The hidden legal (and financial) risk for U.S. companies hiring remote talent overseas — and how to stay compliant.

In today’s remote-first world, U.S. companies are hiring top talent from around the globe — especially in fast-growing markets like Vietnam, where the quality-to-cost ratio is unmatched. But here’s what many employers don’t realize until it’s too late: Misclassifying international workers — especially when treating long-term employees as “contractors” — can lead to massive fines, back taxes, and legal exposure on both sides of the ocean.

In this article, we’ll break down:

What the IRS and Vietnamese labor laws say about worker classification The risks of misclassification for U.S. companies How to avoid penalties while hiring remote Vietnamese talent legally The smart alternative: Using an Employer of Record (EOR)

🧾 What Is Worker Misclassification?

Worker misclassification happens when a business treats someone as an independent contractor, when legally they should be an employee. Why does this matter? Because contractors don’t get benefits, tax withholding, or legal employment protections, while employees do. Governments (including the U.S. and Vietnam) care a lot about this distinction — because misclassification leads to lost tax revenue and worker exploitation.

🇺🇸 What the IRS Says About Classification

The IRS uses the Common Law Test, which revolves around control and independence. They look at three key areas:

Behavioral Control: Do you control how and when the person works? Financial Control: Do you reimburse expenses? Provide tools? Offer a steady paycheck? Relationship Type: Is the work ongoing? Do they only work for you? Do you offer benefits?

👉 If you answered “yes” to several of those, the IRS is likely to view them as employees — not contractors. And yes, this still applies even if they’re based in Vietnam.

🇻🇳 What Vietnam Labor Law Says

Vietnam has clear definitions around labor relationships as well. If you engage someone in Vietnam and:

Require consistent working hours Supervise them or assign tasks directly Expect ongoing work (not a project-based contract) Pay them regularly

…they're considered employees under Vietnamese law, regardless of what your contract says. Misclassifying a Vietnamese worker can trigger back payment of social insurance, legal penalties for violating labor code, and potential bans on future hiring.

⚠️ Why This Becomes Risky for U.S. Companies

If you're hiring someone in Vietnam (or any foreign country) and treating them like a full-time employee, but paying them as a 1099 contractor or via wire transfer… you're at risk of:

IRS audits and back taxes State-level penalties (especially California, New York, etc.) Loss of IP protection (contractor agreements may not hold up internationally) Legal action in Vietnam

And here's the real kicker: U.S. tax agencies cooperate with many foreign governments (including Vietnam) to identify cross-border tax violations.

💡 Real-World Example: A U.S. startup hired a Vietnamese software engineer as a “contractor” but set fixed work hours, gave a company email + Slack account, conducted weekly team meetings, and paid them every 2 weeks. Even though they called them a contractor, the relationship looked exactly like an employee — and they were forced to pay retroactive employment taxes and risked IP ownership disputes because there was no valid employment contract under Vietnamese law.

✅ The Right Way to Hire: Use an EOR (Employer of Record)

An EOR is a third-party service that legally hires talent on your behalf in their home country — in this case, Vietnam — and handles payroll, local taxes, social insurance, contracts, and termination compliance. You still manage the employee's day-to-day work, but the EOR handles the legal employment relationship.

With an EOR like VietAssist, your company gets:

Full compliance with U.S. and Vietnam laws Clear IP ownership and enforceable contracts Peace of mind (no risk of misclassification penalties) Fast, easy hiring — without setting up a Vietnamese entity

🛡️ How to Stay Safe If You're Already Hiring in Vietnam

Already working with a Vietnamese contractor? Here’s how to protect yourself:

Review the nature of the relationship — do they behave more like an employee? Consult a cross-border employment expert (or partner with an EOR) Convert high-risk contractors into compliant employment relationships Use localized contracts that align with Vietnamese labor laws Avoid paying individuals directly without tax or benefit reporting

🧠 Final Thoughts: Compliance Isn’t Optional — It’s a Strategic Advantage

U.S. companies expanding globally have a massive opportunity — but also new responsibilities. Avoiding international worker misclassification is about more than just avoiding fines. It’s about:

Protecting your IP Building trust with overseas employees Scaling with legal, financial, and operational stability

Want a Worry-Free Way to Hire in Vietnam?

VietAssist helps U.S. companies:

Find and vet top Vietnamese talent Employ them legally and compliantly via our EOR service Handle payroll, contracts, taxes, and benefits — so you don’t have to