a service is not subject to sales tax in California. Correct. But it is in Texas,
Jordan (32:26):
But it is in Texas, yeah.
Jason (32:27):
Okay.
Jordan (32:28):
Yeah. So that's another [00:32:30] variable that you'd have to look at the picture, but I think we said that these people have already hired, right?
New Speaker (32:37):
Yep.
Jordan (32:38):
Yeah, they made, it depends on their profile, but it seems like they may have made a mistake hiring California just because now they've increased their administrative costs and there's other issues to consider. Texas may have been a good choice. Oregon would've been similar, more similar to Texas.
Jason (32:55):
Why?
Jordan (32:56):
Well, Oregon doesn't
Jason (32:57):
Have, I guess Oregon doesn't have sales tax.
Jordan (32:58):
Yeah, Oregon doesn't have sales tax, so it depends [00:33:00] right on the company's profile. And I don't think it's as administratively burdensome in Oregon.
Jason (33:05):
Well let's move over to New York.
Jordan (33:07):
New York. So New York has a lot of issues.
Jason (33:11):
Give me a few examples.
Jordan (33:12):
So software for example is taxable in New York. So now you've got, and then you're going to probably have a lot of sales in New York just because of the market. So now you've got a huge sales tax obligation, which may not be necessarily a problem, but because your customers may be used to the sales tax, but it's just the administrative burden [00:33:30] now you're going to have to file sales tax returns, you're going to have to file New York income tax returns, your employees are going to have to play income tax if they're in New York City, now you've got an additional layer that they're going to have to pay income tax too. So that's a whole nother jurisdiction you've pulled in. And that's usually where all the big market in anyway is New York. So it's just another
Jason (33:50):
Layer that is a tricky one, how New York City is essentially an entire taxing jurisdiction within a taxing jurisdiction.
Jordan (33:58):
We almost treat it like a state when [00:34:00] we look at it. And I don't think there's any other city like that just because the level of complexity, it reaches that of a state.
Jason (34:07):
I mean the economic burden is basically the same as New York State. The rates are pretty on par.
Jordan (34:12):
Yeah, it's like double it basically if you're in New York City. Yeah, I think you just mentioned Nevada too. I did, yeah. So Nevada is a different beast. No income tax there. There's a different kind of tax.
Jason (34:27):
That modified business tax, modified business, [00:34:30] tax's a unique thing. I very much did not intentionally pick those five. Well lemme take that back. California, Texas and New York, I surely picked those. They're always the top three that come up. How the hell I came up with. Oregon and Nevada is actually further substantiates exactly the topics that you're talking about. Both of them have their unique aspects to them. And so we've got five states of which one doesn't charge sales tax, one [00:35:00] doesn't impose individual income tax. Nevada has its own modified business tax on a different tax base. New York has a handful of different ways in which you are taxed like the capital base and the minimum. And then California is essentially its own beast in and of itself. So we've only hired five people and yet we've just walked through the level of administrative burden, not just talking about the economic tax costs [00:35:30] that might be associated with having to pay tax in multiple jurisdictions within the us, but administratively, how big is the tax return
Jordan (35:41):
Now You're getting probably like 120 pages.
Jason (35:45):
So 120 pages, five employees.
Jordan (35:50):
That's the income tax return to be
Jason (35:51):
Clear. Correct.
Jordan (35:52):
Yeah, we're not even talking about sales tax or payroll.
Jason (35:55):
That's a good point. Actually. Going back to the just payroll, which payroll registrations [00:36:00] and the obligations. There are platforms that we advocate for. Gusto and rippling are great tools. They automate the filings, but you still need to do the registration process and they're still reporting requirements for all of these jurisdictions in order for you to be compliant from a payroll side. So we think of within the world of tax studio and how we think of tax and compliance, I always put 'em in four categories, income tax, sales tax, payroll, tax, and then corporate compliance, [00:36:30] which is what we call all the other random things like registering with Nevada's Secretary of State as a result of doing business. Now we're going to go down that path, but okay, so you walk through five states fact pattern. Two Australian client comes into the US market hires five people, sets up shop in Austin, Texas, all five are located in Austin. What's their profile look like?
Jordan (37:00):
[00:37:00] So if you can be strategic about your hiring, to your point, this is going to be amazing for your administrative burden and costs in the United States. We talked about all those states, now we don't need to talk about them, we just need to talk about Texas and we can forget about all the other stuff.
Jason (37:15):
So same business or industry software as a service. So then in Texas we still have to worry about sales tax and the franchise tax
Jason (37:24):
And the franchise.
Jordan (37:25):
Depending on the size of your business, you may not need to pay anything. You'll have an annual filing, but you can see [00:37:30] how much smaller your footprint is. Now I always like to use that phrase, don't let the tax tail the business dog, but I feel like we're trying to let the tax tail wag the business dog here.
Jordan (37:41):
Well, like I said, if you can be strategic about your hiring and maybe you can't. Yeah, maybe that's just the way the hand you were dealt, like I said, and that's just what you have to deal with. But if you can be strategic, it's a good thing to think about. And then if you can try to move in that direction where you have a smaller administrative footprint by just hiring in one state, two states [00:38:00] and just being a little more selective, if you can maybe ask your employee if they'd be willing to relocate, they may be willing to relocate. So maybe you could decrease your administrative burden that way and decrease your cost of operating in the us.
Jason (38:13):
Yeah, and that's what you just said rings a bell in my head of a couple of clients that we have worked on, worked with for a number of years, has done the COVID decentralized world, everybody [00:38:30] working from home, they pushed an insane amount of hiring across the us. To your point of 120 page tax return for those five states, I think that we were at five 600 pages for the tax return in 30 some odd states. And two years ago, when I say I can think of two clients right now made a very conscious effort of strategic hiring only in X number of states, the ones we currently are in or the ones that we want to focus [00:39:00] on. Can we look to incentivizing employee X to move from one state to another to help with this administrative burden?
Jordan (39:09):
And you could look at the moving costs, how much is going to cost to move and compare it to the administrative burden. And I bet you almost every time the moving costs are going to be lower than the administrative costs you create depending on the state. But
Jason (39:22):
Yeah. Now another client example comes to my mind that you work closely with as well. [00:39:30] This particular client had hired remotely in the state of Georgia and Georgia has a net worth tax and it ended up creating an additional tax burden
Jordan (39:44):
Because unfortunately for them they also had a lot of sales to the state of Georgia
Jason (39:48):
And their numerator out of the total sales. But what was the tax cost that ended up,
Jordan (39:54):
How much was the total tax? I think it 30 grand
Jason (39:58):
And the headcount hire was someone one,
Jordan (39:59):
I think [00:40:00] it was one,
Jason (40:00):
It was one person and I think that cost a hire was like 80 to a hundred thousand salary, right?
Jordan (40:04):
Yeah.
Jason (40:05):
So that's actually a interesting example. I mean extreme not a common fact pattern.
Jordan (40:10):
Yeah, we don't see that very often, but yeah,
Jason (40:11):
But let's just use my a hundred thousand dollars example again, a hundred thousand dollars higher. We're already out of a company budget. We're allocating 120,000 and then through a unique fact pattern of high volume of sales in a particular state, which this person lives in created [00:40:30] a 30, let's say $30,000 tax cost.
Jordan (40:34):
Well that's just the income tax. And then you had mentioned that net worth tax. So for them that was an additional five grand On top of that, a separate tax.
Jason (40:43):
So we had 30
Jordan (40:44):
5K. 30 5K,
Jason (40:45):
Okay, so now going back to my math, sorry a lot audience is outside maths 120 plus thirty five, a hundred fifty five. We've just added a 50% surcharge to the base salary. And again, this is a unique [00:41:00] fact pattern, but I'm pretty sure if the client knew
Jordan (41:06):
Not to mention the additional administrative costs of the payroll in Georgia now just for that one employee, the income tax return itself, just the cost to prepare that if they had moved that employee to a different state where they already had an employee where they already had a footprint, all those costs would've been eliminated.
Jason (41:29):
Another client [00:41:30] that comes to my mind too now that we keep going through this cycle is software as a service. I think they're in like 10, 12 states and they just have a very strong mandate that we are only hiring in these states. We are already registered for sales tax, we're already registered for payroll, we've already been filing income tax returns here. My cost base, administrative cost base is static as long as our headcount increase goes here. That's in my opinion, going back to [00:42:00] that phrase of not letting the tax tail wa the business dog, it's like an element of a compromise. You and I aren't sitting here and waving our tax tail and saying don't ever hire outside of more than one state. I don't want to produce a tax return that's more than 40 pages. But we're also not saying like, oh yeah, well do whatever you need to do operationally, don't worry about what US tax tos are saying and end up in 35 states.
Jordan (42:23):
Exactly. That's what they didn't plan for it or think about it or even ask us and they kind of went [00:42:30] ahead and then it would've been better to be more strategic about that hire. Yeah,
Jason (42:34):
So you go back to this particular client and I've got my 10 states now I think this client is probably a hundred, maybe 80 employees, somewhere in that range. But now they can go through their hiring process and say, I'm going to hire, but it's going to be in these 10 states. And the compromise of hopefully the compromise is acceptable [00:43:00] for the engineer team who's like, I need talent. I don't give a shit where this person's located. I need the talent. And that's conflict because then our controller and C FFO are saying, no, no more states middle ground. Okay, cool. These 10 states.
Jordan (43:21):
That way it gives people, at least you can move to some of these states. It gives them an option, but it also kind of tries to keep the footprint a little smaller than [00:43:30] if you didn't have a plan.
Jason (43:32):
Going back to that five state profile. And then we said, well, the other fact pattern is just going into Texas. My takeaway of this segment of what we're talking about is the location of hiring is very important. It has a domino effect or a trickle down effect to other areas of tax. And we're not going to even go into because we're not attorneys in labor law, we're not going [00:44:00] to talk about it. But there are other issues of employment law and PTO policies differ between state by state. But what we're suggesting now to our audience and our clients is, hey, look, understand the benefits that you need or you should offer, understand the costs and then when you're ready to go, make sure you understand that. To our example, hiring five people in five different states is a [00:44:30] big difference than hiring in one location. What would you say, we've been using software as a service as an example. What would you say that would differ with our client base? Let's just say it's a physical product. Do you see much of a difference?
Jordan (44:44):
I do. Well, yeah, I do like a physical product. If you could find a state to hire in that has no sales tax such as Oregon, if it's going to be a big issue or in a state where you have more sales to that [00:45:00] state and it doesn't have sales tax. Sorry, maybe that's not clear. I think it's a thing to consider. The point is that a lot of states have different rules, but usually a tangible good, if you're doing a tangible good sales tax is going to be applicable unless you find a state that doesn't have sales tax at all. Yeah, yeah. And there are a few of those. There's not too many of them, but Oregon's one of 'em. Alaska is one of them. I don't know if anybody's going to hire up there, but I don't even know. Do we have anybody in Alaska? I don't think so. And that's [00:45:30] why I say that we should.
Jason (45:33):
One thing that comes to my mind on that point is if you know you're going to have physical presence in a state, because that's where your inventory or stock is, if you can at least hire your first employee in that state use in our example of Texas and our five employee base, if I'm going to put my stock in Dallas, I can hire [00:46:00] through the entire state of Texas and not change my administrative footprint because I'm already in Texas with my physical goods. So I kind of like the idea of anchoring where your physical goods are as your starting point of where your people are.
Jordan (46:16):
That goes back to that whole discussion about keeping your footprint small. It's the same concept. So if I've got my inventory over here and my employee here now I've increased my footprint. So same concept, physical goods here, that also creates [00:46:30] nexus in most states. And then hiring there would keep your footprint smaller so you can save those or prevent those administrative costs the same way by keeping it small in one state. So what else? What have we not covered? Is there anything they need to be worried about for culture you think in the US versus say for example Australia?
Jason (46:54):
I wouldn't consider them big differences. I would consider them things that you should have some knowledge, [00:47:00] some wherewithal of what is normal or normal accepted practices here, how we run payroll. Nothing that I would say jumps out as the have to know. You use the example of Australia and we've said that we have a large client base that comes out of Australia, but…
Jordan (47:18):
Maybe Australia is more similar to the us.
Jason (47:20):
That's what I was just going to get to is if you ever spent a lot of time in Sydney and LA, they're pretty damn similar to each other. But I think if you were coming [00:47:30] from certain areas within the European Union, if we use Germany as an example, there are some cultural nuances.
Jordan (47:36):
What about work life balance? I feel like that's important to people in the us. Is that as important in Europe or in other countries? Australia, I imagine. But what about across Europe?
Jason (47:45):
I just saw this graph the other day of the average hours worked on a country by country basis and to my surprise, the US wasn't as high as I thought, kind of expected it to be higher. [00:48:00] Maybe that's just our industry. No, I think that that probably opens up for a much larger conversation that perhaps another day or another time on maybe a future podcast or we can have a guest speaker that comes in and speaks to more of those areas of that's, I don't want to say human resources, but that's kind of in cultural behavioral differences. And so from our world, [00:48:30] I like to stick to the numbers. You and I joked about this. We're talking about how these benefits are necessary but complicated and the cost to hire is more expensive than you might think. And the cost of doing business in five states is a lot. And that sounds daunting. That sounds like, well shit, why bother?
Jason (48:54):
Right. And I think it's important one to take away and just to advocate for who we are as [00:49:00] Tax Studio. Our goal is to support you through that journey. Make it easy for you because you're leaning on us through that process. But our goal here is also just purely the education of knowing what to expect allows you to put that, in my opinion, somewhat of that peace of mind put in the back of your head and then just focus on the simple fact that we have a lot of people here in the states [00:49:30] and most people come into the US market with the notion that they are expanding their overall growth, their overall revenue or bottom line, and they are accessing a consumer base that far exceeds their home country. If you focus on that, that's the success model because you've gotten your advisors like Tax Studio, sitting there doing the detailed stuff that we're talking about. And you don't have [00:50:00] to think about the fact that it is, I don't want to say complex, it can be somewhat cumbersome, right? It's just you need
Jordan (50:08):
To know it seems daunting at first, but we help you handle it and you can navigate it.
Jason (50:16):
Yeah. Cool.
Jordan (50:17):
Yeah.
Jason (50:18):
Alright, well I think that wraps up podcast here on how to hire and looking forward for more to come. Thanks Jordan.
Jordan (50:28):
Thanks
Jason (50:28):
Jason.

Jason Booth