EOR and PEO — 13 min
Managing independent contractors working abroad is a simple and effective way to grow your business. Using foreign contractors can be a fast, affordable, and productive option while giving you access the best talent in the world. You’ll want a good system to scale your hiring process, especially if you’re working with contractors in multiple countries. Using a contractor management platform lets you kickstart the whole process.
Because here’s the deal — every country has their own employment rules and regulations. These include different labor laws and tax obligations. If you’re working with independent contractors abroad, being legally compliant from the very beginning is going to save you countless headaches and keep you out of trouble with local authorities. It’s not hard, but it is serious business.
Read on to find out everything you need to know to onboard, pay, and manage the best talent for your business, anywhere in the world. This expert guide is designed to give business owners and hiring managers the blueprint required to protect their team and their business. You can focus on scaling and growing your operations knowing you’re working to international hiring standards and ensuring compliance.
Let’s get started.
An international contractor, also called a foreign contractor, is someone who works under the laws of a country other than the United States. They are self-employed, work for multiple companies, and are not controlled by your company.
For American companies, the International Revenue Service (IRS) determines the difference between a local and international contractor. Here are things to keep in mind:
Here’s a quick overview you can use as an indicator to tell whether your contractor is considered local or foreign by the IRS.
One last thing to consider is the foreign government where your contractor resides may legislate your relationship differently than the U.S. would. In some countries, this can be quite straightforward. For example, a contractor's status is defined by the length of the engagement or the exclusivity of the relationship.
In other countries, the status of a contractor can switch to an employee automatically, and without notice, if the status changes during the course of the relationship.
Research in more detail: You can investigate the specific labor laws for more than 170 countries using Remote's Country Explorer.
Working with remote contractors brings a wealth of benefits, especially if you’re experiencing a limited talent pool in the local market or require a highly specialized skill to complete a project. One advantage of the post-COVID business world is how many people became familiar with work-from-home and remote-work technology. This transition reinforced the benefits of globalization to growing companies and makes the decision to target the international contractor pool easier than ever.
Here are some of the major benefits to working with foreign contractors.
You have a chance to design your projects any way you want. You can bring people on for single tasks, assemble a team of differently skilled workers for a special project, or supplement your existing team with a foreign contractor who can help you with capability building. The opportunities are only limited by your imagination.
Consider working with an independent contractor abroad to consult with and advise you on functions outside of your area of strength. If you find an international expert who is not actively working with a competitor, you can gain valuable insight from an industry veteran without the pressure, cost, and delays involved with a full-time employment relationship.
Common knowledge and best practice are enemies for anyone working towards building the foundation of an innovative company. Hiring international contractors gives you access to different perspectives and a diverse approach to innovation. These, in turn, become the building blocks to develop a competitive advantage. Your people provide the foundations of a sustainable business. Diverse people from different backgrounds, cultures, and locations can give you an edge, especially if you sell to an international market.
Different cultures have different value systems when it comes to education and career development, so skills that are scarce in America may be in abundance elsewhere. The U.S. always comes near the top of the Global Innovation Index, but there are many countries punching above their weight in various sectors. You could find that opening up your hiring across borders delivers a gold mine of specialised candidates.
If you’re looking to outdistance your competitors, you can use the Global Innovation Index to compare two economies, using indicators like technology, creativity, or business sophistication. This lets you tap into a potentially hidden talent pool and find the countries who are likely to produce the best chances of finding the unicorn your business needs.
How would it feel to go to bed each night knowing your projects were being progressed even as you sleep? Leveraging multiple time zones is another reason to work with foreign contractors.
You can find built-in efficiencies for areas like quality assurance or quality control if your teams are divided in different parts of the world. Imagine the pure joy of working on the nuts and bolts of code or content and then having it tested for quality and back on your desk when you arrive to work the next day.
For as good as async work is for your business, it’s even better for your customers. Offering around-the-clock support ensures your business is operating 24/7 and any problems or questions your customers encounter are managed in real time. You can comfortably focus on your strategic role, knowing your operational support is ticking along.
When your business is entering new markets, international contractors are invaluable for having on the ground intelligence. They can represent you for in-person meetings, advise on local customs, localize marketing and advertising, and provide insight into the best way to manage a multitude of tasks. They will also have a local network of skilled professionals and can make referrals to your business.
Research in more detail: You can learn more about the processes you need to work with remote contractors abroad in our expert guide to working with remote contractors.
Compliance is the one issue hiring managers need to be diligent about when hiring international contractors. Understanding local labor laws from country to country adds complexity but it also adds risk to people who don’t respect the upheaval and chaos non-compliance can cause your business.
Even if you’re currently on top of things for your foreign contractors, the situation is always changing. These employment laws are updated regularly in many countries, and often a worker may be deemed an employee over time, many months after the initial engagement is analyzed and the initial classification is assessed. Chances are you won’t be notified when this occurs. It’s also possible the international contractor who has become part of your team won’t know the local labor laws unless their expertise is in Human Resources.
The last thing you want is to stumble when figuring out how to classify employees and contractors. There can be harsh consequences for misclassifying contractors, even if the mistake was completely unintentional. You may incur fines and penalties, lose your IP (don't neglect IP protection if you have remote workers), and even lose permission to operate.
If you don’t have the support of local labor experts in every market, it’s essential to find help. Luckily, Remote provides a way to hire global contractors for an affordable price, with a clean and simple service.
While business fully embraces the benefits of globalization, there’s still no universal body or agency to manage global workers. As a result, the onus is on each business to navigate local hiring practices on a country-by-country basis. Areas to consider when drawing up a contract with an international contractor include:
Having localized contracts becomes increasingly important with every new country where you have a team member. What works in the U.S. may be illegal in another country. Penalties of noncompliance can vary greatly between countries. All of this makes contractor classification complicated.
The risk of misclassification can attract serious penalties for both the employer and the worker, but no two countries are exactly the same. Here are typical examples from countries where foreign contract work is popular.
Australia treats self-employed contractors and full-time employees differently. Misclassification of contractors may lead to fines and penalties for the offending company.
The United Kingdom also treats contractors and full-time workers differently and there are risks associated with misclassification.
South Africa also has a range of stiff penalties when an employee is misclassified as a contractor.
Research in more detail: Check out Remote’s Country Explorer to find specific information about the local labor laws of the countries where your foreign contractors work.
If you’ve ever been audited by the IRS, you’ll know what an unpleasant experience it is. Now imagine being exposed to the same kind of scrutiny in multiple countries. The consequences for misclassifying international workers are wide-ranging and painful. They may include:
One thing to keep in mind is it’s not only you who will be on the hook for misclassification errors. Workers on your team may be faced with refiling income tax returns, losing deductions taken as a self-employed businessperson, and paying interest and penalties for misfiling. Your company culture will be impacted, and you’ll have to endure embarrassing conversations with your team. Count on the morale of your team plummeting.
No. The IRS reserves 1099 forms for U.S. contractors only. You do not need to issue a 1099 to anyone who qualifies as an international contractor. You will, however, need to collect a W-8 BEN form from every foreign contractor working for you.
The first rule of working with contractors is to make sure they get paid as quickly as possible. If you can’t do that in a consistently timely manner you’ll find it hard to attract the best people. It’s difficult to repair a reputation of being poor at paying invoices. International contractors are already taking a risk working with foreign businesses, so they tend to be unforgiving if you haven’t figured out how to uphold your end of the bargain.
Paying international contractors is easy if you have access to the right platform. You’ll want to have the terms of payment clearly stated in your contractor agreement so there’s no confusion about when and where your international team receive their compensation for working with you.
Some key points to keep in mind are:
Research in more detail: Download Remote's Global Payroll Management Guide
As a general rule, an international contractor is an individual who is not controlled by the employer except for the outcome of the work. If you are directing what will be done and how it will be done, then your worker is an employee. There are pros and cons for international contractors and international employees, so consider whether it’s time to make a transition in your business.
In many cases, the decision might not be up to you. Foreign worker classifications can be prescriptive, which is why it’s necessary to maintain awareness about local labor laws. One way to keep on top of this, without becoming an expert on international industrial relations, is to use a software platform that keeps track of all aspects of international employment. Remote helps you employ your global team by managing payroll, tax, benefits, and compliance.
Research in more detail: When should you convert a contractor to an employee?
Hiring independent contractors abroad provides multiple advantages to a business or startup looking to scale and grow. It’s a chance to find exceptional talent, build capability in your team, and acquire a new perspective on everything you’re doing. In many cases, it’s a cost-effective chance to work with highly experienced professionals, and another way to boost your innovation.
Without doubt, foreign contractors can supercharge your competitive advantage. Wading in without fully understanding how to safely navigate a myriad of international labor laws is risky business. Business leaders have two choices:
Remote offers the most simple, secure, and cost-effective solution for onboarding and paying international contractors. No one else in the industry provides the same accessible, transparent pricing. There are no hidden fees or markups.
There are several advantages to you and your business for using Remote’s contractor management platform:
As your business grows, Remote is right there to help you hire remote employees. Our global employment platform works seamlessly with our global contractor management platform to give you the broadest coverage for any type of contractor or employee you have around the world. You can build your international team with confidence, knowing you’ll be compliant and your contractors and employees are receiving the right payments in rapid time.
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