Compliantly hiring independent contractors abroad

What to consider when hiring an international contractor

A couple of years on from the ‘Great Resignation’, and there is a strong sense that the ‘Era of the Job’ is over. Remote work culture and global recruitment practices have become the norm in a world increasingly globalized by the expanding digital scape.

The lifestyle of the digital nomad working in today's gig economy is more efficient and productive than ever before. It is also more accessible and therefore popular. An increase in the number of independent contractors operating around the world means an increase in the available talent your company can temporarily engage to offer expert assistance with projects big and small.

The benefits of working with freelancers are many, but the question for owners and HR execs remains: How do I go about finding and compliantly hiring independent contractors working overseas?

We will walk you through the benefits of internationally hiring independent contractors, as well as the associated risks, how to mitigate them, and best practices for compliant contractor recruitment.

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 familiar with the fundamental differences between an independent contractor and an employee. Nevertheless, it’s worth briefly recapping the importance of this distinction, not least because the definition of each may vary depending on  country.

Defining an independent contractor

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.

Defining an employee

In contrast to a freelancer working abroad, 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 the employee’s national tax contributions as well as – in the UK, for example – their contributions to National Insurance.

Why distinguishing between the two matters when hiring contractors abroad

The distinction between independent international contractors and employees can generally be accepted as the above.

However, it is crucial you remain aware that the legal details of this distinction often differ from country to country and – in places like the USA and Canada – from state to state.

For example, in Argentina the rendering of services by a individual to a third party (your company, for instance) establishes the legal presumption that this individual is your employee. The onus is on you to be able to clearly prove through freelance contracts or invoices, that the individual is in fact a contractor.

Whilst a long-term contract of work might insinuate a ‘labour relationship’ in Argentina, across the other side of the pond in Singapore, there is no clear limit to the length of a freelancer’s contract, nor implication that length of service would affect their status as contractor, not employee.

Were you to misclassify an employee as an independent contractor, or vice versa, whilst hiring abroad, you could face serious penalties. The remuneration of the individual for the benefits, security, and pay they missed out on whilst categorised as a contractor is most common, though more serious fines may be awarded the business should the country’s labour and tax bodies determine them necessary.

It is highly recommended that you familiarise yourself with the definitions of employees and contractors established by the countries you’re recruiting in before engaging an independent contractor for work. This way, you can avoid triggering misclassification.

Similarly, it is imperative that you are aware of the labour laws governing the country you’re seeking talent in. Both local and international labour laws may apply and may look considerably different to your own. Whilst freelancers often exist outside a number of these laws (which are written to protect employees), this shouldn’t be taken as a given.

The benefits of hiring remotely abroad

Despite the potential risks involved, there are many appealing benefits to hiring remote workers abroad. Here we take a look at the top benefits business leaders can enjoy when engaging the services of international independent contractors:

1. Affordable expertise: Independent contractors – including management consultants, copywriters, plumbers, and graphic designers – bring with them an expertise which may prove invaluable to your business. As a salaried employee, retaining their degree of knowledge could quickly prove unaffordable for the employer. However, when hired to achieve short-term goals the higher average cost of freelance expertise becomes justifiable.
2. 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.
3. 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.
4. 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, you may find it possible to maximise the efficiency of your business through around-the-clock, perhaps even asynchronous work.
5. Insight into a potential new market: Whilst your relationships with freelancers in different countries will often be brief, perhaps on a project-by-project basis, you can still learn a lot from those interactions. If you have hopes of expanding into new territories abroad, or are simply curious as to what other markets are out there, freelancers working in your field may be able to provide invaluable insight into the state of your industry in their home countries. This is insight you could leverage into a subsequent international business expansion strategy.

Common compliance issues to avoid when hiring an independent contractor abroad

Before we discuss best contractor recruitment practices, it’s important we explain some of the more common compliance issues you’re liable to face when doing so.

Complying with 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 areas of compliance 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 and clearly outlines the role of the contractor as such, rather than as an employee.
• Classification: Misclassification of an employee as a contractor (or vice versa) can result in hefty fines, but distinguishing between the two job types isn’t always easy. 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 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 legal minimum wage in India as of 2023, for example. Neither is there a national minimum wage in Japan, though there are minimum wages set by different industries, ranging from ¥714/h to ¥932/h depending on the Prefecture in which the contractor lives. The minimum wage in France is €1,709.28 ($1,852.56) per month.
• Salary conventions: In some countries it is standard practice, if not legally enshrined, to pay all employees the equivalent of a ‘13^th month salary’, sometimes extending to a 14^th and 15^th month bonus as well. Though you won’t be ‘employing’ independent contractors, for purposes of employer brand management and contractor retention/satisfaction, it may be worth folding these cultural expectations into your payroll.
• Currency: If you are paying USD into an American bank account, for example, then the contractor will not necessarily 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 routes a business leader can take when hiring independent contractors internationally. They can either go down the lengthier, often riskier DIY route, or they can choose to streamline the process by engaging a global independent contractor solutions firm.

Route 1) DIY

Step one: Hire an international HR and legal team

In order to ensure you meet the myriad compliance requirements of hiring independent contractors across a range of countries – each with its own labour and tax laws – you’ll need a team of HR and legal experts on hand.

Step two: 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 and recruitment channels in the countries you’re targeting. Thankfully, there are today a range of internationally-utilised job-advertisement platforms and social media sites available for you to use. These include: Upwork, Fiverr, and LinkedIn.

Step three: 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.

Route 2) 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: utilising the expertise of an agency whose sole focus is the delivery of efficient, effective, and affordable global business solutions.

Mauve Group is a global expansion and HR solutions firm with over twenty-five years of experience helping businesses big and small engage freelancers all around the world compliantly and quickly. As part of a wider portfolio of expert services, our Independent Contractor Solutions takes care of every step of the complex international hiring process for you.

From the head-hunting and assessment of individual independent contractors, to the onboarding and payment, Mauve Group ensures 100% compliance to international classification, tax and labour laws by employing best practices developed over decades spent excelling in our field. We even have legal entities and an employee presence across all six inhabitable continents, in eighty different locations.

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.

Streamline your search for top international freelance talent while saving your company time and money by reaching out to us today.