Over the last few years, the way work is done has changed. COVID-19 has flattened the globe, and companies are more open than ever to employing a remote workforce, and we couldn't be more supportive of the new remote work culture. Increasingly, businesses are utilizing the vast pool of talent that can be found all over the world, and in many instances are onboarding global team mates as independent contractors. Often, however, companies engage global independent contractors without understanding all the risks that come along with such an arrangement. Below, you'll find a few of the most important risks you should know about before hiring an international independent contractor.
It is very important, when weighing the option of hiring an international worker as an employee or an independent contractor, to be aware of the regulations and labor requirements of the country where your company is hiring them. Hiring independent contractors carries an inherent risk of misclassification. Because your responsibilities to employees are much more substantial than they are to independent contractors, misclassifying an independent contractor can have serious consequences for your company.
Employee and worker classification refers to the status of that worker in the eyes of the local government, i.e., the status of “employee” or “contractor.” Why is classification so important? Because employees are entitled to certain protections and benefits that contractors are not, including minimum wage, vacation, family and medical leave, overtime pay, unemployment benefits, health insurance, workplace protections and termination protections.
Employee and worker classification refers to the status of that worker in the eyes of the local government, i.e., the status of “employee” or “contractor.” Why is classification so important? Because employees are entitled to certain protections and benefits that contractors are not, including minimum wage, vacation, family and medical leave, overtime pay, unemployment benefits, health insurance, workplace protections and termination protections.
It's important to note that, usually, international regulators will determine classification based on action. That means that it doesn't matter if you have a contract between your company and an independent contractor if you treat that independent contractor like an employee. There are various factors that regulators weigh to make that determination, and rules vary by country, but may include:
The list above only provides a few examples and is not comprehensive. What happens if a regulator determines that you've misclassified an independent contractor?
There are hidden costs to misclassification as well. Workers who learn that they should've been compensated as employees instead of contractors may take an unfavorable view of the company. Some workers may even stop working with the company and tell others to avoid it. You don't want your company to be known as one that deprives workers of legally-required benefits and security, even if you made an honest mistake. The negative connotations can harm your company's ability to compete.
Government audits can be random, in which regulators will seek to determine whether your company is legally operating in-country, whether you've misclassified independent contractors (See Section 1), etc. If your company is considered by the local in-country labor regulators to have misclassified a worker, your company runs the risk of an audit resulting in heavy fines and remunerations due both to the contractor and the local government.
With full-time employees, your company can effectively oversee their day-to-day work and activities. However, you cannot exert the same level of control over independent contractors' work, and if you try to, it may mean running the risk of treating them as a company employee (even if there is a clear independent contractor agreement between the individual and the company).
Independent contractors can decide certain factors, such as work hours and equipment. Throughout the world, governments have instituted legislation to protect independent contractor autonomy. So, know that if you're going to utilize independent contractors, you will have far less control over their work schedule and product than what you're used to with standard employees. Further, if you try to circumvent this lack of control by treating them like standard employees, your company will be at severe risk of misclassification (see point 1) and all of the consequences that come along with it.
Your company can avoid the risks that come along with the decision to hire international employees or independent contractors. A Global Employer of Record (“EOR”) like Listo Global will hire the desired individual on your behalf, properly classify that person, and take on the risk associated with employing that person in-country. You provide them their day-to-day instructions without the weight of risk hanging over your company.
To learn more about EOR services, email ready@listoglobal.com.