Contractors were once thought of as a solution for short-term projects that don’t warrant hiring an employee. But these days hiring a remote contractor has become a cost-effective and efficient way to run a business. In fact, according to a study by Deloitte, up to 33% of organizations rely on freelancers, contractors and other forms of alternative labor. On top of that, more and more companies are sourcing contractors from across the globe.
A remote contractor is a self-employed worker who operates independently on a contract basis. The contract relationships can be short-term or long-term. Sometimes called a contract worker, independent contractor, or freelancer, a contractor is not an employee. While they may perform work for a company, they are vendors paid through invoices, rather than employees paid through a company’s payroll.
The benefits of hiring a contractor are centered around the fact that they are their own business. You’re paying for a product or service they provide, and you’re bypassing many of the administrative hassle and expenses associated with employment. There’s no need to withhold the appropriate taxes, pay employee benefits, offer paid vacation, and provide equipment or other assets you’d typically give to employees to perform their duties. Add to those benefits the deep talent pool accessible by remote work, and hiring a contractor makes good business sense.
While hiring contractors offers tangible benefits, there are some issues you need to take into consideration—especially when working with international contractors.
Governments all around the world pay close attention to the differences between employees and contractors. They don’t want organizations using contractors to get around paying healthcare, employment taxes, unemployment issuance, or other critical benefits. Governments also have a vested interest in workers having the traditional safeguards of permanent employment, which would reduce the use for social welfare programs. For these reasons, among others, governments and regulatory agencies strive to ensure that workers aren’t fulfilling the role of an employee while being classified and paid as a contractor.
Worker misclassification can lead to audits, fines, penalties, and even lawsuits. So you want to be certain that you’re compliant with the local laws in any country where you hire contractors. What are some key components to consider when determining if your candidate is properly classified as a contractor?
Contractors typically don’t perform services central to the core mission and operation of the company. Hiring a contractor to create an ad for a food purveyor is entirely different from hiring one to create an ad for an advertising agency. Is the service the worker will provide ancillary to the company’s purpose? Contractors also typically work at their own initiative instead of being managed by the company. Consider who is directing the work? Is it the worker creating her own project plan and executing or is she primarily taking direction from a company manager? If the latter, then she might actually be an employee.
It’s beneficial to think through the scope of the work and decide if the job in question would be better served by an employee or a contractor.
Every country has unique rules and regulations around contract work. Not only do countries have their own standards for determining whether someone is operating as an employee or a contractor, but they have their own laws around contract work. A country might have rules around the length of time someone can operate as a contractor. Or you might be dealing with a nation that dictates that any worker who signs a non-disclosure agreement is operating as an employee because it’s evidence of the employer’s control over the relationship. Or you may have a country who, due to the rise of remote work, encourages contracting as a way of keeping talented freelancers in-country and preventing brain drain.
When you start your worker hiring journey, consider where your candidates are located and what jurisdiction-specific considerations impact your hiring model.
If you’re contracting someone in your own country, dealing with invoices and payments is pretty straightforward. It gets a little stickier when you’re juggling international invoices and paying contractors in their own currency.
You should be mindful of who is responsible for withholding and paying taxes and social contributions in the contractor relationship. Typically, one of the positives in hiring a contractor is that the business is only responsible for signing a contract and paying the contractor. Since the contractor operates as their own business, they’re responsible for dealing with taxes. But some countries require the hiring party, generally a larger more sophisticated company, to manage withholding and paying taxes on behalf of the contractor to ensure the taxes and social contributions are actually paid. So if you are leaning towards contracting to avoid this type of administrative burden, you’ll need to familiarize yourself with local regulations.
When you are ready to make payments, while fintech and digital banking has made cross border payments easier, don’t assume your bank can do it all. Unlike in an employment relationship, contractors can dictate how they are paid. Currency devaluation and inflation has led to interesting developments like requests to be paid in Bitcoin or through nontraditional bank accounts. In talking to candidates, make sure to also survey your financial set up to understand what is reliably possible in the way of currency exchange and payment processing.
Likely, if you’ve read this far, you’re considering whether it makes more sense to hire a remote employee or a contractor. We’ve created a two-minute Contractor Assessment that can help provide some clarification on the risks (and potential rewards) for your particular job. If your scope of work is perfect for a contractor, and you are ready to move forward with a candidate, but need administrative assistance, you may want to consider partnering with a global workforce platform, like Oyster, to ensure it’s done easily and compliantly.
With Oyster, you can reduce the time it takes to get started by creating and sending a contract to your candidate instantly within the platform. Manage invoices and payments for contractors around the world in one location, making it easy to receive, approve, or even dispute an invoice. When it comes time to take care of payments, you pay Oyster in your home currency, and the contractor receives payment in theirs. No hassles.
Oyster simplifies hiring in more than 180 countries, equipping you to instantly generate contracts that are 100% compliant with local regulations. Hiring and onboarding a contractor in another country doesn’t need to take weeks; we can help you get it done in moments.
Disclaimer: This blog and all information in it is provided for general informational purposes only. It does not, and is not intended to, constitute legal or tax advice. You should consult with a qualified legal or tax professional for advice regarding any legal or tax matter and prior to acting (or refraining from acting) on the basis of any information provided on this website.
Oyster is a distributed HR platform designed to enable visionary HR leaders to find, hire, pay, manage, develop and take care of a thriving distributed workforce. It lets growing companies give valued international team members the experience they deserve, without the usual headaches or the expense.
Oyster enables hiring anywhere in the world—with reliable, compliant payroll as well as great local benefits and perks.