Hiring remote employees has become increasingly popular among businesses in the United States. It allows them to tap into a wider pool of talent and reduce overhead costs associated with physical office spaces. However, hiring remote employees in Puerto Rico (PR), a US territory, used to come with additional tax considerations. This changed in 2022, with PR law number 52-2022. The law was modified to make it easier for US businesses to hire remote employees on the island. Let’s discuss those updates below.
What Changed With Law 52?
PR law number 52-2022 essentially clears up that US based employers who meet certain criteria are excluded from having to register and pay taxes in PR. Before this law, it was harder to determine which employers were considered to be doing business on the island. It should come as no surprise that many businesses excluded the island as a possible location for their remote team members.
Among other items, an employer would not have to register and pay taxes on the island if:
- They have no office or other work location in PR at any point during the fiscal year.
- They have no economic ties to PR.
- The remote employee in PR is not an official, director, or majority shareholder of the employer’s business.
- The services performed by the remote employee are for the benefit of clients who have no ties to PR.
- The employer reports the remote employee’s earnings through a Federal W-2 form, or through forms 499R-2/W-2PR.
What Are the Obligations for Remote Employees in Puerto Rico?
A person who is hired to work as a remote employee in PR will need to pay local taxes. They will be responsible for registering with PR’s Unified Internal Revenue System (SURI). SURI is a digital platform for tax and revenue administration. The remote employee will need to retain 10% of their gross earnings. This amount needs to be submitted every quarter in the SURI system. It’s important to note that the deadline to submit those payments is one month after each quarter ends.
When taxes are due, the official tax payment will be calculated and the employee will be reimbursed if they ended up paying more than they owed.
Employers always pay the SS & Medicare taxes directly to the IRS.
Are Remote Employees in Puerto Rico Eligible to Work in the US?
Since Puerto Rico is a US territory, individuals who are born in Puerto Rico are US citizens and are eligible to work in the United States. However, it is still important for the business to verify the employee’s eligibility to work in the US by completing an I-9 form.
What About Pay and Benefits?
Law 52 does not require the employer to offer pay and benefits according to Puerto Rico’s employment laws. Therefore it’s the employer who established the pay and the benefits. However, if desired, the employer can consult with a local attorney or accountant to understand what is usually required.
Conclusion
The business should treat remote employees in Puerto Rico the same way they would treat a remote employee in the US mainland. They should provide them with the same equipment and technology, as applicable. And they should go through the same onboarding process to establish a successful remote working relationship with their new employee.
At The Uncompany, we can help manage projects and tasks remotely. If you’d like to know more about how we can help, please visit our services page and contact us with any questions you might have.