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International Contractors – The Risks Vs. Rewards

By August 16, 2016 October 17th, 2017 No Comments
International Contractors - The Risks Vs. Rewards

Working with international contractors seems like a viable option for your business when entering a new market. Before you start these types of working relationships, we want to make sure you understand both the rewards and risks involved with contractors.

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Rewards Associated with International Contractors

Using contractors overseas does have potential cost savings. Even though many employers pay independent contractors more money per hour, businesses save money on benefits, office space, and equipment. Unlike permanent employees, which you pay into social security, Medicare, unemployment, workers’ comp, and more, you simply pay contractors their wages and the tax withholdings is their responsibility. The overall payroll savings can be around 20% when using contractors for international work.

Other benefits associated with using international contractors is staffing flexibility. Whether you’re using a staffing agency to help find talent in your new market, or doing the recruiting yourself, you may find more candidates who are looking for flexibility over a full-time position.

In addition, contractors are usually experts in their trade. They make a living performing consulting work or skilled labor, so you’re likely to find highly qualified candidates to fill your open positions. The high-quality work can help you get your operation off to a great start when you’re entering the new market.

Risks Associated with International Contractors

Unfortunately, there are many risks when hiring contractors overseas. The biggest risk that sticks out is the lack of complete safety surrounding your agreement. If a contractor ends a job with you and believes, in any way, that they were working more as an employee than an independent consultant, they can dispute their agreement in labor courts.

International labor courts typically side with the contractor in these cases. If that occurs, your business must have a legally established entity in your new country (either through a foreign subsidiary or International PEO), and you may owe that contractor backdated withholdings, which include payments into their social security and pensions. Essentially, if a dispute occurs with your contractor and they win in court, they are classified as an employee and are subject to the same entitlements your permanent employees receive. It’s a costly situation that you want to avoid.

In addition, you have less control over international contractors. By nature, these types of employees must operate autonomously to be classified as a contractor. You cannot control the way they perform their work. Nor can you give them specific hours, or require them to work in your office.

Contractors can also come and go. Unlike working with a full-time employee, who will sign a contract for a specific period, your contractors can quit unexpectedly. This is a risk you take when working with independent consultants.

Finally, your IP is not protected by domestic agreements in overseas markets. It’s often difficult for small to midsize businesses to protect its IP because of the various laws.  Your protected IP in the US is not protected in your new country.

Moving Forward with International Contractors

Protect vital information, take the necessary steps to get a trademark or copyright in your new jurisdiction.  Protect your IP in international operations by working directly with an in-country attorney. The attorney can confirm or deny the ability to legally protect your IP under your target country’s guidelines.

Working with international contractors is risky, but there are ways to combat the negatives, and we can help. You can start by converting your independent contractor relationship into a compliant employee with FSaaS. Another option is signing a contractor to a locally compliant agreement and making sure they remain autonomous throughout the project. If you have questions about international contractors, contact us today, and we can guide you through the complexities.