Hiring contractors located in foreign countries is now easier than ever, given the technology and communication tools available.  An international contractor may be either a resident of a foreign country, or an expat who chooses to work remotely away from home.

At first it might seem logistically and legally challenging to hire remote contractors abroad, but this guide will show you the steps to follow and pitfalls to avoid.

Why Might I Hire an International Contractor?

A contractor living or working in another country can fill a variety of roles, such as providing technical skills for an IT start up, local sales reps and even customer service positions.  There are some good reasons to hire an international contractor, including:

  • Access to talent and skills that may not be widely available in your company’s home country
  • Depending on the contractor’s location, you may be able to get equivalent skills at a lower cost
  • Contractors in sales positions will already have a personal and professional network in their country/region
  • Native resident contractors won’t have problems with language and culture
  • Contractors can be hired for one-time projects or longer engagements, without needing a commitment beyond the contract terms
  • It is much easier to hire a foreign contractor than to set up payroll for a remote employee

What Should I Consider When Hiring an International Contractor?

Even with the advantages of hiring an international contractor, there are still a few considerations for your company.

Worker Classification Laws

Every country has its own labor laws that define what is a contractor vs. an employee, and you should check on the rules in the country where your contractor lives or works.  If you treat the contractor as an employee under those laws, then you might be facing reclassification and payment of fines, back taxes and employer social contributions.

Tax Withholding

If your contractor is truly self-employed, you still might have to report and/or withhold taxes from their payments, if their country requires it.

Cultural and Language Barriers

Even when a contractor has the right skill set, there could be issues if there are wide differences in language or culture from your home country.   Business practices, such as how to structure the contract or measure performance, may need extra attention.

How do I Hire and Onboard an International Contractor?

There are best practices to follow when hiring and onboarding a contractor, for both verifying their status as well as outlining expectations and work guidelines.

Have a Written Contract

This is an essential step, especially when hiring a remote international contractor. The contract should specify all terms agreed to, time frame, payment and deliverables. If for some reason there is a dispute, you may find the contract is subject to local commercial law, rather than those of your home country.

Provide Contractor Hiring and Work Policies

It is equally important to have a written policy for hiring contractors and engaging them for work.  These policies can be helpful if your contractor’s status is called into question by authorities, or if your contractor is unclear about how they are needed to perform.  Having a policy can also help overcome any potential misunderstanding of their role, where they might have different expectations from working within their own country previously.

How to Pay an International Contractor

Every contractor is concerned with timely payment, especially when those are cross-border payments.  You do have a number of options for paying international contractors, and the choice will depend on convenience vs. the need to verify their work product.  Third party payment platforms such as Paypal or Transferwise are secure, simple to use and cheaper than a wire transfer, but require having some type of account for both parties.

If you are new to working with international contractors, you might consider using an umbrella company to act as an intermediary for payment and verification.  They can also handle local tax withholding and social contributions, if those are required, and this is a good way to reduce the risks of working with international contractor.

What are Common Compliance Issues When Hiring an International Contractor?

When you hire an international contractor, you will have compliance obligations both at home and in the foreign location.  This dual legal obligation is similar to hiring employees abroad and you will have to comply with the following:

  • Tax reporting and withholding rules in both countries
  • Having a contract that meets local standards
  • Meeting the classification standards and for contractors
  • Making sure that the contractor is a non-resident in your home country and does not have any tax or other obligations

Hiring an International Contractor in Germany vs Japan

Hiring a contractor will differ between countries, and that may affect your decision on where to recruit a contractor.  This also becomes a factor if you hire a contractor who wants to work in a country that is different to their residence.

German Contractor

For example, your Swiss company may want to expand and hire a contractor in Germany for marketing and sales work.  If you hire a contractor in Germany, your contractor must meet the strict self-employment criteria there, otherwise you could find yourself with unexpected employee obligations.

If this happens, you will then need to find a way to run payroll and withhold taxes, which reduces the advantages of using a contractor in this case.

Japanese Contractor

In contrast, if your Swiss company decides to hire a contractor in Japan for the same type of role, you will face different challenges.  Your contractor may be valid self-employed in Japan, but now you will have a number of challenges with cultural and language differences, as well as time zones and communication, none of which would be a factor with a German contractor.

However, because you may be unfamiliar with the Japanese way of doing business, your contractor could be a real asset to your company — as long as you can set up a compliant contract and clear policies to guide them.