Table of contents
- Strategies for Employers in Contracting International Talent
Strategies for Employers in Contracting International Talent
Global employers have an ongoing need when it comes to engaging talent, and are challenged to recruit and keep the right worker. Your company may have success with employing skilled professionals locally, but what if you have to look abroad?
- Is a full employment solution always the best for international workers?
- Do you need onsite or remote positions?
- Is your need for talent constant, or seasonal and cyclical?
Depending on how you answer these questions, you might find that contractors are a better choice in some circumstances.
Remote work roles are also becoming more popular in many industries.
Contractors are ideally positioned to work from their home country for foreign clients if you don’t need them onsite.
A good example is where tech companies hire contractors to fill specialised roles, even temporarily or until a full time position becomes available.
One Silicon Valley startup used this exact method to recruit remote IT talent while keeping costs down.
The startup needed to develop a new software platform that required specialised skills in a particular programming language.
The startup’s founder had difficulty finding a local developer with the necessary expertise and experience. Those who were available were too expensive for the startup’s budget.
After researching potential options, the founder decided to hire a software developer from India who had a strong reputation for proficiency in the required programming language.
The project was successfully completed on time and within the startup’s budget. The founder was impressed with the quality of the work and appreciated the cost savings that came with hiring a foreign IT contractor.
The contractor was happy to have the work and gain experience, and the company had a specialist to call upon in the future.
The experience opened up new possibilities for the startup to leverage global talent and resources, and the startup continued to work with foreign contractors on other projects.
There are several resources to turn to for global employers in contracting the right person for the job, but first the differences from true employment have to be understood.
Definition of a Contracting Employer
Most companies will have at least a few full time employees, and are used to being compliant with employment laws. But if you hire non-employees, you become a ‘contracting employer’, meaning that contractors are engaged to support your company’s mission.
Your company is still required to do this in full compliance with the laws of your home country, and the contractor’s residence.
When hiring either remote contractors or employees abroad, compliance should be a priority. Oftentimes, it is an easy area to overlook.
The primary compliance question is: what is a contractor in business operations? In particular, government authorities are concerned about the misclassification of workers. This is where a contractor is filling an employee-type role, but without benefits or labour protections.
What are the four factors used to determine whether someone is an independent contractor?
- Control over their own work schedule and methods
- Regular invoicing using a clear contract with your company
- Does not receive any employee-type of benefits or reimbursements
- Pays their own social contributions and taxes as required for self-employed
As long as these criteria are met you can easily hire a contractor to fill your temporary or long term needs.
How Does International Contracting Work?
Once you have recruited a foreign worker with the right skills, then the contracting process begins. There are several ways that employers structure global mobility hiring for contractors.
Employment Solution
If you want the contractor to work onsite in your home country, then you may have to use an employment solution to obtain a work visa. Your company sponsors the visa, and it’s more usual to apply for an employee. This also avoids the misclassification risk of contractors.
Umbrella Company Solution
The other alternative is to use an umbrella company, who acts as the de facto employer for the contractor. This is known as “W2 Contracting” in the US, where the umbrella company issues a W2 tax withholding form as with employees.
Self-employment Solution
Experienced contractors may be able to secure a self-employment visa or use their own limited company. In that case, you hire them directly to work onsite, just as you would with a local contractor.
Remote Contractors
If the contractor is remote, it’s all much simpler, as in the tech startup example. The contractor remains in their own country, you set up a contract and payment method. Even in this case, there are advantages to using an umbrella company in the contractor’s own country. The umbrella company facilitates payments, withholds taxes and is an intermediary to the contract.
Other benefits of umbrella companies include:
- Manages all client payments, tax withholding and any social contributions
- Issues you a payslip each month, to a local or foreign account
- Sponsors work permits
- Helps set up the contract with the client
- Moderates any disputes with your client
- Advises on access to totalization and double taxation treaties
Pros and Cons of Employees vs. Contractors
When Should Companies Hire Remote Contractors?
There are a few situations where hiring contractors is preferable to employees. Many examples of contract workers include contributing to finite projects or where a role is only needed part-time. A company can also utilise contractors during times of uncertain budgets for staff, or when a transition/expansion phase is approaching.
Most remote overseas contractors will work online in virtual roles, but there may be times when a business needs local sales agents or hands-on service reps to work on-call in a foreign country. These are just a few examples of how a contractor can step in to fill a useful role that does not require a full-time employee.
Flexibility
You can hire contractors as needed on a project basis, on commission, or for a set amount of time, depending on your business needs. This makes staffing much more flexible with no commitment beyond the current contract.
Employees often have statutory rights to notice periods and severance, reducing flexibility in termination or downsizing.
Reduced Cost
Contractors are less expensive to hire as no benefits are offered and there is no employer-required social contribution as with employees. You just have to be careful to avoid the appearance of ‘stealth’ employment and misclassification.
Overseas contractors may offer lower rates than workers in your own country, but with similar skill levels. This is known as ‘localising’ the pay rate to correspond to the contractor’s home country income levels.
Advanced and Niche Skill Set
Often contractors will have a specific skill set in their niche, where they have developed some advanced expertise. This can be due to an educational emphasis in their country, or talent acquired through experience at other companies.
Easier Access to Overseas Talent
An employee would require a local entity and full statutory compliance with employment laws.
It is much easier to hire an overseas contractor, as your company does not have to set up some type of local employment. A contractor can be brought on right away once the contract and payment method are agreed to and finalised.
How Can We Help You with Hiring International Contractors?
Contractor Taxation stands ready to help global employers in contracting international talent. We help employers structure global mobility solutions with a focus on offerings that are:
- Fully compliant
- Reliable
- Cost-effective
- Flexible
We understand the pressures that modern global mobility professionals face – not least of which is maintaining service levels across time zones, cultures and languages. Having suppliers who you can trust to meet their SLAs gives you one less thing to worry about!
We help you locate suppliers and ensure you are getting the best of breed solutions.
All of our partners offer services in the areas of employment, payroll, tax and immigration. Partners are reviewed by our supplier assessment criteria to aid our customers in quickly and accurately finding the right mix of services to meet their needs.
We’ve helped clients ranging from tiny technology companies to some of the largest multinationals with diverse requirements including:
- Helping a software company start a new consulting operation in China (local outsourced payroll, employers liability and professional indemnity insurance).
- Constantly maintaining an easy transition path to bring services in house when growth permits.
- Assisting an energy company with a compliance campaign for their teams throughout EMEA. (including standardisation of employment terms, immigration compliance and sourcing of localised payroll suppliers)
- Guiding a telecommunications firm with organising a 3rd party employment company in Germany. (including work permits, employment contracts, payroll, home and away from tax returns)
Our most common involvement is helping employers in contracting with:
- Work permits for employees/contractors doing fixed-term assignments in a new location
- Outsourced payroll and compliant tax solutions for regional offices and project teams
Please contact us for any of your foreign contracting needs.
FAQs by Employers
A contractor’s rate of pay may be the same as an equivalent employee with the same skills. But the employer will save on the contractor as there are no benefits or social contributions to pay. Remote contractors living in less developed economies will often earn less than a home country employee.
You may be self-employed, an employee of your own limited company, or a de facto employee of an umbrella company. Each type carries a different compliance requirement when contracting internationally.
Third party employment occurs when a contractor works through an agency/umbrella company to offer services. The end client receives the services, pays the umbrella company and disburses post-tax earnings to the contractor. Direct contracting as a self-employed removes the third party from the relationship, but the services to the client remain the same.
A contract employee is one who is engaged for a fixed term employment contract. A contractor may have a similar type of contract, but won’t receive employee benefits or entitlements.
The 1099 is issued only by US companies for contractor payments. So unless the international company is a subsidiary of a US entity there is no 1099 requirement.