Did you know that there are about 1.1 billion freelancers in the world and their annual share of the global economy is $42.9 trillion? The world is changing. The pandemic-related normalization of remote work, new technologies, and the growing number of freelancers have created a global economy based on independent contractors. There are some hidden risks and liabilities when hiring a foreign contractor. But do not worry! This article explains why you should hire international talents, and how to hire international freelancers and contractors with solid examples.
Who are independent contractors?
Unlike employees, independent foreign contractors are workers who collaborate with companies by providing their knowledge and professional services for a specific time or volume of work. In fact, 46% of HR professionals expect at least 20% of their workforce to be made up of contractors or temporary workers by 2022. Companies work with independent contractors to have the finished work quickly. Also, contractors usually have their own equipment and work remotely. They are exempt from standard workplace benefits. Because they are usually self-employed and are obligated to pay self-employment tax.
Advantages for companies of hiring foreign contractors
- Businesses may tap into a larger pool of skilled labor worldwide by giving freelancers the opportunity. Companies can obtain the exact skills and experience they need in a short period of time.
- There are plenty of highly qualified professionals competing for well-paying jobs. You can select the most qualified individuals and guarantee a quality end product.
- Freelancers usually deliver products or services faster. On average, freelancers work more correctly because they focus on one assignment at the given timeline.
More and more organizations recognize freelancers as highly qualified experts with essential skill sets. At the same time, you need to think about paperwork before working together. You cannot avoid tax obligations and must respect local employment laws. Depending on where your firm is based, you may also need to file a payroll with a government organization. For example, if a U.S. company hires foreign workers as independent contractors, it must file Form W-8BEN for them. In Canada, employers must file a T4A receipt with the CRA for each contractor they paid more than $500 in a tax year.
The process of hiring international freelancers and contractors
1. Screening, interviewing and selecting the right candidates
If you are looking to hire an independent contractor from another country, you will need to put even more effort into the recruitment period. You can conduct video interviews with them, look over their experience, get feedback from other clients, and look over their portfolios. Remember that in some countries, screening processes and background checks are prohibited for privacy reasons.
2. Create an accurate and comprehensive independent contractor agreement
Once you find the talent, it is time to prepare a written contract. A comprehensive written agreement is essential when hiring a foreign independent contractor. It is necessary to ensure compliance with the terms, safeguard against legal fees, and protect both parties. This contract should outline key elements such as pay, the scope of the engagement, services to be provided, as well as confidentiality and privacy agreements. Apart from it, you should also include ownership of the work and specify which local labor laws will be followed in the event of a legal disagreement.
3. Follow local laws, regulations, and tax compliance
It is crucial to comply with local regulations to confirm that employers hire independent contractors instead of full-time employees. Also, if you ask a potential recruit for something private, your company may violate the European Data Protection Regulation, which ensures control over personal data. In addition, several nations have passed legislation to protect independent contractors. For example, in Spain, freelancers are entitled to benefits, such as yearly paid time off, if they work primarily for one client. Before employing somebody from another country, always seek advice from a legal professional or local legal counsel. Remember that depending on the contractor’s country, different countries will have different local tax laws.
4. Review tax regulations in your country
For overseas independent contractors, tax issues are very important. They may not have the same tax rules as the employees. Heavy penalties might be incurred for improper tax withholding on financial compensation. Depending on the country in which you operate, there are various methods for calculating tax withholding for a foreign independent contractor. For example, for US companies, companies are not obligated to withhold or report taxes when an international contractor works in another country.
5. Design a safe, reliable, and regular payment procedure
Make sure that the remuneration for the job is remitted in the correct currency, on time, and with the right taxes deducted. Regarding delivering compensation, there are several possibilities. Banks demand exorbitant fees for using cards or for transfers through foreign accounts. Remitr or Revolut are alternatives that let you pay foreign independent contractors online at the lowest rates. Payoneer and Paypal are also convenient options for fast and affordable transactions. With Useme, you can work with a foreign contractor directly with a tax invoice. Only when the client approves the work, then we send the payment to the talent.
What is the possible risk when recruiting international talent?
There are some hidden risks during working with worldwide talents. The greatest danger in this situation is the misclassification of workers. Each country imposes its rules and regulations to establish if a person is a full-time employee or an independent contractor. However, in most places, misclassification can result in heavy fines or even jail time.
Therefore, you must carefully consider the position. A worker can be classified as an independent contractor if there is no non-compete clause and the freelancer controls deadlines, the type of services provided, and the number of assignments they accept. They must also take care of their own taxes. A company that misclassifies a worker in the U.S. can be held liable for unpaid taxes, overtime withholding, and fines. In Canada, under Part IV of the Code, employers for the same act can be subjected to administrative monetary penalties. In France, misclassifying an employee as an independent contractor carries penalties and a maximum sentence of three years in prison.
As you can see, hiring independent contractors can present some challenges regarding paperwork, disbursement, and legal issues. However, if you prepare well and consult an expert, it’s well worth it! You can save on fees, get timely and quality services. Also, grow your business globally! You can always work with Useme to quickly hire international talents. We turn all of the work contracts into a single tax invoice and take care of the responsibilities.