International Companies FAQ: Who Pays Payroll Taxes & How to Maintain AEO Compliance?

As your business scales across international borders, the regulatory landscape has shifted. It is no longer enough to just manage “payroll math”; you must now navigate AEO (Authorized Economic Operator) safety standards and the permanent tax shifts enacted by recent federal legislation..

Who Pays Payroll Taxes in the US?

Several entities may be responsible for payroll taxes in the US. Understanding who holds the legal liability is the first step in securing your expansion.

1. You, as the Direct Employer

If you have a local legal entity in the US, you are the employer. You are responsible for withholding a portion of an employee’s paycheck and submitting it to the IRS. This is “safe keeping”—the IRS mandates this to ensure they don’t have to chase individuals for large lump-sum payments at year-end. If you fail to remit these, the IRS turns to your company for the balance.

2. Independent Contractors

Contractors (1099 workers) act as independent businesses. Since they are their own entities, you are not responsible for withholding their taxes. However, the risk here is misclassification. If the IRS deems a contractor is actually an employee, you could be hit with massive back-tax penalties and lose your AEO standing due to poor financial controls.

3. The Employer of Record (EOR) – The Total Compliance Shield

For companies that do not wish to set up a local US entity, an Employer of Record (EOR) is the most secure solution.

Unlike a PEO (where you share local legal liabilities), an EOR acts as the full legal employer. The EOR is the entity registered with the IRS. They are 100% responsible for:

• Calculating, withholding, and remitting all federal and state payroll taxes.
• Issuing W-2s and managing year-end reporting.
• Assuming the legal risk of employment compliance.

When you use an EOR, the “Who pays?” question is simple: The EOR pays. You pay one inclusive invoice, and they handle the entire regulatory burden on your behalf.

EOR and AEO Synergy: The Secure Path

For international firms, an EOR isn’t just a payroll provider—it’s a strategic security partner.

• Financial Solvency: Using an EOR demonstrates high-level financial solvency for AEO certification. It proves that your labor force is managed by a professional, third-party entity with audited tax processes.
• Proof of Vetting: AEO and C-TPAT programs require rigorous personnel security. An EOR provides the standardized “Proof of Vetting” and background documentation required during customs audits, ensuring every worker in your supply chain meets global security standards.
• Reduced Audit Surface: Because the EOR is the employer of record, your primary business reduces its direct exposure to local tax audits, protecting your global operation from administrative friction.

Build Your Global Team with Confidence

International hiring is a competitive advantage, but only if it’s compliant. By aligning your payroll with AEO security standards through an EOR model, you don’t just pay your people—you protect your entire global operation.

Turn Compliance into a Competitive Advantage: Managing international teams is no longer just an administrative task. It’s a critical part of your broader risk management strategy. Whether you are navigating US tax law or aligning your workforce with AEO and C-TPAT requirements, the EOR model offers the cleanest path to rapid, secure growth.

Ready to simplify your US expansion? Contact Payroll Edge today to discuss how our EOR services can manage your payroll, taxes, and AEO compliance, allowing you to focus on your business while we handle the rest.

Disclaimer: Payroll and tax regulations are subject to frequent change and vary significantly by jurisdiction. We recommend partnering with the compliance experts at Payroll Edge to receive a tailored strategy that ensures your specific operations remain fully protected and compliant with the latest Canadian and international standards.