How to hire independent contractors: an expert guide

Hiring an independent contractor is a great way to access top global talent, fill short- and long-term personnel gaps, and leverage the knowledge and experience of specialized experts.

But if you want to hire a contractor — inside or outside your country — there are certain steps and compliance considerations you need to be aware of.

In this article, we’ll help you understand the basics, so that you can start hiring compliantly. Specifically, we’ll cover:

• What exactly a contractor is — and the pros and cons of hiring one

• How to build a contractor recruitment strategy

• How to hire domestic and international contractors

• How to create a contractor agreement

• How to manage and pay a contractor

So, let’s dive right in.

What is an independent contractor?

Before you hire anyone, you first need to understand what exactly contractor status entails.

Independent contractors are usually self-employed individuals who offer their services in exchange for money. When you work with a contractor, it’s vital to understand that they are not your employee.

As self-employed people, they are responsible for arranging and paying their own taxes and social security contributions. In most countries, they are also not entitled to the same statutory benefits as employees, such as sick leave and health insurance.

As a result, it’s important not to treat contractors in the same way as your employees. If the authorities believe that you are doing so, this can create something called misclassification risk, which can result in penalties and fines.

Countries have their own definitions of the exact differences in classification, but, in most cases, the following factors are key:

• Scheduling. In most cases, employees are contractually required to follow a set work schedule (i.e. Monday to Friday, 9am to 5pm). Independent contractors are free to work their own hours as they see fit.

• The level of control (or subordination relationship). Employees are typically expected to follow internal practices and work processes, whereas contractors can perform tasks however they want.

• Benefits. You must provide statutory benefits to your employees (in line with the relevant local labor laws). In the vast majority of countries, contractors are not entitled to these benefits. 

• Taxation. In most cases, you are responsible for withholding and paying your employees’ taxes. Contractors are classed as self-employed, which means that they must manage and pay their own taxes. 

• Tools and equipment. Usually, you would be expected to provide your employees with the tools or equipment required to perform their tasks. Contractors generally buy and use their own tools and equipment.

In many countries’ labor codes, the employer-employer relationship is deemed to be a contract of service, while a client-contractor relationship is considered to be a contract for services.

You can learn more about the legal status of independent contractors — and about misclassification risk — in our detailed guide.

What are the pros and cons of hiring an independent contractor?

Ultimately, the decision of whether to hire a contractor depends on the particular circumstances of the situation.

If you're looking for a short-term solution, or the amount of work doesn’t justify hiring a full-time employee, then a contractor arrangement may be a good fit.

However, if you require someone to be available during certain hours, it's an important role in your company, or you require exclusivity, then an employee arrangement is more advisable.

To explore the pros and cons of hiring an independent contractor in more detail — and to understand when you should opt for an employee instead — check out our in-depth article below.

Contractor Management —

17 min

Independent contractor vs employee: which should you hire?

Understand the key differences between independent contractors and employees, and understand which arrangement might work best for your business.

How do I build a hiring process for contractors?

As mentioned, requirements around contractors often change based on location. As a result, it's advisable to develop an established recruitment and hiring process that can be tweaked for each specific region.

Here’s how to structure such a process: 

Identify the conditions for when a contractor should be hired

The first step is to establish protocols that identify whether an employee or a contractor is required. 

For example, if you're revamping your content marketing strategy and you want to regularly produce video campaigns, you might want to hire an in-house employee. 

However, if you’re developing a one-off video project that will take around three months to complete, it makes much more sense to work with a contractor.

Create a policy that your hiring managers can refer to when assessing their personnel needs. It should outline how exactly the contractor relationship would work, and explain how business cases can be made to justify using contractors.

You should also factor contractor costs into all your upcoming budgets, hiring plans, and business forecasts — just as you would with an employee.

Establish a reliable talent pool

If you’re going to hand the delivery of key tasks to people outside your organization, trust is crucial. Therefore, you need to know where to look for reliable partners — which may be through marketplaces, agencies, third parties, or professional networks.

As well as helping ensure that you work with competent people, it also allows you to leverage one of the key advantages of hiring contractors: speed.

You can avoid time-consuming hiring activities such as interviews, reference checks, and tests, and have a competent, qualified person in place quickly.

And, because you can terminate independent contractor agreements at any time, you’re not overly committed if the relationship doesn’t work out.

How do I hire a domestic contractor?

If you want to hire a local contractor, the process itself is relatively straightforward:

1. Establish a business case for why a contractor is more suitable than an employee

2. Consult your talent pool to identify suitable contractors

3. Formally approach the contractor you want to hire through their preferred method

4. Convey the scope of work (this can be done formally or informally, depending on your relationship with the contractor)

5. Allow the contractor to provide you with a quote (this may take a couple of days, depending on the complexity of the task)

6. Either accept or reject the quote (you can also attempt to negotiate it, although this again depends on your relationship)

7. Formalize all aspects of the agreement in a contract

You can, of course, negotiate with multiple contractors at the same time. However, always remember that you are the contractor’s client — you are not their employer.

During this process, don’t forget the practical details, either. For instance, clarify:

• How you will communicate. Will you require progress reports? If so, how often?

• What tools or software will be required. Will the contractor need access to proprietary tools? Will you need to grant access to specific accounts or files?

Discuss all of these things with your contractor beforehand, and ensure that you’re both comfortable with the arrangement.

How do I hire an international contractor?

If you’re hiring a contractor outside your country, things are a little trickier. You can follow the same steps as above, but you must also take numerous legal factors into account.

Consider the following:

Compliance

Your company must abide by local labor laws when hiring international contractors. That doesn’t just mean the laws in your country, but in your contractor’s, too.

Unless you have a team of international labor law experts at hand, this can be difficult. You may misinterpret certain laws or conditions, or miss important details. For example, in some countries, contractors are automatically converted to employees after a certain period of time. If you’re not aware of this, you may be responsible for backdated income tax, social insurance, and health insurance — with interest.

To muddy the waters even further, most countries regularly update these labor laws to reflect work and societal trends. What was initially legal can change over the duration of an engagement, and you may not receive any notification.

Finally, you may experience IP risks, depending on where your contractor is based. In some countries, worker protection laws award ownership of the IP to the person who delivered the work, rather than the company that commissioned it.

Practical issues

On paper, a particular contractor might seem like the ideal fit. But consider the practicalities, too. For example:

• How will you handle working hours across multiple time zones?

• Are there potential language barriers? And, if so, how will you overcome them?

• What currency — and method — will you use for payment?

• How will you manage foreign exchange fees and processes?

Country-specific considerations

It’s also important to note that each country has its own unique quirks and requirements when working with contractors.

For example, if you hire a contractor in the UK, you will need to follow off-payroll working rules (also known as IR35). You may also be required to pay a consumption tax on your contractor invoices, which you might not be able to recoup.

If all of this sounds like a lot of potential work, don’t worry: Remote can easily solve many of these potential sticking points. Specifically, we can:

• Review and inform you of any potential legal or compliance issues, and advise on how to manage them

• Diligently monitor law changes in every single country we operate in, and help you to comply with them

• Help you manage your IP risk where relevant

• Manage your contractor payments (with low foreign exchange fees) in over 100 currencies, saving you time, money, and headaches

How do I create a contract for an independent contractor?

Once you’ve identified a contractor that you want to work with and you’ve agreed on terms, you will need to formalize the agreement — to protect all parties.

In every agreement, you should clarify:

• The scope of work (i.e. what exactly you want the contractor to deliver)

• The services being rendered (i.e. what the contractor will actually do)

• The length of the agreement (this could be a set time period, or dependent upon a specific task being delivered)

• Clarification over the IP rights of the work

• The agreed payment, as well as method and currency of payment (note that some contractors may require a full or partial upfront fee)

• Any related confidentiality or non-disclosure requirements (if relevant)

• Any liability or indemnity-related obligations

Of course, if you’re working with an international contractor, then you will need to tailor the agreement to comply with their country’s laws.

To do this, you can work with a local law firm, although the process of finding, hiring, and onboarding a trusted partner can be time-consuming and costly.

Alternatively, Remote’s local, in-house legal experts can tailor the contract for you, saving you time and money, and ensuring you don’t encounter any legal pitfalls.

How do I pay an independent contractor?

You should have established the method and currency of payment in your initial contractor agreement. There are numerous ways for contractors to get paid, each with their own pros and cons. Some of the most common include:

• Bank transfers

• Direct deposits

• Paper checks

• Money orders

• Virtual wallets

• Digital transfer services (like PayPal and Wise)

Alternatively, you can easily set up and manage payments with Remote.

To learn more about how to pay independent contractors — including how we can help — check out our dedicated contractor payment guide.

How do I manage an independent contractor?

You may opt to work with certain contractors on an ongoing basis, or hire specialists to complete one-off tasks. Either way, it’s important to manage them properly.

Paying your contractors and remaining compliant are two important parts of this, but one of the biggest challenges is to mitigate misclassification risk.

You must also be aware of the relevant requirements in both parties’ countries. For example, if you work with a US-based contractor, you will need to file a 1099-NEC form for that contractor in the US, regardless of where your company is based.

To learn more about managing contractors and avoiding misclassification, check out our detailed contractor management guide.

Hire independent contractors with Remote

Building a global team is an exhilarating experience. And with today’s technology, there’s never been a better opportunity to leverage so much talent and experience — regardless of geography or borders.

You don’t need to be an international lawyer or HR expert to access this talent. So if you’re ready to hire your first independent contractor, come and see how our solutions and expertise can help you hire, manage, and pay the cream of the crop — no matter where they are in the world.