The Hidden Risks of Keeping Stranded H-1B Workers on Payroll
Is your H-1B remote work arrangement accidentally turning your U.S. company into a “foreign entity” with a massive tax bill?
As the 2026 visa appointment crisis stretches on, many U.S. employers are trying to be supportive by allowing their H-1B employees to work remotely from their home countries. While this solves the immediate talent retention problem, it opens a “Pandora’s Box” of corporate tax and compliance risks that most HR departments aren’t prepared for.
At KKCA, we are advising companies that “business as usual” payroll doesn’t work when your employees are stuck abroad. Here are the top compliance risks for 2026.
The “Permanent Establishment” (PE) Risk
The biggest danger for a U.S. company is inadvertently creating a Permanent Establishment in a foreign country (like India or Canada).
- The Risk: If an H-1B employee works from a foreign country for an extended period (usually over 90–180 days), the local tax authorities may decide your U.S. company has a “taxable presence” there.
- The Consequence: Your company could be forced to pay local corporate income tax on a portion of its global profits and comply with that country’s complex business filing requirements.
Labor Law and Social Security Liability
When an employee works from a foreign jurisdiction, they are often automatically covered by that country’s labor laws.
- Mandatory Benefits: You may suddenly be liable for foreign mandatory severance pay, local vacation day requirements, and employer-side social security contributions.
- Payroll Compliance: Simply withholding U.S. taxes is not enough. You may be required to register a local payroll to withhold the employee’s local income taxes, creating a massive administrative burden for your finance team.
H-1B Amendment & LCA Requirements
The Department of Labor (DOL) is strict about work locations. Every H-1B worker is tied to a specific Labor Condition Application (LCA)filed for a specific geographic area.
- The 60-Day Rule: Generally, an employee can work from a non-LCA location for only up to 30 or 60 days per year under specific “short-term placement” rules.
- The 2026 Challenge: Since these workers are stranded for months, you cannot simply “wait it out.” Failing to file an amended H-1B petition for a change in work location can lead to the revocation of the visa and heavy fines for the company.
Data Privacy and IP Security
Working from abroad often triggers different data protection laws (like GDPR or local equivalents). If your employee is handling sensitive U.S. client data from a residential IP address in a foreign country, your company might be in violation of its own client contracts or international data privacy regulations.
How KKCA Supports Employers in 2026
Maintaining compliance while supporting your stranded workforce requires a surgical approach to tax and law. KKCA works with U.S. employers to:
- Audit “Stranded” Employee Lists: We identify which employees have crossed the high-risk 90-day threshold.
- Implement “Employer of Record” (EOR) Solutions: If the risk of Permanent Establishment is too high, we help companies transition employees to EOR models to protect the U.S. entity.
- Coordinate Global Payroll: We ensure that you aren’t double-withholding or missing local tax obligations that could lead to foreign penalties.
Looking for personalized tax services about your specific tax situation, please contact us. We are here to help you with your specific tax matters.
Disclaimer
This blog is intended for informational purposes only and does not constitute legal or tax advice. Please consult a qualified U.S. CPA or tax attorney for guidance specific to your situation.