As a lawyer who spent four years as a paralegal, I have seen too many companies get fined simply because they used an outdated employment agreement. The basic truth is this: the contract you used for an in-office worker in 2019 is a giant legal risk for a remote worker in 2025.
When your team works from anywhere whether across state lines in the US or across borders globally your employment agreement must do heavy lifting. It must manage data protection (GDPR), wage regulations (FLSA), and foundational work rights at dozens of various nations.
This manual divides the essential components of a contemporary, legal remote contract. We will look at the legal traps, the essential clauses, and the simple ways to protect your business and treat your remote team fairly.
1. Why Your Current Remote Contract Fails in 2025
Remote working was transitioned quickly, and the legal regulations failed to keep pace. One of the risky mistakes that many companies did is that they merely included a remote-work provision into their existing, local contract.
This fails for three main reasons:
The Problem of Permanent Establishment (PE)
When an employee works full-time from their home in a foreign country, they might create a “Permanent Establishment” for your company in that country. This means your business might owe corporate taxes in that employee’s home country, even if you do not have an office there. A contract must clearly state that the employee is not authorized to bind the company in new contracts, which helps reduce this risk.
The Problem of Tax and Payroll
You cannot just pay someone as a US employee if they live in the UK or Canada. You must register to pay taxes in their country. Failing to do this can lead to massive fines, back taxes, and major headaches. A modern agreement clearly spells out who is responsible for local income taxes and whether you are using a local entity, a PEO (Professional Employer Organization), or an EOR (Employer of Record) to handle payroll.
The Problem of Local Labor Law
Most countries have laws that protect employees regardless of what your contract says. For instance, in many European countries, you cannot fire someone “at will.” You need a legal reason. If your US-style contract says you can fire someone without cause, but local law says you cannot, the local law wins every time.
2. The Core Legal Difference: Employee vs. Contractor Status
Before writing any contract, you must settle the biggest risk area: misclassification. Hiring a foreign worker as a contractor is much easier than hiring them as an employee, but if you treat a contractor like an employee, legal trouble follows.
The Test of Control
The law focuses on control. You need to ask simple questions:
| If the Answer is YES, They are Likely an EMPLOYEE | If the Answer is YES, They are Likely a CONTRACTOR |
| Do you control when and where they work? | Do they set their own hours and work schedule? |
| Do you provide the computer, software, and tools? | Do they use their own tools and equipment? |
| Is their work critical to your company’s core function? | Is the work project-based, with a defined end date? |
| Do they work only for your company? | Do they work for several other clients? |
From my experience, I have seen the IRS and US Department of Labor use these same simple tests. When you tell a contractor when to appear at meetings, how to perform their work, and they cannot perform it anywhere, they are an employee. That fact should be echoed in what you have written in your contract or you will be compelled to pay back wages, overtime, benefits and penalties.
3. GDPR Compliance: Protecting Data When Teams Work Anywhere
The European Union has a stricter regulation on the management of personal data, the General Data Protection Regulation (GDPR). In case your company works with data of EU citizens, your remote employment contracts have to take this issue into consideration, despite the fact that the employee is not located in the EU.
Who is the Processor?
Your remote employees are processing data customer lists, payment details, internal records. The contract needs to define the employee’s role clearly.
- Device Policy (BYOD vs. Company Gear): In case the employee works with his/her personal laptop (Bring Your Own Device or BYOD), security requirements must be strictly outlined in the contract: the use of VPN, password managers, and disk encryption is mandatory. In case the company offers the gear, it should be stated in the contract that the company has the right to wipe off or retrieve the device at the moment of termination.
- Data Security Training: The contract must state that the employee agrees to mandatory, regular data security and GDPR training.
- Data Transfer Mechanisms: When US companies transfer EU data, they need a legal basis. While complex, your contract should state that the employee is aware of and agrees to follow all official transfer mechanisms, like Standard Contractual Clauses (SCCs), to keep the data safe and legal.
My advice: Include a full, separate exhibit in the agreement that covers IT Security and Confidentiality. This is non-negotiable for global agreements.
4. Key US Labor Laws Remote Teams Must Follow
Hiring one employee in a different US state creates an immediate legal headache. Hiring across multiple states? You need clear clauses for US federal and state laws.
The Fair Labor Standards Act (FLSA)
The FLSA controls minimum wage and overtime rules for most US employees. The biggest mistake for remote teams is how they classify workers:
- Exempt Employees (Salaried): This category of employee receives a salary and does not receive overtime (e.g. executives, professionals).
- Non-Exempt Employees (Hourly): These individuals are to be compensated per hour after 40 hours per week (time-and-a-half).
In the case of remote teams, non-exempt status is a bit challenging since employees have to keep proper track of their time, and the employer has to track the same. Status of the worker has to be clearly stated in your contract and time tracking of all the non-exempt remote workers must be recorded properly.
State-Specific Laws
Every US state has its own unique rules. Your contract cannot just ignore them.
- Paid Sick Leave: There are states (such as California, New York and more) that have mandatory paid sick leave.
- Final Paycheck Rules: Final paycheck is allowed in some states to be given at the time of the termination.
- Required Disclosures: Many states mandate that you give employees certain documents or notices in writing. The employment contract serves as the perfect place to state that the company has provided all mandatory state-specific disclosures as required by law.
5. 7 Essential Clauses for Your Global Remote Agreement Template
This is the structure that gives your contract its legal strength. These seven clauses are the absolute minimum you need.
Clause 1: Defined Work Location and Change Policy
This is vital for tax, payroll, and insurance purposes.
- Must state: The specific city, state, and country where the employee is based.
- Must require: The employee must give written notice and get prior company approval before moving. Moving even 50 miles in the US can change tax rules and trigger new state compliance requirements.
Clause 2: Compensation, Benefits, and Tax Responsibility
Avoid confusing the employee over what they are earning and the tax.
- Compensation: Specify pay, currency (USD, EUR, and so on) and pay frequency.
- Tax: When using an EOR, it is taken care of by the EOR. When a contractor is being employed, this agreement should mention that all the local income taxes, self-employment taxes, and the social security are to be paid only by the contractor. This covers you in the liability in the future.
Clause 3: Equipment, IT Security, and Data Access
You need to manage the location in which company data resides.
- Equipment: Indicate whether the company will offer the computer, monitor, and phone, or place a stipend on the employee to get a BYOD setup.
- Security: Stated that the employee has to install and use the necessary software (VPN, antivirus, monitoring tools) that the company needs and that he or she has to report about the security problem as soon as possible.
Clause 4: Working Hours and Time Zone Overlap
Working remotely usually creates the gray area between work and personal time. Your contract should have limits, particularly in the case of teams that have a large number of time zones.
- Standard Hours: Establish the primary working period (e.g. Monday through Friday, 9:00AM-5:00PM in the time zone of the employee).
- Overlap: In case the employee has to be available to meet the main office, specify the required overlap (e.g., “The employee will be required to be available between 10:00 AM and 2:00 PM Pacific Time to hold team calls).
Clause 5: Confidentiality and Intellectual Property (IP) Assignment
That is the way to protect your business ideas and trade secrets. This provision should be ironclad.
- IP Assignment: The agreement should expressly articulate that all products of work produced by the employee in his or her period of employment (code, designs, reports, documents, etc.) automatically vest in the company at the time of their creation.
- Survival: Indicate that the confidentiality provision continues to exist after termination of employment. They have a legal obligation to keep your secrets even after the employee is gone.
Clause 6: Termination, Notice Periods, and Severance
It is at this point that the local law has a likely chance of overruling your contract.
- At-Will Caveat (US only): In the US, state that the employment is at-will (that is, either party may terminate the relationship at any time and for any legal reason).
- Non-US Employees: In the agreement, the minimum notice periods to be followed by the employee in his country of residence or PEO agreement must be mentioned. Do not use “at-will.” State certain, legally accepted causes of dismissal (cause).
Clause 7: Governing Law and Dispute Resolution
This determines whose rulebook you will follow when a fight happens.
6. The Importance of Jurisdiction and Governing Law
Many people mix up “Governing Law” and “Jurisdiction,” but they are different. Getting this wrong can force you to fly to a foreign country for a minor lawsuit.
- Governing Law: This is the law that is employed to explain the contract. Example: This agreement is subject to the Delaware law.
- Jurisdiction (Venue): This is where any dispute shall be resolved in physical location (court). E.g. “The disputes that may emerge due to this contract shall be resolved in none other different state and federal courts within the county of King in Washington.
The reality check: Although you may attempt to select your home state law (e.g., Delaware) as the Governing Law, most courts, particularly not in the US, will consider the laws of the country where the employee is physically working, such as in relation to employment protections, minimum wage and termination rights.
To resolve conflicts, a binding, mandatory Arbitration clause is usually a good idea. This compels both parties to resolve disputes out of court which is often cheaper and quicker. This provision should be explicit on the regulations and venue of arbitration.
7. Next Steps: Turning This Advice Into Action
Drafting a global employment agreement requires careful thought. Do not try to find a single, magic template online and just copy it.
When your firm is recruiting a person in a new state or country, you must have a variant of your main-agreement which is particular to the local legislation of that location. The basic contract is the backbone but the walls that are tailor made are the local labor provisions and disclosures.
The most important takeaway is this: Do not use a single contract to suit all. This guide will help you develop a powerful central template and then have local counsel do it or have a dependent PEO/EOR service modify it to fit each particular location. This is the only means of expanding the remote force safely in the year 2025 and beyond.
Disclaimer: I am providing my personal opinion as a lawyer who has worked within the labor and employment law. This is information only, and does not constitute legal advice. Any agreement, created or signed, should be an employment agreement that you must be able to discuss with qualified legal counsel in each applicable jurisdiction.
