International independent contractors can provide your company with a diverse range of skills and experience, especially when you’re looking to move into new global markets. But there are some key considerations to keep in mind when using international independent contractors vs. employees.
To help you decide the right type of worker for your needs and puts you in the best position for sustained growth, it’s important to understand the differences between independent contractors and employees.
What differentiates an international contractor vs. employee?
Unlike employees, international independent contractors do not work regularly for an employer but work as required and are typically paid on a freelance basis. Contractors will not rely on you as their sole source of income, and they often work at their own pace, as defined by an employment contract.
International contractor | Employee | |
Work | Work is temporary and not an integral part of business operation | Work is a key aspect of business operation |
Pay | Paid by project | Paid for time worked |
Taxes | No income taxes are withheld. Responsible for self-employment tax Some countries may require payroll withholding | Employer must pay and withhold relevant taxes, including income, social and unemployment tax |
Benefits | Pay for their own benefits like health care and retirement Some countries may require benefits like paid leave | Most employers pay for and provide benefits like health care, disability, paid leave and retirement |
Resources | Personal resources and tools are used to complete work | Company resources are used to complete work |
Management oversight | Only the result of work is managed, not what work is done or how it's done | Day-to-day work is managed by the employer |
Service loyalty | Service is often provided to multiple clients | Service is provided to one company for an extended period of time |
Expenses | Self-responsible for work expenses and may not receive reimbursement from the company | Employer is responsible for reimbursing work expenses incurred |
Termination | Can often be terminated at any time Some countries may require a brief notice period or severance payments | Severance pay and a termination notice are often required; regulations vary by country |
Among the most significant differences between an international contractor vs. employee is that contractors retain a degree of control and independence in their work and are not eligible for employer-provided benefits. Hiring full-time employees means you are responsible for compliance with labor laws, taxes and local benefit programs like social security.
Why use an international contractor vs. employee?
International independent contractors are generally people who have diverse experience with clients in your host country. By definition, contractors work with a variety of companies, more than most full-time employees. This depth of experience provides advantages that your company might not get with an employee.
They work independently
Contractors don’t need or expect a lot of oversight in their work for you. This frees up your management and administration teams to focus their time elsewhere, like on further developing company strategy.
They are flexible and easily scalable
International independent contractors can be brought in and let go as your business needs change and you’re not obligated to provide company benefits.
They may save you money
Because your company is not required to make employer tax liability payments, you may find it’s more cost-effective to work with an international contractor vs. employee.
Why use an international employee instead of a contractor?
The other side of the equation is the benefit employees bring to your company. An employee typically works with your company for a longer period of time than an independent contractor. This provides long-term continuity of experience that you simply won’t get from contractors. You also protect your workforce when you secure employment and provide much needed benefits like paid leave and health coverage. There are other advantages as well.
No risk of misclassification
Working with employees significantly protects your organization from the compliance risks that independent contractors can expose you to, especially as you grow to new international markets. Unlike employees, international contractors generally may only be paid on a per-project basis, can’t use company equipment and aren’t managed by you directly. If they don’t meet the qualifications of an independent contractor and the local labor court finds that they should have been classified as employees, your company may face very stiff penalties. In Australia, for example, corporations can be fined 63,000 (AUD) per misclassification violation.
Better copyright protection
With employees, you have control over your intellectual property. However, with independent contractors, your company may not hold the copyright to the work they produce, even if it’s produced specifically for your company. In France, copyright protection rests exclusively with the original creator, and can’t be transferred if there is no employment relationship.
More company loyalty
When an employee works for your company, they have a vested interest in seeing your company do well. A large part of that interest comes from the fact that you have invested time and money to help them develop and grow professionally, whether through company training programs or other continuing education opportunities.
Which is the better choice for your organization, contractor or employee?
Hiring international independent contractors can be a simple solution for meeting your global staffing needs, but only if you thoroughly understand how to work with contractors in their host country in order to minimize the risk of employee misclassification.
For example, France, Australia and the Netherlands all require that an independent contractor file certain documents with the government, and the client company is required to verify that the correct legal and tax documents have been filed and approved. In Brazil, an independent contractor can only work on a project basis rather than under an on-going agreement. In India, the company may be responsible for withholding taxes on service fees paid to an independent contractor.
The bottom line is, if you’re going to use an independent contractor vs. employee, you must make sure you’re aware of and compliant with all local laws governing employment.
How to mitigate risk when you hire independent contractors
Here are a few steps you can take to ensure compliance and protect your company from risk of employee misclassification:
- Thoroughly evaluate how your company plans to work with contractors in each location
- Consult with local HR experts where you are looking to hire international contractors
- Create a thorough and standardized process for managing your contractor agreements
- Ensure hiring managers and HR teams are informed of the potential challenges of hiring contractors and adhere to clearly defined company guidelines
- Maintain comprehensive records of contractor agreements and payment transactions in the case of an audit
- Explore alternative employment options for your global hiring needs
A global partner for hiring, no matter the worker type
Safeguard Global is a flexible global partner to support your unique hiring needs in 170+ countries, whether you need contractors or employees—or both.
Contractor management
Depending on how many countries you’re hiring in, it can be difficult to manage paying contractors in multiple countries with different currencies and requirements.
A contractor management provider can help you eliminate the complexity of paying your international contractors by consolidating the payment process—no matter the country, currency or pay frequency—to a single, streamlined platform.
It’s important to maintain positive working relationships with your independent contractors to ensure sustainable growth. By removing manual and time-consuming payment processing procedures and ensuring payment is timely and accurate, you and your contractors can focus entirely on project tasks and how they’ll help you meet your goals.
Learn more about Contractor Unity, the contractor management solution from Safeguard Global.
Employer of record
An employer of record (EOR) is a flexible option for companies that want to hire in new markets without first setting up an entity. An EOR also is an option for converting existing contractors to full-time employees, whether to minimize misclassification risk or to keep valuable, in-demand talent in-house.
An EOR hires employees on your behalf, ensures compliance of all local labor laws, and handles HR and payroll for your workers. Because the EOR takes on the administrative work, you can focus on the employee’s work and how it contributes to your organizational objectives.
Learn more about GEO, our first-to-market employer of record solution.
Entity establishment
The longer an organization operates in a country, the more it could make sense to set up a legal entity to hire local workers directly. These businesses have tested the market and know building a sustainable workforce will help ensure successful long-term growth.
Establishing your own foreign legal entity is often a complex and time-consuming project, especially if you don’t already have legal, tax and HR expertise of the local requirements. A reputable partner can support you through the process.
Learn more about how we can help you establish a local legal entity.
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