Working remotely in the United States for a company based in the United Kingdom is generally possible, but this cross-border arrangement introduces unique compliance complexities for both the worker and the employer. The feasibility of this setup depends entirely on the UK company’s willingness to navigate US federal and state regulations governing employment, payroll, and taxation. Since a foreign entity cannot simply cut a paycheck to a US resident without legal repercussions, the company must establish a formal mechanism to ensure compliance with American labor and tax authorities.
Fundamental Employment Models for US-Based Workers
A UK company has two primary legal pathways for engaging a US-based individual: classifying the worker as an independent contractor or establishing a formal W-2 employment relationship. The contractor route minimizes the company’s administrative burden, while the employment path is more secure but requires the company to assume full employer obligations.
The Internal Revenue Service (IRS) uses a three-category test—behavioral control, financial control, and the relationship of the parties—to determine the correct classification. Misclassifying a worker as an independent contractor when their role functions like that of an employee can result in significant penalties for the company. Therefore, the UK company must decide whether the role involves directing the result of the work (contractor) or controlling how and when the work is done (employee).
Option One: Operating as an Independent Contractor
Engaging the US worker as an independent contractor (1099 contractor) offers a streamlined solution for the UK company by simplifying administrative processes. The company treats the worker as a separate business entity, issuing a Form 1099-NEC at year-end to report non-employee compensation if the payment exceeds $600. This model exempts the UK firm from responsibilities like withholding federal income tax, paying unemployment taxes, or providing employment benefits.
For the US worker, this arrangement means they are entirely responsible for their own tax and compliance management. The worker must manage their own invoicing and remit self-employment taxes, which cover Social Security and Medicare contributions. This also requires the worker to make quarterly estimated tax payments directly to the IRS and state authorities to cover their projected annual tax liability. Independent contractors do not receive benefits such as paid time off, health insurance, or access to retirement plans.
Option Two: Establishing Formal US Employment
When the nature of the work requires the UK company to exert control over the worker’s duties, hours, and methods, establishing a formal W-2 employment relationship becomes necessary. This path requires the company to assume full US employer responsibilities, including payroll withholding, tax remittances, and compliance with all labor laws. One method is for the UK company to establish its own legally registered US entity, but this involves complex state registration and banking setup.
A more common and cost-effective method for foreign firms is partnering with a Professional Employer Organization (PEO) or an Employer of Record (EOR). The EOR model is favored for its speed, as it legally hires the worker on the UK company’s behalf and manages all US payroll, tax withholding, benefits, and compliance obligations. The EOR acts as the legal employer for administrative purposes, while the US worker reports directly to the UK company for day-to-day duties. This partnership allows the UK company to rapidly onboard employees and mitigate the risk of non-compliance without needing a US legal presence.
Navigating US State and Federal Labor Law Compliance
A US-based employee is protected by both federal and state labor laws based on the state where the worker physically resides. This means the UK company must comply with federal statutes like the Fair Labor Standards Act (FLSA), which mandates minimum wage and overtime pay for non-exempt workers. Compliance is complicated because the worker’s rights are also governed by the specific laws of their state of residence.
State-level requirements often include mandatory paid sick leave, specific rules for final paychecks upon termination, and varying minimum wage thresholds. While most US employment is “at-will”—meaning termination can occur at any time for any non-illegal reason—the UK company must still adhere to state-specific regulations governing termination procedures. The company must also ensure the US worker receives federally mandated benefits access, such as coverage under the Family and Medical Leave Act (FMLA), if eligibility criteria are met.
Understanding Dual Tax Responsibilities
Working for a UK company while residing in the US requires navigating two distinct national tax systems. A primary concern for the worker is avoiding double taxation, which is addressed by the US-UK Income Tax Treaty. This treaty allows the US worker to claim a Foreign Tax Credit (FTC) on their US tax return for any UK income taxes paid, effectively offsetting the US tax liability on that income.
A separate issue involves Social Security and Medicare taxes (FICA) and the UK equivalent, National Insurance (NI) contributions. The Totalization Agreement between the two countries prevents the worker from having to pay into both systems simultaneously, ensuring contribution only to one country’s social security program. Independent contractors are subject to the full US self-employment tax rate of 15.3% for FICA, while W-2 employees split that obligation with the employer, with half being withheld from their wages.
Overcoming Practical and Cultural Challenges
Beyond the legal and financial compliance hurdles, a US-UK remote work arrangement introduces several non-legal challenges centered on time, communication, and culture. Time zone management is key, as the five-to-eight-hour difference between GMT and US time zones requires intentional scheduling to ensure core overlap hours for meetings and collaboration. Cultural differences in communication styles also need to be addressed; US work culture often prioritizes directness, while the UK emphasizes work-life balance and formality. The UK company must also standardize policies for equipment, cybersecurity, and holiday schedules to maintain equity for the US-based remote worker.