This expert guide is designed to give business owners and hiring managers the blueprint required to protect their team and their business. You can focus on scaling and growing your operations knowing you’re working to international hiring standards and ensuring compliance.
Working with independent contractors abroad is a simple and effective way to grow your business. Want to have access to the best talent around the world? Hiring contractors abroad can be a quick, cheap and productive option for you. You will need systems in place, particularly if you are planning to work with contractors in various locations around the world. Make use of Remote’s Contractor Management services to kickstart the process.
Obviously it’s essential to be aware that every country has their own employment rules, regulations, labour laws and tax agreements. It is of utmost importance that if you do decide to take this route and work with some contractors abroad, you are complying to all the necessary laws from the beginning. This will save you a lot of trouble or headaches in the future.
What is an international contractor?
An international contractor, also called a foreign contractor, is someone who works under the laws of a country other than the country in which the company itself is registered. They are self-employed, often working for several businesses at any one time, and are in no way controlled by your company.
Research in more detail: You can investigate the specific labour laws for more than 170 countries using Remote’s Country Explorer.
What are the benefits of hiring foreign contractors?
Are you struggling to hire highly-talented people within your local market?
Working with remote contractors can bring you some highly-qualified, skilled individuals to assist in any of your company’s projects. If COVID has changed anything in the business world, it’s people’s familiarity with working from home and remotely. This transition reinforced the benefits of globalization to growing companies and makes the decision to target the international contractor pool easier than ever.
Here are some of the major benefits to working with foreign contractors:
- Encourages flexibility – use both your employees’ and contractors’ skills and experience to your advantage by designing your projects in whatever way you want to.
- Broadens diversity – Hiring international contractors gives you access to different perspectives and a diverse approach to innovation. If you are trying to sell in an international market, a more diverse team from various cultures, backgrounds and locations may help you to stand out from your competitors.
- Opens up a greater hiring pool – certain cultures prioritise different skills and values. Many countries are the stand-out leaders in certain sectors. Broadening your options for contractors will allow you to find people specific to what you are looking for in a candidate. If you’re looking to outdistance your competitors, you can use the Global Innovation Index to compare two economies, using indicators like technology, creativity, or business sophistication. This lets you tap into a potentially hidden talent pool and find the countries who are likely to produce the best chances of finding the unicorn your business needs.
- Facilitates around-the-clock async work – go to sleep at night knowing that someone is working hard on your projects and that you will wake up the next morning to potentially some major progress and updates. Asynchronous (async) work maximizes productivity, improves your workflows, and makes every minute of a 24-hour day count without burning out your staff.
- Enables 24-7 customer support teams – as you aim to increase international customers, allow them the opportunity to get the support they need from your business at various times in their day, not just when it suits the main time zone of your company.
- Enhances local knowledge in possible new markets – who knows their local area better than the locals themselves? International contractors will bring a variety of knowledge and experience within their local market. They can be there to meet customers face-to-face and provide you advice on what works well in their local area. And as experienced business people, chances are, they’ll already have a network of great people they can work with or sell to in the area.
How do I hire international contractors compliantly?
Compliance is the one issue hiring managers need to be diligent about when hiring international contractors. Understanding local labour laws from country to country adds complexity but it also adds risk to people who don’t respect the upheaval and chaos non-compliance can cause your business.
These things change all the time so as mentioned already, it is important to start complying from the beginning and to try and keep up-to-date with any changes as you work through the process.
Make sure you minimize the risks of misclassification
The last thing you want is to stumble when figuring out how to classify employees and contractors. There can be harsh consequences for misclassifying contractors, even if the mistake was completely unintentional. You may incur fines and penalties, lose your IP (don’t neglect IP protection if you have remote workers), and even lose permission to operate.
If you don’t have the support of local labour experts in every market, it’s essential to find help.
How do a country's labour laws affect hiring contractors abroad?
When drawing up a contract with an international contractor include:
- National and regional labour laws – Some countries, like Canada, have varying laws between provinces or states. In addition, some countries split their labour laws between regional and federal jurisdictions.
- Worker protections – Each country has different focus and put different weight on protections. Common areas to consider in your international contracts include age, religion, sexual orientation, gender expression, and race.
- Public holidays – Compared to most countries, the UK has very few public holidays, so make sure to address how to handle local holidays in your contracts.
- Holiday pay – Most contractors don’t receive paid holiday days but it’s good to be specific about this in the agreement.
- Minimum wages – Some countries set these at the national level; some have them set at a regional level.
- Overtime – You probably won’t be paying overtime but you may want to address the maximum number of hours in a working day to avoid overworking your contractors.
- Fringe benefits – In some countries, it may be illegal to offer benefits to a contractor. In other countries, benefits are an expected part of a contractor’s package.
- Taxes – Employment taxes, statutory fees, income tax and social safety net taxes are all common and they’re all different in each country.
- Currency – You need to specify how, where, and in what currency you plan to pay your foreign contractor. The way you pay your contractor can also have an impact on classification. Contractors’ employment statuses may also vary depending on the country of the bank account you are paying into.
- Types of leave – While holiday time is not usually part of a contractor agreement, you may need to be compliant with national policies on things like medical leave, family violence leave or maternity/paternity leave, jury duty or bereavement leave, to name just a few.
- Contract deliverables – How you define deliverables may be reflected in the local labour law.
- Length of contract – It may not be legal to offer open-ended contracts. Contracts exceeding a certain length of time may be automatically classified as an employment contract.
- Hours of availability – Local labour laws may not allow you to dictate working hours for a contractor.
- Mediation – In the event you are not happy with the outcome of your contract or the work produced, you’ll want to have a legal way to exit the contract.
- IP Protection – Your intellectual property, inventions, and ideas are not necessarily protected when work is being performed by a foreign contractor. You’ll want to make sure you have a way to guard your IP in the contract.
Having localised contracts becomes increasingly important with every new country where you have a team member. What works in your country may be illegal in another country. Penalties of noncompliance can vary greatly between countries. All of this makes contractor classification complicated.
Australia treats self-employed contractors and full-time employees differently. Misclassification of contractors may lead to fines and penalties for the offending company.
- Workers are entitled to receive payments, plus interest, backdated to when the contract started. This includes paid vacations, their base salary, overtime, public holidays, and national retirement scheme payments.
- The employer may be liable for penalties of up to $54,000 per violation.
- The company may be penalised for failing to hold workers’ compensation insurance and is required to pay backdated premiums.
- Large companies with a monthly payroll of $750,000 or more could be liable to state taxation offices and be required to pay penalty taxes for any payroll tax payments.
- The company may also face large penalties from the Australian Taxation Office – including penalty interest – for non-payment of national retirement scheme and noncompliance with payroll withholding and reporting obligations.
South Africa also has a range of stiff penalties when an employee is misclassified as a contractor.
- The employer could be liable for historic overtime pay.
- The employer may incur fines ranging from R300 to R1500 per worker.
- The employer could be liable for historic unpaid vacation time for each worker.
- The South African Revenue Service expects the employer to pay income tax, and possibly fines, owed by the worker. The employer is left to try to recover payment from the worker.
- The worker could face additional consequences and repayments of tax deductions that were taken as a self-employed person but not allowed for employees.
- The employer has to make social safety net contributions like unemployment insurance, skills development levies, etc.
- Foreign companies may have to register as an external company in compliance with the Companies Act.
Research in more detail: Check out Remote’s Country Explorer to find specific information about the local labour laws of the countries where your foreign contractors work.
How do I pay international contractors?
International contractors will want to be paid as quickly as possible so this needs to be something you can do promptly and in-line with your agreement with the contractor. This will also help you to build up a good reputation of being a fair, flexible employer.
Paying international contractors is easy if you have access to the right platform. Be sure to detail the payment terms in any contracts developed with your international workers.
Some key points to keep in mind are:
- Make sure you’re abiding by the local government’s labour laws for contractors.
- Know the tax implications for independent contractors in each country where your team works.
- Understand the local tax reporting laws related to independent foreign contractors.
- Ensure your contractor agreement meets the legal requirements of the country where the work is being performed.
- Consider where you’ll pay your contractors and in what currency.
Research in more detail: Download Remote’s Global Payroll Management Guide
What are the differences between an international contractor and an employee?
As a general rule, an international contractor is an individual who is not controlled by the employer except for the outcome of the work. If you are directing what will be done and how it will be done, then your worker is an employee. There are pros and cons for international contractors and international employees, so consider whether it’s time to make a transition in your business.
In many cases, the decision might not be up to you. Foreign worker classifications can be prescriptive, which is why it’s necessary to maintain awareness about local labour laws. One way to keep on top of this, without becoming an expert on international industrial relations, is to use a software platform that keeps track of all aspects of international employment. Remote helps you employ your global team by managing payroll, tax, benefits, and compliance.
Research in more detail: When should you convert a contractor to an employee?
How to create a winning contractor management system
If your company is looking to scale-up and grow, hiring contractors abroad can be extremely advantageous. It’s often a very cost-effective opportunity to work with highly experienced individuals and a good way to boost your productivity and innovation.
Wading in without fully understanding how to safely navigate a myriad of international labour laws is risky business. Business leaders have two choices:
- Invest in international HR consultants, specialist tax professionals and legal services with knowledge of every country where your talented team is working. They’ll help you draw up the appropriate contracts and advise you on local taxation issues. It’s also a good idea to find local experts for each location so you’ll have “feet on the ground” knowledge. You’ll also want in-house knowledge to ensure you are effectively managing the governance and compliance risks associated with international contractors. That means juggling multiple vendors and spending a lot of time delving into industrial relation laws.
- Find a global contractor management platform to onboard, pay and manage all of your local and international contractors. Remote’s solution is an easy way to stay compliant while managing international contractors and avoid misclassification risk.
Hire international contractors and employees with Remote
As your business grows, Remote is right there to help you hire remote employees. Our global employment platform works seamlessly with our global contractor management platform to give you the broadest coverage for any type of contractor or employee you have around the world. You can build your international team with confidence, knowing you’ll be compliant and your contractors and employees are receiving the right payments in rapid time.