OASDI stands for Old-Age, Survivors, and Disability Insurance, the formal name for what most people call Social Security. This federal program collects a 6.2% tax from both employees and employers on wages up to an annual cap ($160,200 in 2023), creating a combined 12.4% contribution that funds retirement, survivor, and disability benefits.
For companies managing offshore teams, OASDI represents a significant cost difference between US-based and international employees, where this tax doesn’t apply to foreign workers not subject to US payroll obligations.
How OASDI Works in Practice
The OASDI system operates on a pay-as-you-go model where current workers fund current beneficiaries. Here’s the breakdown:
| Component | Purpose | Benefit Eligibility |
| Old-Age Insurance | Retirement benefits | Age 62+ with sufficient work credits |
| Survivors Insurance | Benefits for deceased worker’s family | Spouse, children, or dependents |
| Disability Insurance | Income replacement for disabled workers | Medically certified disability lasting 12+ months |
Current rates and caps:
- Employee contribution: 6.2% of wages
- Employer contribution: 6.2% of wages
- 2023 wage cap: $160,200 (adjusted annually)
- Combined with Medicare tax: 15.3% total payroll tax burden
Strategic Implications for Workforce Planning
Cost differential analysis: A US employee earning $100,000 costs an additional $6,200 in OASDI taxes alone, not counting the employer’s matching contribution. This $12,400 combined burden doesn’t exist for offshore team members working through international employment structures.
Compliance complexity: Mixed workforce models require careful attention to which employees fall under US payroll tax obligations. Remote US citizens working abroad may still be subject to OASDI, while foreign nationals typically aren’t.
Budget forecasting: The annual wage cap adjustment affects high earners differently each year. Companies with senior offshore positions need to model these changes when comparing total employment costs.
Common Misconceptions and Strategic Considerations
“OASDI only affects payroll” – Actually, OASDI obligations can trigger additional compliance requirements for companies with mixed domestic and international teams, affecting how you structure employment relationships.
“The tax cap makes high earners cheaper” – While true on a percentage basis, the flat 6.2% rate up to the cap still represents substantial absolute costs that offshore arrangements can avoid entirely.
“OASDI is just a cost center” – Smart companies factor OASDI savings from offshore hiring into competitive compensation packages, potentially offering higher net pay to international team members within the same budget.
Frequently Asked Questions (FAQs)
No, independent contractors pay self-employment tax (12.4% OASDI portion) themselves. However, misclassifying employees as contractors to avoid OASDI can trigger significant penalties.
US employees working remotely still generate OASDI obligations regardless of location. The key distinction is employment structure, not work location.
Yes, but only through legitimate international employment arrangements, not by simply relocating US employees. The worker’s tax status and employment structure determine OASDI obligations.
OASDI obligations start and stop based on US payroll status. Careful transition planning ensures compliance while optimizing tax efficiency.
