Companies that are expanding abroad or hiring remote foreign talent have a decision to make about which type of worker they need. If you are unsure about whether you should hire an independent contractor or a full-time employee, we have some guidance for you.
One thing to keep in mind is that every country has different rules and definitions about employment relationships, and you will need to follow the laws of the country where the work is being performed. The use of independent contractors is increasing, but along with this is greater government scrutiny of the elements of the work relationship, and the potential for misclassification.
Why Employers Assume Hiring Independent Contractors is Easier
At first glance, it does appear that hiring a contractor is the easy route. The reasons are obvious: there is no commitment beyond the contract term, hiring is fairly simple and quick and there is no additional cost such as statutory payments, benefits, withholding or payroll taxes.
Also, once the project or term is complete the relationship ends, with no need to worry about termination, notice periods or severance payments. A contractor can be re-engaged at any time as long as they are available, and their skills meet your current needs. You don’t even need a local branch or entity to hire a contractor in most cases, and they can be paid remotely from the home office. If you need someone for a short-term project and they work independently, a contractor can still be a good choice.
However, these advantages can obscure the very real risks of hiring contractors in some countries and for certain types of work roles…
Why Hiring Full Time Employees is Better
Many HR departments are coming to realize that despite the extra cost and administration of hiring full-time employees, it is a much better choice in foreign countries. The primary reason is that you don’t have to worry about compliance with employment laws and can avoid misclassification of contractors under local labor standards.
Moreover, there is the real value of securing talented workers long term as employees, creating continuity and ongoing contributions to your business. There are more administrative steps to take to hire an employee, and if you decide to use a DIY approach you will need to set a corporate entity of some type to run payroll in the host country.
But these challenges can be mitigated by use of a employer of record to hire the employee for you and take care of all the necessary employment step.
The Shield GEO Solution
When compared to hiring a contractor, a GEO employee is the much better alternative. Shield GEO already has local entities in place in over 90 countries and can onboard a new employee quickly and easily. Our in-country experts can assist with outsourced payroll, making necessary withholding and tax payments and ensuring full compliance with labor laws in the host country. As a result, your company avoids the risk of misclassification of a contractor, along with the potential for penalties, back payments for unpaid taxes and unexpected costs if the contractor is actually deemed to be an employee.
When you consider these consequences when using contractors, it becomes clear that the Shield GEO solution offers a cost-effective means to peace of mind when employing abroad.