Compliantly hiring independent contractors abroad
What to consider when hiring an international contractor
In the wake of the ‘Great Resignation’, it has become abundantly clear that the ‘Era of the Job’ is over.
More popular, accessible, and – generally – efficient is the remote work culture of the gig economy, through which your company can benefit from expert knowledge by hiring independent contractors abroad.
Whilst there are myriad benefits to contracting international freelancers, there are also a number of compliance issues which the business leader must be aware of before hiring.
The difference between an independent contractor and an employee
If you’ve already reached the stage of looking to hire abroad, then you’re likely already familiar with the fundamental differences between an independent contractor and employee. Nevertheless, it’s worth taking a brief look at the importance of this distinction, not least because the definition of each may vary depending on the country of the freelancer’s origin.
Typically speaking, an independent contractor is a self-employed person who operates as an independent entity, deals with their own tax returns, expenses, and other professional financial matters. They offer a set of specialised services – usually with a high degree of expertise in their field – to the general public, on an ad hoc basis, and will most often be working with several different clients at once. They have a fair degree of autonomy over how and when they carry out their work.
Note: Independent contractors may also be referred to, in certain countries, as freelancers, subcontractors, nonemployees, 1099-contractors, 1099-employees, or 1099-independent contractors.
In contrast, an employee has markedly less autonomy. An employee is employed by – and answerable to – a specific company and line manager. Their working hours, wage, and the methods they use to complete their established tasks are dictated by the same employer. The employer is responsible for withholding their national tax contributions, as well as – in the UK, for example – their contributions to National Insurance.
The distinction between independent international contractor and employee can generally be accepted as the above. However, it is crucial that you are aware that the legal details of this distinction differ from country to country and – in places like the USA and Canada – from state to state.
The penalty for failing to comply with a country’s labour laws when hiring independent contractors abroad, as well as for misclassifying employees as independent contractors (or vice versa), can be severe.
The benefits of hiring remotely abroad
Despite the potential risks involved, the benefits of hiring remote workers abroad are many. Here is a look at the top benefits business leaders can enjoy when using international independent contractors:
- Affordable expertise: Independent contractors – such as management consultants, copy-writers, plumbers and graphic designers – bring with them an expertise which may prove invaluable to your business. As a salaried employee, their expertise would likely be unaffordable, however when hired to achieve short-term goals, the high cost of freelance knowledge becomes justifiable.
- Greater flexibility: A full-time employee-employer relationship requires onboarding, interviewing, training and hands-on management. In contrast, international contractors can often be hired much faster, and utilised specifically in areas where their expertise will prove most advantageous, thus offering you and your business greater flexibility.
- Wider hiring pool: Perhaps the greatest benefit to hiring independent contractors abroad is that doing so opens your business to the entire world’s talent pool. Instead of restricting yourself to the talent local to your offices or HQ, you can source the finest people for the job from almost any country in the world.
- Asynchronous work: Time differences can, admittedly, be an obstacle to the efficient hiring of international contractors, and yet they can also be its greatest boon. With a pool of independent international contractors, your business’ efficiency will be maximised through around-the-clock, asynchronous work.
Common compliance issues to avoid, when hiring an independent contractor abroad
We’ll explain exactly how to go about hiring independent contractors abroad in just a moment. First, however, it’s important we explain some of the most common compliance issues you’re liable to face when doing so. Compliance to the labour and tax laws of a contractor’s country of residence is one of the most daunting hurdles business leaders must overcome if they wish to pursue the many benefits of hiring internationally. Bear in mind, the following common compliance issues will differ from country to country:
- Tax: In most situations, an independent contractor is responsible for filing and paying their own taxes. However, this is not always the case. For example, in Australia if a contractor does not have an Australian Business Number (ABN), you may still be responsible for some withholding requirements.
- Contract: It’s important to establish a written contract with an international independent contractor before engaging them in work. It’s equally important that this contract complies with local contractual standards.
- Classification: Misclassification of an employee as a contractor (or vice versa) can result in hefty fines. In Brazil, for example, independent contractors may only work on a project-by-project basis; indefinite relationships are immediately considered employment relationships.
- Residence: An international contractor cannot live and work in the same country as you.
- Labour laws: You must adhere to the labour laws of each individual independent contractor’s country of residence whilst you engage their services.
- Minimum wages: The minimum wage you can legally pay an employee or independent contractor differs from country to country. There is no minimum wage in India as of 2022, for example, but in Japan the minimum wage is ¥714/h to ¥932/h depending on the Prefecture in which the contractor lives.
- Currency: If you are paying USD into an American bank account, for example, then the contractor will not be deemed ‘international’, even if they do not live in the States. It’s important to know how to comply with the contractor’s operating currency to ensure that you also comply with the correct classification.
- Contract length and deliverables: Different countries have different worker/contractor classification laws depending on the length of a contract, as well as the scope of its deliverables.
- Hours of availability: Many countries have a maximum number of hours a person can legally work in a working week. Thus, you may be limited to the time you can ask of your independent international contractors. In South Africa, for example, this limit is 45 hours per week.
How to hire an international independent contractor
There are two main options which a business leader can choose from when hiring an independent contractor abroad. They can either go down the lengthier, often riskier DIY route, or they can choose to streamline the entire process by engaging a global independent contractor solutions firm.
Do it yourself
Hire an international HR and legal team
In order to ensure you meet the myriad compliance requirements of hiring independent contractors across a variety of countries – each of which will have their own compliance laws – you’ll need a team of HR and legal experts on hand.
Source international experts through localised job ads or agencies
To source international contractors, you must familiarise your newly-expanded HR department with the most popular freelance websites in the countries you’re targeting. Thankfully, there are today a range of internationally-utilised hiring and job-advertisement platforms and social media sites available for you to use. These include: Upwork, Fiverr, and LinkedIn.
Invest in tax experts with specialised knowledge of each country
In order to pay your cohort of international independent contractors, you’ll need a team of finance, accountancy, and tax experts with experience trading internationally. The currency in which you pay your freelancers, as well as the amount, and whether or not you are responsible for any withholdings, must all be meticulously researched and complied with on a country-by-country basis.
Use a reliable independent contractor solutions provider
There is, of course, a far simpler, smoother, and risk-free alternative to the DIY approach, when it comes to expanding your business internationally.
Here at Mauve Group, we're a a global expansion and HR solutions firm with over 25 years of experience doing just this. As part of a wider portfolio of expert services, our Independent Contractor Solutions service takes care of every step of the complex international hiring process.
From the head-hunting and assessment of individual independent contractors, to the hiring, onboarding, and payment, Mauve Group ensures 100% compliance to international classification, tax, and labour requirements by employing best practices developed over decades spent excelling in our field.
With a dependable independent contractor solutions provider like Mauve Group, you can enjoy the multi-faceted benefits of working with independent experts all around the world, while freeing yourself from the hassle, stress, and cost of complying to international hiring practices by yourself.
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