Hiring Remote Contractors Overseas: A Guide for Employers
For employers that are either starting up or expanding, the use of remote contractors instead of employees can be very appealing due to the ease of hiring and low commitment level. In this digital age, office-based work is not always required, and there are a growing number of independent contractors available in every field who work remotely.
The potential benefit of hiring remote contractors is amplified when you can access skilled workers overseas, giving your company the opportunity to hire talent literally anywhere in the world. This does mean having to establish a way to recruit, hire and pay contractors in an international setting, and this guide will give you the basic strategies that you need when hiring even a single overseas contractor, or to build a remote global team.
What is a Remote Contractor?
A remote contractor working overseas is an independent professional who offers their services to the hiring company from their home country (or chosen residence by an expat). It is similar to having a remote employee inside your own country, as the worker will operate virtually out of a home office or shared workspace, but just from a different country.
The differences and challenges with an overseas remote contractor will be time zones, language and culture as well as setting up a contract/payment method that gives both parties some assurance that all expectations are met.
Why Hire Contractors Overseas?
Due to the apparent logistical challenge of hiring a contractor overseas, a company might wonder what the advantages may be. Here are a few:
- Access to unique talent not available in your own country (IT/financial/support skills, knowledge of foreign markets)
- Hiring a contractor can carry a lower relative cost in some countries
- Ability to access the contractor’s own network in the country (useful for sales/marketing work, or local expansion plans)
- Ability to work as a real-time point of client contact in a foreign region
Which Countries are Best Suited for Hiring Contractors?
There are countries and regions where companies may want to focus on when recruiting an overseas contractor. One thing to consider is building regional teams of contractors who are in similar time zones, and even better if they are near your home office or in a region where you service clients and customers.
For example, a US company could recruit from all of North and South America with few barriers of distance or language. But that same company might be challenged to hire from Asia unless the work can be completed independently with little real-time interaction.
If you hire a contractor from a less developed country, you may find that there is a lower cost for their skills than in your home country and they may bring a higher degree of motivation. This is an advantage for startups or for companies with reduced staffing budgets due to the COVID pandemic.
It is difficult to conclude that one country or region is best in terms of skill set, although a country like India is well known for IT expertise, and contractors in the EU will have the advantage of mobility and contacts throughout the region. The same could be true for contractors that live in ASEAN nations. This could be helpful for companies that want to explore new regional markets, or just build a remote team from one area.
When Should Companies Hire Remote Contractors Instead of Employees?
The question does come up of whether it is really better to hire a contractor instead of an employee for a given position or project. After all, employees do bring greater stability and commitment to a company, especially for key positions.
Nonetheless, there are good reasons to hire contractors in some circumstances:
Contractors are well suited to short term projects with no long-term commitment
Some positions are project-based or hourly, and contractors are used to filling these types of roles, either occasionally or as regular business support. A company might use a contractor in this way as a transition step to adding more full-time staff, or to fill in for specialized projects.
Easier to hire a contractor than go through the steps of setting up foreign payroll for an employee
Hiring a remote employee in a foreign country is far more complex than hiring a contractor, and for an employee, the company will need to follow local employment and labor laws, as well as run a legitimate payroll. In contrast, the contractor handles all of their own registration and tax withholding tasks as a self-employed, so no further steps are required for the hiring company.
If a contractor does not work out for some reason, it is a simple matter to not renew their contract
It is difficult to ‘try-out’ a foreign remote employee, even with a probation period, given the time and cost to just set up local employment. Contractors on the other hand will only be hired repeatedly if they perform well and can be hired for a short initial contract to see how they do.
Setting up a Contract with Remote Contractors
When you hire a contractor, it is essentially a B2B relationship with a self-employed professional. This means that the contract that you set up will determine the scope of the entire work relationship, so it is critical to be clear on the terms and parameters.
Experienced contractors may have their own contract template that they use, but the hiring company is free to offer their own. Either way, the contract should contain the following:
Job and Responsibilities: Specify expectations on role, deliverables, performance milestones
Compensation Structure: Project-based, hourly, or commission and when payment is due, as well as currency to be used
Termination Policy: Best to have a notice period (e.g. 30 days) to prevent unexpected contract interruption for either party
Non-disclosure Agreements: Specific to the business, region and duration (global, open-ended NDAs can be difficult to enforce in some countries)
Intellectual Property: Prohibitions and penalties against misuse, sharing or theft
Local Contractor Laws and Regulations: Any rules on withholding or contributions for contractors in the host country
One consideration is that contract enforcement may not be possible across borders, so the type of payment/contracting solution you select will be crucial to protecting your interests for the duration of the contract.
Options for Paying Remote Contractors Overseas
Once you have the contract set up, the next step is to decide how your new remote contractor will be paid across international borders. There are three basic choices, depending on contractor preferences and company policies.
This is the simplest method, where the contractor invoices the company at regular intervals or as projects are completed, and the company remits payment. It does require some level of comfort and trust since there is no third party to assure payment or performance. In the event of a conflict, there may be no way to resolve it.
Payment and Invoice (P&I) Services
A P&I service is a 3rd party payroll company that handles the invoicing on behalf of the contractor and facilitates gross income and salaries to the worker. (Note: they do not subtract or deduct taxes as this is solely the worker’s responsibility and removes the liability from the employer)
P&I relieves both the contractor and company of the administrative tasks and gives some oversight to the transaction. This is especially helpful for cross-border contracts, and when a company is hiring multiple remote contractors and needs a cheaper solution.
An umbrella company will act as a third-party intermediary between the contractor and hiring company, and will also handle any contractor withholding in the host country. It is the most complete contracting solution to minimize any risk to the transaction.
The umbrella company will confirm contract performance, invoice for the worker’s income, and pay the net income to their local bank accounts. They will also manage and contribute the worker’s taxes and social security to the inland revenue. This option carries more expense than P&I, but due to the fact that both the contractor and company benefit, the cost may be worth it and could be shared equally.
Are There Any Risks When Hiring Overseas Contractors?
Hiring an overseas contractor (or employee for that matter) is not entirely risk free. There is always the chance that a contractor does not fulfill the terms of the contract as agreed, even if payment has been made. Enforcement of contracts internationally is not an easy task for either party.
Along the same lines, if a contractor misuses intellectual property or business information for their advantage, there may not be much recourse so care should be taken when sharing confidential or proprietary information. Another risk is that a contractor does not have the same commitment to your company as an employee, and could take another position or job with little notice leaving you without someone in the role.
How Does Contractor Taxation Help Overseas Employers?
Contractor Taxation has a fully vetted network of P&I services and umbrella companies that can service contracts in any region in the world. We can guide you in selecting the best payment solution for your remote international contractors and act as an ongoing resource as you change or expand your use of contractors.
This eliminates the uncertainty of engaging contractors, especially if you are new to hiring overseas workers. Please contact us with any questions and to learn how overseas contractors can be easily integrated into your workforce. International remote contracting should only increase in popularity, but you will want to proceed with an experienced partner.