A global contractor offers professional services to a company while residing in a different country than the business.
A global contractor is also called an international contractor or foreign independent contractor. Employers typically engage global contractors for temporary projects when they need a specific skillset or rate that’s not locally available.
Companies also engage global contractors because it allows them to hire talent quickly and cost-effectively and tap into new global markets without having to first set up foreign entities.
Global contractors vs. employees
Global contractors have a high level of work autonomy: They’re responsible for managing their work schedules, methods and processes, and deliverables. They also use their own equipment and supplies to perform their work.
In contrast, employees have less autonomy. Employees are subject to the employer’s supervision, have work schedule obligations, and must follow company policies and procedures. Employers also provide or pay for their employees’ work equipment and supplies.
Global contractors are hired for specific tasks and typically receive payment per project or upon completion of service, depending on the terms outlined in their contract. They are not entitled to employee benefits, and they fulfill all tax obligations independently.
Employees receive a regular salary or wage on a fixed schedule and are entitled to statutory benefits, such as paid time off, retirement plans, and health insurance. Also, the employer withholds and contributes to taxes on their employees’ behalf.
Learn more differences in our guide: Should You Hire Contractors or Employees?
Why companies engage global contractors
Global contractors offer companies many benefits, including the following:
- Access to top global talent. Employers can target talent with the best skills for the task, no matter where they are located. Global contractors with specialized expertise, background, and cultural diversity also bring a unique perspective to the company.
- Quick entry into foreign markets. Global contractors can provide a company with insights and connections into new markets for future expansion without spending time and resources on entity establishment.
- Easy onboarding. Employers hire contractors temporarily based on their skills and expertise, so contractors do not require the same training or onboarding associated with long-term employee investment. Onboarding global contractors for payroll is also straightforward because they handle their own taxes and benefits.
- Flexible commitment. Global contractors are typically short-term hires and allow employers to easily grow or reduce their workforce as needed.
- Cost savings. Global contractors save employers money because they are not subject to payroll taxes, employer contributions, overtime pay, or employee benefits.
How to hire a contractor internationally
Employment and worker classification laws vary around the world, so employers must understand local regulations before engaging contractors in a particular market. The following steps are general guidelines to help you hire global contractors:
- Create locally compliant contracts. Develop a written contractor agreement that follows local regulations and outlines the services, terms, payment, and confidentiality details.
- Collect required tax forms. Collect the appropriate tax paperwork to determine proper tax reporting and withholdings and to ensure adequate foreign contractor classification.
- Establish the contractor payment schedule. Agree on a consistent pay schedule with your contractor, whether that’s payment per project, after service completion, or otherwise. Include the established pay schedule in the contract.
- Determine the method of payment. Choose your payment approach based on local regulations and method availability. You could use an international bank transfer, an international money order, an online money transfer provider, or an automated contract payment platform.
- Ensure compliant contractor classification. Countries have regulations designed to protect the contractor’s interest by setting boundaries around a contractor’s financial and behavioral relationship with a company. Ensure you’re in compliance with these regulations so you don’t risk misclassification and subsequent penalties.
Risks of engaging global contractors
Because employment and classification regulations vary, employers may face risks when engaging global contractors. These risks include the following:
Contractor misclassification is the illegal practice of categorizing employees as contractors, which denies them their entitlement to benefits and other legal protections.
For example, if an employer engages a contractor for a short-term project but then attempts to control their work schedule, hours, and location, the employer may trigger misclassification, which would mean the contractor is entitled to employee benefits and legal protections.
Contractor misclassification can lead to severe penalties, including unpaid taxes, fines, employee back pay entitlements, and legal ramifications.
Noncompliance with local laws and regulations
Companies that do not comply with the labor and tax laws of the contractor’s home country may face legal issues. Employers must understand workers’ rights and tax withholdings and tailor the contractor agreement accordingly.
Managing contractors in multiple countries
There are added complexities to managing and paying contractors in several countries, including dealing with various time zones and exchange rates, potential payment errors and delays across multiple countries, cultural differences, and varying legal requirements.
How to mitigate risk when engaging global contractors
Despite the risks of engaging contractors, employers can maintain compliance with due diligence and reap the benefits of working with global contractors.
Work with a legal expert
Employers must understand local employment and classification laws and draft compliant contractor agreements that adhere to country-specific regulations and contractor tax requirements.
Employers who want to engage global contractors should seek legal counsel from experts who understand international employment and classification laws in order to mitigate risk and ensure compliance.
Convert contractors to employees
Employers may also consider converting global contractors into full-time employees. Contractor conversion allows businesses to avoid the risks of misclassification and ensure hiring compliance.
Plus, contractors often already have the skill sets and experience employers need to achieve business goals. Converting contractors to full-time employees allows companies to invest in a high-quality distributed workforce that will help meet future business needs and growth.
Velocity Global helps you quickly convert global contractors to employees in more than 185 countries. Learn more about our Contractor Conversion solution that helps organizations stay on the right side of labor laws while growing their company.