In a perfect world, you could hire remote workers without worrying about compliance and payroll across borders. In reality, the complexities of international law make it difficult for businesses to hire workers abroad.

Employers of record (EORs) and professional employment organizations (PEOs) both empower businesses to hire remote workers internationally, but the two types of organizations have several differences. Understanding those differences can be tricky, especially when many companies offer both services. Start here to learn what distinguishes an EOR from a PEO, why it matters, and how to figure out what kind of partner your business needs to hire remote talent around the world.

What is the difference between an EOR and a PEO?

Though some in the HR industry use the terms interchangeably, PEOs and EORs have a few important distinctions. PEOs mostly handle HR functions, while EORs go one step further to employ workers on behalf of their client companies.

When working with a PEO, companies continue to employ their own workers while passing responsibilities like payroll and benefits management to the PEO. In these arrangements, the PEO acts as a sort of “co-employer” to handle HR functions for the primary employer. This arrangement works well for companies that have a limited presence in an area but not enough to provide for all employee needs.

EORs handle the same HR duties as PEOs while taking on more responsibilities regarding employment and compliance. When you work with an EOR, the EOR employs workers on your behalf via a service agreement. For all practical purposes, your employees remain your employees: The EOR simply acts as the employer on paper to help you to hire employees in a country where you do not own your own legal entity.

Legally, your PEO is not included as a party in employment contracts you make with your employees. You make the terms and uphold the agreements on your own. With an EOR, this is reversed. All employment contracts stay between your employee and your EOR, with your EOR upholding all employment agreements under the law of the country where your employee works.

Say you want to hire a talented worker in another country, like Germany or France, but you don’t have any other employees in that region or you aren’t satisfied with your current arrangement in the country. Where should you turn next?

At Remote, we offer both EOR and PEO services, so we are intimately familiar with the different challenges that companies face when hiring international workers. If you are not sure what kind of help you need to work with global talent, start by considering a few basic questions.

Do you own a legal entity in the country where the employee lives?

Local legal entities distinguish EORs from PEOs. If you do not own your own local legal entity within your target country, you cannot hire employees there unless you open an entity or partner with an EOR. This is true all over the world.

Opening legal entities can be a time-consuming and expensive process, even for large enterprises that already have presences in several countries. Unless you anticipate a major expansion into a specific country, in which case establishing a local entity might make sense for your goals, an EOR is the most logical step forward.

Businesses that do own legal entities in their target countries don’t always have the resources to meet all their employees’ needs. That’s where a PEO comes in. Acting as a co-employer, PEOs work alongside businesses to handle a variety of HR functions to ensure employees can receive their paychecks, access benefits, and manage their own employment.

In short: If you don’t own a legal entity where your prospective employee works, you need the services of an EOR. If you do own a legal entity but want someone else to manage HR for your employees in the country, you need the services of a PEO.

Most PEOs and many EORs enforce minimum employee counts. Starting local legal entities gets expensive quickly, and companies that provide these services may tell prospective client businesses that they require a minimum employee count to begin a partnership. For startups and small businesses, this barrier usually makes international hiring unreasonably expensive, forcing them to hire only local talent.

(Remote, of course, enforces no minimums for our services. If you want to hire a single employee in a single country, we’re always happy to help.)

Companies looking to hire several employees in a single country, usually by opening a local office, may meet the threshold for PEO services. This makes the most financial sense for companies that have decided to establish their own local legal entities. If you plan to hire a team of employees in a new country without an EOR, make sure at least one of your new employees can act as your local labor law expert on the ground. Otherwise, you could run into unexpected issues and penalties.

What can you already do for your employees?

Your current capabilities can tell you whether you need an EOR or PEO. In some cases, a company that does own a legal entity in a country may choose to work with an EOR because the EOR has a more complete system to manage compliance and liability.

For example, say an employee gets injured on the job. An employee working for a company using a PEO would file that claim as an employee of that company, while an employee working for a company using an EOR would file the claim as an employee of the EOR. In situations of insurance and legal liability, the EOR carries the burden.

EORs pay higher prices for insurance than PEOs, because with no employee minimums, insurance providers charge more. While most EORs pass these prices along to their customers, Remote charges a single flat rate that includes everything from insurance to payroll, no hidden fees or surprise charges, for every country we cover.

Are you hiring full-time workers or contractors?

You probably don’t want to work with a PEO if you only have a few contractors to hire. PEOs make perfect sense for businesses looking to offload the burden of HR management, but in the case of contractors (who typically require less management than full-time employees), EORs are the clear winner. 

For full-time employees, it all depends on your legal status in the country of operation. Own a legal entity? A PEO provides the most cost-effective path to provide a superior experience for your employees. Don’t own a legal entity? Partner with an EOR.

Picking the right PEO or EOR for your team

Whether you use an EOR to employ your team members or a PEO to handle their benefits, don’t forget to prioritize the employee experience. Your international workers deserve to be treated like first-class citizens at your company, no matter where they live.

We can help make that happen. Remote treats your employees with the respect they deserve, starting at onboarding and continuing throughout their relationship with your company. Contact us today to learn more about our EOR and PEO services.

What's the difference between an EOR and a PEO?

Does your business need an EOR or a PEO?

When everyone works in the same office, intellectual property rights are fairly straightforward. Employees produce work on company time, using company property, at the company’s office, and that work belongs to the company. This traditional structure insulates businesses from most claims against their IP and invention rights.

Remote work changes the dynamic by introducing new vulnerabilities. That’s not to say companies should avoid hiring employees in other countries: on the contrary, a global workforce is an essential strength for companies to remain competitive, even small businesses. However, companies should be cautious to avoid unnecessary risk while growing their global teams.

As the top global employment solutions provider, Remote helps businesses with workers in dozens of countries protect their IP from both internal and external vulnerabilities. Let’s look at the challenges of international laws and examine how Remote provides the best IP and invention rights protection in the industry.

Which companies should care about IP and invention rights with remote workers?

The short answer: all of them. If you have workers abroad, you need to be concerned about protecting your IP and invention rights. Even if you don’t believe you have much intellectual property, you probably do. Your brand, for example, is part of your intellectual property.

Certain businesses should pay special attention to IP rights:

Tech. IP and invention rights for tech companies can be complicated. Many countries lack the proper regulations to account for all the different types of tech IP and methods of creation. Businesses working with foreign engineers, programmers, product managers, and other tech talent must be especially vigilant.

Finance. Every highly regulated industry requires the highest levels of protection across the board. In finance, companies working with new clients often go through internal audits, including the levels of protections for IP.

Energy. Invention rights are especially important for energy companies. Drawing the line between what belongs to the company and what belongs to employees can help businesses in this sector avoid costly legal battles and negative press.

Manufacturing. In manufacturing, every piece of machinery is filled with a variety of different types of IP and protected inventions. Manufacturing companies exercise enormous caution to prevent industrial espionage, so why wouldn’t these same companies take every precaution to protect their IP?

Startups considering liquidity events. Startups should be especially careful regarding invention rights and IP. That goes double for startups looking at a liquidity event, like an acquisition or IPO. The due diligence required to prepare for such an event not only includes evaluations of IP protections but also evaluations of relationships with employees and contractors. The last thing a startup needs before an IPO is uncertainty regarding ownership of the work it has created.

These are only a few examples of situations where IP and invention rights protections are essential. Now that it’s easier than ever for companies of all sizes to employ international workers, every startup should take IP protection seriously from the beginning to avoid major headaches down the road.

What are the dangers of poor IP protection abroad?

First, it is vital to understand that intellectual property laws vary from country to country. The approach a company uses to protect its IP and invention rights in one country may not work in another. Failure to understand, respect, and follow the laws of another country could result in loss of protections for the company’s IP and invention rights.

Losing these protections can lead to a host of problems: some small, others catastrophic. For example:

You could lose deals. Security is more important than ever. Partners want to work with companies that have robust protections in place. If you cannot promise potential customers that you own all you say you do (and will continue to do so), you could lose major deals you would have otherwise won.

You could fail an audit. Are you looking at a liquidity event, such as a sale or an IPO? Are you subject to inspection from regulators? If so, you cannot afford to leave your intellectual property and invention rights to chance.

You could damage your reputation. No company wants to be in the news for the wrong reason. An accusation from an employee or contractor that the company stole IP is definitely the wrong reason. With the proper protections in place, though, disputes end quietly before things get ugly.

You could get dragged into a costly legal battle. Without proper protections regarding remote workers in foreign countries, you could find yourself fighting in another country’s court system to keep your own IP. These battles can be difficult to win, especially in countries where laws on creation favor creators over companies.

In some countries, intellectual property rights default to the creator over the commissioner. So, if your company works with a contractor in another country, the intellectual property for the work that contractor creates may default to the contractor if the contract has any weaknesses. Employment contracts tend to be more secure than contractor agreements, but companies can still lose IP and invention rights protections in foreign countries in some instances.

The worst danger, however, arises when a company believes its IP is secure when it is not. Some global employment solutions providers rely on third parties, passing the IP of their customers back and forth between multiple places. This is one of the clearest advantages of an owned-entity global employment solution over a partner-dependent global employment solution.

How Remote protects your IP and invention rights around the world

Failing to protect your IP and invention rights comes with consequences. On the other hand, successfully protecting those rights insulates your business from harm while empowering you to grow your global team with confidence.

Remote offers the most secure, most reliable IP and invention rights protections in the industry. In fact, Remote’s global employment solution is so strong, we actually offer a higher level of protection than you could achieve through a direct transfer of IP from your international employees to your company.

Learn how Remote protects your intellectual property around the world with Remote IP Guard.

It may sound strange, but because countries have different laws on how IP enters and exits the country, Remote’s global employment solution can provide greater security than a direct employee-to-company international transfer.

Remote is able to offer the highest level of protection because:

Some global employment solutions providers do not own their own entities. Instead, they rely on partners to handle the workload on their behalf. Not only is this model more expensive for customers, but it also means your IP gets passed through multiple parties before finally reaching you. All that movement exposes your IP to unnecessary risk at every exchange.

Remote owns our own legal entities in every country where we offer global employment services. That means we never ask an intermediary to take possession of your IP. We are your global employment partner, and we provide our services directly to you.

We use an ironclad two-step IP transfer process.

As a global employment solutions provider, we offer a variety of services. Sometimes, we simply handle global payroll for your own local entities. Other times, we employ your workers on your behalf with our in-country entities, allowing you to hire all over the world without expensive overhead.

When we employ workers on your behalf, we use a two-stage approach to transfer the IP from the employee to you. First, we transfer the IP from the employee to Remote, in accordance with our country-specific employment agreements. Then, we transfer the IP to you. As international experts in IP and invention rights laws, we guarantee the maximum transfer of IP to you, every time. The IP belongs to you from the beginning, and we guarantee you receive it legally and easily thanks to our best-in-class service.

We deliver you the maximum protections under every country’s local laws.

You don’t have to be an expert in international IP law to hire internationally. We take care of everything to provide you with the highest level of protection in every country where you have employees. Remote’s in-country teams of legal experts craft employee agreements that comply with all applicable local laws, allowing you to rest easy.

What happens if your employees move to a new country? Don’t worry: we take care of that, too. Because we own our own legal entities, we have an international network of legal expertise ready to help from start to finish. The power of a global infrastructure with the precision of a local legal team — that’s the Remote difference.

Protect your IP and your global team with Remote

Remote’s global employment solutions include payroll, benefits, taxes, and compliance to empower companies of all sizes to employ top talent all over the world. We protect your IP and invention rights better than anyone else, in addition to providing your company and your employees with a first-class experience all over the world. Contact us today to learn how Remote can help you grow your global team securely.

How do companies protect their intellectual property right and invention rights with remote workforces? This guide walks you through all you need to know about IP and global employment.

Have remote workers? You need stronger IP protections.

Intellectual property and invention rights for global teams: What every company needs to know

The more we grow, the more we can help you grow.

Remote has been busy in 2021. Today, we are pleased to announce that we have added support for 10 new countries, bringing our total availability to 31 around the world.

Say hello to Armenia, Brazil, Bulgaria, Estonia, Germany, Hong Kong, Israel, Malta, New Zealand, and Romania!

Remote does not treat the opening of a new country lightly. We take the time (usually several months) to open our own local legal entities before we begin to offer service. This means we take longer to expand, but the end result is a better solution for you and your team.

As soon as we open an entity in a new country, we can immediately offer best-in-class global employment services in that area. Our teams of local experts eliminate third-party handoffs to ensure you receive the best service possible, no matter where you call headquarters. 

That means stronger protections for your intellectual property, a superior experience for your employees, and, of course, the best payroll and benefits platform in the business. In fact, there are several advantages to using an owned-entity global employer over a partner-dependent one.

With this announcement, Remote can now help businesses of all sizes employ full-time, part-time, and contract workers in more places. And we’re opening in more countries all the time.

You can view our country availability roadmap in our Country Explorer.

If we are not currently available in a country where you need help, let us know! We can already help you with contractor payments and management in almost every country in the world.

We are excited to expand our top global employment solutions to more countries. Keep an eye on our Twitter and LinkedIn accounts for regular announcements on availability. If you want to know more, send us an email at hello@remote.com or reach out on social media. No matter where you live and work, we are always happy to help.

Remote is growing! Say hello to Armenia, Brazil, Bulgaria, Estonia, Germany, Hong Kong, Israel, Malta, New Zealand, and Romania.

Remote is now live in 10 new countries

How do you legally employ workers when they move from one country to another?

Three of Remote’s top experts in global employment have shared their wisdom in a one-hour online event. In this seminar, you will learn about:

Travel, short-term relocation, and long-term relocation

How employee actions affect companies unintentionally

Gaps in employment law for remote workers

In addition, this recording includes an extensive Q&A session highlighting more issues companies should consider as employees relocate.

If you have specific questions about relocation for your team, we are always happy to help. Fill out the form on this page or send us an email at hello@remote.com to get started.

On-demand video now available! In this one-hour online event, three of Remote's top global employment experts share their knowledge on relocation for international employees.

[Webinar Recording] Relocation for International Employees

If you can employ anyone, from anywhere, what should you pay them? What is fair?

To calculate compensation for remote employees, you have a few options. You can pay everyone based only on their experience and role, regardless of location. You can also consider cost of living to adjust pay for your remote employees based on where they live. If neither option sounds appealing, you can make up your own formula to determine remote worker compensation.

No matter what you do or where you hire, one overarching principle remains the same: pay well to hire great people. With global employment solutions now allowing companies to hire top talent all over the world, you cannot offer poor pay and expect to attract the best workers. When making your calculations, be sure your strategy keeps your salaries competitive.

What is the state of remote employee compensation today?

Companies that do not hire remotely may believe they only have to compete with other local businesses for local talent, but they are mistaken. Local operations do compete for talent with other local companies and set salaries accordingly. As more industries begin to welcome global talent, however, fewer businesses depend solely on local workers to meet their needs. That not only means businesses of all sizes must learn how to pay remote workers fairly, but also that small businesses now find themselves competing against global employers for their own local talent.

Companies today must be open to hiring workers outside their own neighborhoods, but doing so presents its own set of challenges. Today's businesses, even small ones, can compete for the best employees in every country. A young design firm in London can hire remote workers in South Africa, while a SaaS company in Mexico City may employ remote workers in India. Any business can hire anyone from anywhere, provided the business compensates its remote teams appropriately.

The number of remote jobs remains lower than the number of local jobs, but after the COVID-19 pandemic, many companies that previously did not offer the flexibility of remote work began to do so. Over the last year, workers have become accustomed to the advantages of working remotely. As we found in our Global Workforce Revolution Report, many jobseekers are willing to take a pay cut to work remotely, and most workers would move to a new region or country if they could do so without negatively affecting their work prospects.

Different companies take different approaches to this challenge. Let's look at a few examples.

Basecamp: Pay the same salaries to everyone, everywhere.

Basecamp simplifies salary calculations by paying everyone the same amount based on seniority level. All junior programmers make the same amount, as do all senior customer service representatives, and so on. Basecamp sets its salaries to the 90th percentile of the San Francisco market, so people who work at Basecamp are compensated very well.

This strategy guarantees Basecamp the ability to handpick top talent from around the world. Standardization of Basecamp salaries across levels of seniority also allows the company to consider raises versus promotions in the same conversation. The obvious downside is the considerable expense. San Francisco is one of the world's priciest markets for talent, and paying remote employees on the high end of the San Francisco scale gets expensive quickly. 

Buffer: Adjust remote employee pay based on cost of living. 

Buffer famously publishes the salaries of every person who works at the company. This commitment to transparency allows people who would like to apply to the company to get a good idea of what their salary might be if they were to apply.

Unlike Basecamp, Buffer pays its people differently depending on where they live. Buffer's salary calculator provides a quick and easy way for companies and individuals to see what Buffer might pay a person in a certain position. The calculator uses a base salary for each role and multiplies by the person's cost of living. Base salaries are set at the 50th percentile of the San Francisco market.

Salary calculators like Buffer's are nice because of their transparency, but they are not always the best approach. Highly qualified candidates living in areas with low costs of living may use the calculator and decide not to apply because they could make more money elsewhere. Even if Buffer would be willing to pay someone more, the existence of the calculator could dissuade top talent from applying in the first place.

Buffer understands this challenge, of course, which may be why the company creates so many different levels for each type of position. On Buffer's salary publication chart, you can see a variety of different levels for engineers, customer advocates, and others. These levels make it difficult for outside candidates to assess exactly where they would fall in the hierarchy, limiting the utility of the calculator.

That said, Buffer's commitment to transparency is a value in its own right. By creating a system with which everyone agrees, Buffer automatically filters out people who may not share the company's values. 

GitLab: Create an original salary calculator.

GitLab has a complex salary calculator for remote employees. They use the following formula:

SF benchmark x Location Factor x Level Factor x Experience Factor x Contract Factor x Exchange Rate

Notable in here is the San Francisco benchmark, which is also used by both Buffer and Basecamp. That benchmark is multiplied by location-specific data, which GitLab collects from a variety of sources to ensure accuracy. GitLab publishes the full strategy behind its remote employee compensation calculator online, so anyone can see and understand the process.

Like Buffer, GitLab further modifies salary calculations by level and experience. They add a bonus for employees who are contractors, as contractors have to cover more of their own costs and do not receive employee benefits.

GitLab's formula guarantees accuracy and transparency in salary calculations, but maintaining a complex calculator with at least two variables that need constant maintenance (location factor and benchmark salary) is very time consuming. This public formula has the same problems as Buffer's simpler calculator but enjoys the advantage of higher fidelity in its calculations.

In practice, including other variables (level, experience) in the formula allows GitLab to compensate in a range and adjust where necessary. When writing this article, I originally thought GitLab would make regular changes to its location factors. In actuality, GitLab recalculates location factors annually with smaller iterative changes throughout the year.

Accounting for remote worker relocation costs

At companies with location-based compensation, a worker's pay may change when the employee moves to an area with a different cost of living. GitLab's policy on relocation, for example, is to require employees to receive written permission from a manager when planning to move. 

Many companies claim they reduce compensation when employees relocate to areas with lower costs of loving. In practice, however, such salary reductions are not always performed to the letter of the law. Forcing someone to take a pay cut to move home could sour the relationship between the worker and the company. This is an argument in favor of location-independent pay, or at least one in favor of unwritten leniency for employees who choose to move.

There is also the question of what happens when an employee moves from a place with a lower cost of living to a place with a higher one. Companies that enforce pay cuts must also provide pay raises if they want to stay true to their calculators. Employee movement can be a tricky thing in remote compensation, and practice does not always match policy.

Is location-independent pay for remote teams the answer?

In the debate over remote employee compensation, defenders of location-independent pay scales usually argue that companies pay for the value the employee brings to the company and therefore pay should be based on role and skill, not location. In truth, location-independent pay remains unrealistic for most companies. As long as people in the world are willing to accept lower-then-maximum rates in areas where salaries are below the top tier, companies will always have some leverage in setting salaries to local rates. Companies seek profits, and as such will optimize spending if they can do so without harming retention rates.

After years of experience with GitLab, I certainly wouldn’t create a new salary calculator. Companies looking to create their own pay scales should use the calculator of GitLab and Buffer as a baseline and work from there. Remember, these companies put significant resources in maintaining their calculators. For these companies, remote employee salary calculators are just as useful for thought leadership and marketing purposes as they are for determination of employee pay. Whether a calculator makes sense for your business depends on the level of experience you want to attract and the amount you can pay people without straining your financials.

What salary should skilled remote workers accept?

Remote workers evaluating offers should live by a simple rule: accept the salary that seems fair to you. When you start negotiations, you should have a figure in your head that you’re happy with. If the offer you get is way off, and there is little room to move that, weigh your options. You’ll likely earn less working remotely than you would working for a local company if that company is in San Francisco or New York. For most other locations, there is a good chance you’ll earn more than local companies offer.

Do not tell the company where you are currently negotiating what you were previously earning. That puts you in a bad position. Your best bet is to get an idea of what your potential colleagues are earning through independent research. Consider asking the company directly what other employees in your position earn. Again, companies should be honest about potential compensation while offering salaries that are both competitive and fair.

What is fair for remote employee compensation?

Ultimately, the global talent pool is a job market. Supply and demand meet each other at the right price. As an organization with deep experience in employing remote workers, both for ourselves and on behalf of our customers, we encourage remote-first organizations to prioritize the competitiveness of their compensation packages. That means you need to do as well or better than both local companies and other remote organizations if you want the best of the best.

Companies like Basecamp are rare, which is why Basecamp gets thousands of applications for every open position. Remote work will continue to grow in popularity and necessity, however, which means companies will continue to push the upper limit to build better teams. To hire the best people, paying slightly above market rate in otherwise cheap markets is no longer enough.

How do companies hire the best remote talent?

Pay them better than anyone else and provide them with meaningful, challenging work. This is true for remote and co-located companies alike. Remote work provides incredible benefits and flexibility, so much so that many people are willing to take a pay cut for the privilege. However, if you do not pay people well, they're not likely to stay for long.

Need help making an offer to a new employee? We can help. Remote takes care of payroll, benefits, taxes, and compliance for your company for one low flat rate. No matter where you hire, we can help you pay and manage your international team. Contact us today to learn more about our global employment solutions.

What should you pay remote employees? What is fair? Payroll and benefits expectations vary wildly around the world. With a remote team, you must make sure everyone feels valued and appreciated.

Compensation for remote employees

[Updated] How to calculate compensation for remote employees

Recently, the UK introduced new legislation to change a tax loophole and redefine certain relationships between contractors and companies. If you employ workers or have contractors in the UK (or if your company is based in the UK), you should know how the new IR35 rules could affect your business.

The IR35 legislation affects both companies dealing with contractors and the contractors themselves.

Many contractors in the UK have historically set up a limited company structure to take payments from clients and pay less in taxes. The UK government believed some of these workers were exploiting the tax system by operating as contractors when they should have been classified as employees. Anyone who would meet the definition of “employee” without the existence of the limited company (also known as a personal service company or PSC) is now termed a “deemed employee” and therefore is subject to employment taxes.

Some small businesses are excepted from the new rules, which apply primarily to medium- and large-sized companies in the private sector and all sized companies in the public sector. To qualify for the exemption, a small business must meet two of the following criteria:

Annual turnover of less than £10.1 million

All businesses that do not meet the small business criteria are subject to IR35 legislation. 

What does it mean to be subject to IR35 legislation?

In the past, the duty of discovering contractors exploiting tax loopholes fell to HMRC, the UK’s tax authority. Under IR35 legislation, companies subject to the new rules are responsible for determining the IR35 status of their own contractors. Small businesses are excepted from the rule because of their limited resources, but larger companies working with contractors are now required to vet the IR35 status of their own contract workforces.

IR35 legislation separates workers into “outside IR35” and “inside IR35” groups:

Contractors considered to be “outside IR35” — that is, contractors who are correctly classified as contractors and are not avoiding paying all relevant taxes — are considered self-employed. They are free to pay themselves in whatever way they find to be most efficient for their tax liability. This may include working through a limited company, as long as the arrangement makes sense and is not misused to avoid paying taxes.

Contractors who could be deemed as “employees” by IR35 are considered “inside IR35” and are therefore required to pay tax at the same rate as an employee in the same tax bracket. Companies working with contractors who fall inside IR35 must pay taxes as if the contractor were one of their employees. As such, the company (the “fee payer” in this instance) must deduct National Insurance Contributions (NICs) and income taxes on behalf of the contractor, as well as pay employer National Insurance Contributions and an Apprenticeship Levy. For more information on UK taxes, including employer taxes, see Remote’s UK Country Explorer page.

Does a contractor inside IR35 become a full employee?

No. While contractors found to be inside IR35 must pay taxes on their earnings as if they were employees, and their employing companies must do the same, this does not make them full employees automatically. Laws relating to classification and taxation remain separate at this time. Contractors who become “deemed employees” under IR35 are not automatically entitled to employment rights, such as benefits and paid time off.

What if a contractor is termed a ‘deemed employee?’

When a contractor is termed a “deemed employee” under IR35, penalties occur if the contractor was previously classified outside IR35 and not paying the appropriate taxes. A contractor found to be in violation of IR35 (one being paid through a limited company who should be classified as an employee inside IR35) must pay back all missing back taxes, plus interest and any penalties. HMRC has the power to investigate as far back as six years, so penalties can be severe.

Businesses working with contractors (that is, end clients of contractor services) must also pay penalties and back taxes with interest if found in violation. The UK government announced it would not enforce penalties for accidental offenders taking “reasonable care” in 2021, but it may continue to punish companies deliberately breaking the rules. The government may also publicly criticize companies that fail to comply to encourage more widespread adherence to the new rules.

How does an SDS help companies comply with IR35 rules?

First, companies under IR35 must produce a Status Determination Statement (SDS) for each contractor. The SDS goes from the end user or end client (the company receiving the service) to the agency (if applicable), then through the PSC/limited company and finally to the individual contractor. The SDS must include information on the decision the company made regarding the contractor’s status as either inside or outside IR35, plus the reasoning for the decision and evidence of reasonable care in deciding.

If the contract changes, the company engaging the contractor’s services must create a new SDS to determine whether the relationship with the contractor changed under IR35.

What happens if the contractor disagrees with the SDS the company creates?

Contractors may appeal SDS decisions verbally or in writing within 45 days of receiving the notification. Once the company receives the complaint, the company has an additional 45 days to respond.

Companies in this situation have two options:

Uphold the decision and respond to the contractor in writing citing the reasons why.

If the company fails to comply with the 45-day limit, the company becomes responsible for taxes and NICs incurred by the contractor for the changed status.

What is ‘reasonable care’ in the eyes of IR35?

HMRC expects companies to collect relevant information via SDS to determine whether contractors lie inside or outside IR35. Due diligence can vary, but should include records like:

Does the contractor take financial risks, i.e. is the contractor legitimately represented through the PSC/limited company?

What actual work practices does the contractor perform? Are these practices different from those conducted by full employees at the company?

Answering questions like these demonstrates reasonable care that the company attempted to comply with IR35 rules. Companies must maintain these records and document their reasoning for determining contractor status. Under no circumstances should companies make a ‘blanket’ decision about all their contractors’ statuses.

What is the CEST (Check Employment Status for Tax)?

The CEST is an online tool created by HMRC that presents a series of questions to help businesses determine the status of contractors and employees for tax purposes. This tool can be used as part of “reasonable care.”

Businesses can access the CEST on the UK government’s website.

Working with contractors in the UK after IR35

With the wealth of talented workers in the UK, businesses should not let IR35 rules scare them away. Highly experienced contractors and employees in a variety of industries live and work in the UK, and these new regulations are intended to close a tax loophole, not make doing business in the country more difficult.

If you are interested in working with contractors or employees in the UK, contact Remote and let us know! Through our legal entity in the UK, Remote guarantees your business receives the best payroll, benefits, taxes, and compliance services. Contact us today to learn more about our cost-effective global employment solutions.

Always work with your legal team and tax accountants to ensure an accurate IR35 status is selected. Once you’ve established the contractor’s IR35 status, our team can help implement invoicing or any other changes necessary within the Remote platform.

Have contractors or workers in the UK? Here's what you should know on IR35.

What is IR35 and what does it mean for your business?

Asynchronous (async) work is a way to organize the order in which tasks are executed in the pipeline of work. It allows you to fine-tune work, so that pressure is even, tasks are completed swiftly and you stay nimble.

An even, swift and nimble pipeline produces exactly the right quantity of output for its requirements, and all its stages are balanced in terms of efficiency and speed. Resulting in no waste of time or resources. This is inspired in the Toyota Production System 3Ms methodology, more about that here.

Async work relies on three main tenets: Multiplexing, Communication and Action.

Human beings exist in a synchronous world, we are bound by time moving forward one second at a time. However the way we do things (or put things together) has an insane amount of impact on the outcome of our pipeline. It’s all about planning.

Typical (synchronous) planning relies on kicking off things in a bulk fashion. On its own it’s not a terrible thing to do, however, a system will go as slow as its slowest element. In this case any delay will be propagated through the pipeline, as each stage depends entirely on the step that precedes it.

This image represents a three terminal software development pipeline organized with sync planning. To deploy a feature we need tasks A, B and C to be completed. Given the way that these tasks were planned for and distributed we will require a cycle of 9 work hours per deployment. This is great for atomic tasks, but very slow otherwise as we’ll only be able to deploy every so often.

Async planning relies on breaking tasks in smaller tasks as much as possible and releasing Minimum Viable Changes (MVCs) as frequently as possible. This technique relies on the hypothesis that shipping less but more frequently allows you to measure success and counteract any negative feedback as fast as possible. It also allows a more fine-grained control of resource allocation as we’ll be able to perform more tasks in the same amount of time (due to their reduced size).

In this example representation, by separating Tasks A, B and C in (A1, A2, A3, B1, etc.) we achieved three times as many deploys as in the previous example (M1). In this example at the end of the 9 hours we may end up with the same amount of features deployed, however, multiplexing our tasks with async task distribution we were able to release subsets of our tasks, thus being able to validate their impact, and rollback or reassess the next steps. We’ve reduced the iteration time to a third of the original planning.

This methodology allows us to multiplex tasks, combining them to produce results faster.

Good communication is key to the success of any system (human or machine).

There are many types of communication, an email, a message, a voice call, video call or even a “let’s go get a coffee”. Each has a totally different impact on productivity and picking the right one is as important to the production pipeline as any other task we can perform.

Synchronous communication is the one we are most inclined to because it’s easy and more comfortable in a way.

A conversation (usually) requires at least 2 people. An engaged conversation can take multiple forms:

Messaging someone and expecting an immediate response

All these are great options for things that can’t be done in any other way, or are way harder to do asynchronously. For example, a performance review, strategy discussion, interviews, 1-1s.

Most meetings can be replaced by proper documentation, well-written emails or messages.

Meetings are the most expensive tool your company has, use them properly.

In Example 3, two devs working on their own tasks and needing to complete set of tasks (A,B and C) before deploying:

This example happens so many times, in this case a meeting about a tech requirement interrupts both devs for a fixed amount of time, and soon after another call about what someone should do next.

This is definitely not the best use case for sync comunication, the interruptions delayed all work and no deploy was done.

If we think about the efficiency of our pipeline, it was definitely uneven and everything but swift.

Async communication empowers independence. It focuses on making sure that a task and its effects are independent of whoever planned or executed it.

Async communication brings/enforces some of the long sought best practices such as:

Example 4 with the same two people (as example 3) developing a set of tasks but resorting to async communication.

In this example communication is performed through messaging and well written documentation. In these cases, even if the end-goal of the message exchange is spread throughout the time, the impact on the work flow is negligible and often means more execution.

Humans aren’t very good at going from a state of total focus on task A to total focus on task B without loss (as depicted in the following image). For example, when you’re deep in a book and get interrupted with something. It’ll take you a moment to get back into the book.

In Example 5 we see a time-based chart, where Time and Productivity are the axes. This example depicts the timeline of a backend developer that gets interrupted twice, first by a frontend developer about the payload of an API request and second time from a new team member about setting up the project’s database locally.

The backend developer spent some time focusing on the task at hand (1) and later transitioned to a state of focus (2). This (2) is what we want to maximize and where we get the best out of our super creative and powerful brains. Then, when interrupted, the developer spends some time to address the question from the frontend developer (3) to then get back to the task (1). Unfortunately as the developer was focusing again (2), a new interruption occurs (3).

If you read this far, I’m sure this is all very familiar to you.

Now, the cherry on top is the concept of ”Flow” (2). Wikipedia’s definition (more here):

Async work is a way to organize how to get stuff done with less interruptions and higher efficiency based on very simple concepts.

EOR and PEO — 7 min

Does your business need an EOR or a PEO?

Recent Stories

Company News — 2 min

Remote is now live in 10 new countries

Apr 7, 2021

Videos — 10 min

Remote Talks with Tigran Sloyan - Improving Interviews and Evaluating Talent Teams

Apr 6, 2021

Global Payroll and Benefits — 1 min

[Webinar Recording] Relocation for International Employees

Apr 2, 2021

Company News — 4 min

Feature update: Offering benefits and expenses through Remote

Apr 2, 2021

Global Payroll and Benefits — 5 min

State Tax Reciprocity Agreements in the United States

Mar 25, 2021

Videos — 10 min

Remote Talks with Mac Reddin - Nurturing Communities and Empowering Community Builders

Mar 23, 2021

Remote Work and Culture — 5 min

Post-pandemic remote work is different. Here's what companies should know.

Mar 18, 2021

Videos — 7 min

Remote Stories: Life in Kyrgyzstan with Kayrat Kaipov

Mar 12, 2021

Remote Talks

Spotlight

EOR and PEO — 7 min

What's the difference between an EOR and a PEO?

Jul 10, 2020 • By Preston Wickersham

Global Payroll and Benefits — 8 min

Have remote workers? You need stronger IP protections.

Dec 30, 2020

Company News — 2 min

Remote is now live in 10 new countries

Apr 7, 2021

Global Payroll and Benefits — 1 min

[Webinar Recording] Relocation for International Employees

Apr 2, 2021

Company News — 4 min

Feature update: Offering benefits and expenses through Remote

Apr 2, 2021

Global Payroll and Benefits — 10 min

Compensation for remote employees

Dec 23, 2020

Global Payroll and Benefits — 4 min

The most common mistakes companies make when going remote

Oct 23, 2020

Countries — 7 min

Have contractors or workers in the UK? Here's what you should know on IR35.

Mar 9, 2021

Videos — 10 min

Remote Talks with Tigran Sloyan - Improving Interviews and Evaluating Talent Teams

Apr 6, 2021

Most Viewed

What's the difference between an EOR and a PEO?

Jul 10, 2020 • By Preston Wickersham

What does Brexit mean for employers?

Nov 17, 2020 • By Preston Wickersham

How to manage an unlimited PTO policy

Aug 11, 2020 • By Preston Wickersham

How I built my home office for maximum productivity

Jun 24, 2020 • By Job van der Voort

When should you convert a contractor to an employee?

Oct 16, 2020 • By Preston Wickersham