Working with remote contractors: Expert Guide

For years, companies have been waking up to the benefits of remote independent contractors.

There are more than 1 billion contractors working all over the planet right now, and that number is only likely to grow as more businesses realize the benefits of bringing remote contractors onto their teams.

Working with global contractors means companies are no longer restricted to working with local talent. Any business can hire anyone, from anywhere, and have that person start working immediately, thanks to global contractor management services. However, if you have never hired, managed, or paid someone in another country, onboarding your first remote contractor can seem tricky.

To work with remote contractors, you must understand the legal and financial implications of these business relationships. Rely too much on a contractor, and you could run into issues of misclassification.

How can you pay workers in a country where your company has no legal presence? How do you deal with time differences, paperwork, and a remote company culture? What about the risks of legally misclassifying a worker in a different country? Can you convert international contractors to employees later? We'll answer all of these questions in this guide.

Fortunately, hiring remote contractors doesn’t have to be an ordeal. This guide will take you through the nuances of working with international contractors, from finding the talent to staying compliant.

What is a remote contractor?

An independent contractor is any person who works for a company without being subject to that company’s control. A remote contractor is an independent contractor who does not work at a location owned by the company, often in a different country. They can be as close as the same town, in another state or province, or halfway around the world and fulfill the role of an independent contractor.

Working with remote contractors can present some challenges. The most obvious one is that you’re not face-to-face with them every day, which can make management and communication tough. International contractors may be on the other side of a big time difference, may have language differences, and might live in countries where labor laws are different from those in your own country. So how can you manage a remote international contractor?

How do I manage a remote contractor?

Here are a few tips for managing remote contractors in other countries:

Communication

There’s a common cliche about remote teams: “It’s impossible to overcommunicate with a remote worker.” That’s not exactly true, though. No contractor wants you up in their business every second of every day. Contractors are independent by definition, which means they likely have work lives beyond their connection to your company.

Still, most people tend to under-communicate, which can lead to problems. When you manage a remote team, the casual communication common in an office environment doesn’t happen as easily. It’s important to schedule regular updates with your contractors, preferably through asynchronous channels, so both parties are always on the same page.

“Regular” is the key word here. You want your remote workers to understand what you need from you so they can do their work effectively. Don’t under-communicate or overwhelm — set communication expectations for yourself and your contractors, then live up to your side of the deal.

Asynchronous work

You pay contractors because they already know how to do something well, which means you can typically step back and work asynchronously without excessive oversight. But what’s asynchronous work, or “async?”

Async means a few things. The obvious part is not working with other people at the same time. More importantly though, async is a way to get more done with fewer interruptions based on a few key ideas:

• Multiplexing: Work on more than one project without waiting for others.

• Communication: Use the right communication tools for the right circumstances..

• Action: Always default to action, even if a supervisor isn’t there to tell you want to do.

The expectation that everyone on a team should take action creates a feeling of trust. You hired your remote contractors for a reason, and you should trust them to do the job, make appropriate choices, and take action. If you can’t trust your contractors, you either need to set clearer expectations or find new ones.

Documentation

Asynchronous work relies on one thing to function efficiently: documentation.

Documentation is anything written down in a place where other team members can read it, learn from it, and build upon it. When you’re working with a remote team, everything that doesn’t contain sensitive information should be publicly accessible. This creates a base of knowledge the entire team can draw from. We believe strongly in documentation at Remote, so we have an entire chapter in our handbook about it.

You may not want to provide your contractors with full access to your entire library of documentation, but you don’t have to. Share important pages and documents on an individual basis and lean on that documentation to work more efficiently with your remote contractor team.

Helpful resources for managing remote contractors

Managing a remote team can be a challenge, especially one with a mix of contractors and employees. With that in mind, we have a collection of guides that will help you manage your team no matter where they live:

• Reduce team stress. You can’t very well build an on-site yoga studio for remote employees. But there are things you can do to make real changes to your team’s stress levels. We put together a complete guide to managing remote worker stress to help you out.

• Think remote-first, not remote-friendly. Did your business go remote in response to the pandemic? You may be a remote-friendly workplace, but if you want to maximize your efficiency, you need to think in terms of remote-first operations. Our guide to remote work for transitioning businesses can help you make the switch, even if you still have office employees.

• Develop your remote work culture. Company culture is a weird thing. Culture develops organically in shared offices, but accidental culture isn’t always good culture. So how can you develop a sustainable remote work culture? We have a few tips to get you started.

How do labor laws in different countries affect hiring contractors?

Dealing with international labor laws can sound daunting, especially if you want to work with people from multiple countries. However, it’s not as scary as it sounds.

Most organizations don’t have the resources to manage the HR of hiring a global team by themselves, but global employment services make it possible for companies of all sizes to employ global teams. For contractors, the process is actually quite simple — despite certain challenges.

Not all counties define “contractor” in the same way. Some, like France and the Netherlands, require freelancers to be registered. Others examine each relationship to ensure that the contractor is truly free to work without excessive company oversight. In some countries, like Israel, a tribunal might reclassify a contractor as an employee. Tax forms for U.S. contractors can be tricky.

Penalties can be stiff if a worker you hired as a contractor is legally an employee. In Germany, for example, a company can face criminal liability if it fails to make social security contributions. Individual managers can also be held civilly liable. Criminal liability is also a possibility in the U.S., as are tax audits, labor audits and fines under state and federal law.

Despite the hangups of international labor laws, the process to work with contractors in other countries is straightforward. Find the person you want; negotiate a rate for the work; don’t create overstep your bounds as a client; then pay your remote contractors.

How to pay international contractors

Getting money across international borders can seem difficult at first. Depending on the country, you may need to pay the contractor in a certain currency, which can mean dealing with exchange fees. Many international contractor payment services charge their own fees on top of those — Remote, of course, charges no additional fees for international contractor payments.

The process to pay international contractors is simple. First, you must select an international contractor payment service. Next, you must check the rules of contractor payments for the country where your contractor operates. Do you need to send funds to a government-approved bank, for example? Or in a specific currency? Once you know the rules, you can send the payment. The process for doing so varies by provider, but the concept is easy enough. The most important thing is to pay your contractors legally, in full, and on time to establish a good relationship.

How much should I pay international contractors?

First things first: you probably should not provide your contractors with a regular salary. Make sure they are sending invoices for you to pay. This extra step may seem unnecessary, but it can help protect you from accusations of misclassification, which we will cover later in this guide.

With that out of the way, let’s talk compensation. You and your contractor should negotiate payments before beginning any work. There are a few ways to pay a freelancer:

• Time based: Time-based is a common method of paying contractors. They may have an hourly rate, or you might be offering hourly payment. Some contractors might be paid by the day (called a day rate), which is common in certain countries.

• Project based: This means you and the contractor negotiate a total payment amount for the completion of a specific project. You might ask a software engineer to write a program for a specific amount or a writer to complete a blog post for a lump sum. You may repeat project-based rates across multiple deliverables or set different amounts for each individual project.

• Retainer: You can keep a contractor on retainer by paying a lump sum (often at the beginning of each month or quarter). This amount covers work up to a certain amount, after which the contractor bills you for anything extra. Most contractors working on retainers negotiate a specific number of work hours or deliverables. Contractors working on retainer should still provide you with invoices, even if you don’t owe anything extra, to reinforce the contractor-client relationship in the eyes of the law.

• Upfront: You pay before the work is done. Some contractors will require some of their payment before beginning work and request the rest after the project is completed.

• On delivery: You pay once you receive the completed project.

Setting a specific rate can be tricky. Consider what you would pay a local worker for the same work; the cost of living in the freelancer’s area; any expected benefits; and the going rates for contractors in the industry. Most contractors set their own rates, but you may have room to negotiate.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

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Do remote contractors have to pay taxes?

Yes, but your company is likely not liable for making any payments on their behalf. In the U.S., contractors must make estimated tax payments on their own. You’re responsible for claiming them as contractors and filling out the applicable forms, but they pay their own taxes.

The U.K. requires companies hiring contractors to follow off-payroll working rules (IR35). You may also be required to pay a consumption tax on your contractor invoices, which you may or may not be able to recoup. Common consumption taxes include sales tax, goods and services taxes (GST), and value added taxes (VAT).

How do I ensure compliance when hiring remote contractors?

Failing to comply with local laws regarding contractor misclassification can seriously affect your business. You may be subject to fines and penalties, which could even include a stop-work order for your company in that country.

Some countries may forcibly reclassify contractors under different circumstances. In Spain, for example, you may be responsible for providing benefits to contractors who work with you for a long period of time or who derive most of their income from their work with you. Given that labor laws change constantly, it’s important to have a knowledgeable local partner everywhere you hire.

Who qualifies as a remote independent contractor?

Remote workers typically come in two flavors: contractors and employees. The U.K. differentiates between employees, workers, and contractors, but in most cases, people are either employed by a company or not.

There’s a big difference between the two. Contractors are hired to provide specific services, often for a fixed period of time or on a deadline. Contractors sign a contract with a client and work for an agreed rate. Depending on the laws of their country, they may need a business license to operate as a remote independent contractor.

Employees, on the other hand, work directly for the company, usually for regular hours. You can tell them how to do their job and provide them with benefits and equipment.

Not sure whether your contractor is really a contractor? Consider these questions:

1. Can your remote worker set their own work hours?

2. Does your worker get to choose how they get their work done?

3. Is the worker engaged with your company for a fixed period of time?

4. Have you avoided hiring this worker for multiple fixed-term contracts in a row?

5. Does the worker tell other people they are a contractor or freelancer?

6. Are they only working on their own projects, rather than supervising other workers?

7. Do they work for other organizations?

8. Can they do their job without training?

9. Are they training other workers?

10. Are they getting a salary rather than submitting an invoice?

11. Has the contractor registered for statutory social insurances and obtained required professional insurance policies?

If you’ve answered yes to the above questions, you probably have a contractor-client relationship. Otherwise, you may have a misclassified employee on your hands, which can lead to problems.

What are the penalties for misclassifying workers?

As mentioned earlier, remote workers are either contractors or full-time employees. It's very important to make sure your workers are correctly sorted into the right category.

If you classify someone as a contractor who should be an employee, your company could face fines and penalties from the governments involved. In some cases, poor classification can even lead to questions about who actually owns the work produced. Imagine the headache if your contractor in another country claims to own IP they developed for you. Fighting an intellectual property battle in foreign courts can be a difficult and expensive proposition, even for large companies.

Our guide on the penalties of misclassifying contractors outlines more of the dangers of misclassification. However, if you are diligent with your compliance, you will never need to worry about facing fines or other punishments.

What to do before hiring your first global contractor

Before you make your next contractor hire, think about these questions:

• Define the scope of the project. How big is the project? How long will it take? Are you planning for a string of projects or just one? Remember, some countries consider contractors retained on a continuous basis to be employees.

• Figure out your budget first. Be clear about what you can afford before communicating with contractors. You may not be able to afford the top rates, but you may not need the absolute best talent for every project either.

• Create a system for communication. Will you invite your contractors to a shared Slack channel? Create a Google Doc or Notion page to work asynchronously? Whatever your plan, set expectations from the beginning to avoid miscommunications.

Start working with remote contractors today

Onboarding a remote contractor from another country doesn’t need to be complicated. A partner like Remote can make it easy for you to hire, pay, and manage your contractors all over the world, with no hidden additional fees or surprises.

Check out our international contractor management services today. You can sign up in minutes and begin onboarding and paying your international contractors right away.

If you have questions, reach out and let us know! We would love to help you navigate all of your international employment needs.