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Contractor Conversion: Going From Misclassified to Compliant

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Misclassifying contractors is a fairly common occurrence for employers—and comes with a hefty price tag. Misclassification occurs when an employer purposely or inadvertently classifies a worker as a contractor but treats them like an employee by law.

In May 2023, the sporting goods giant Nike® faced potential tax fines of over $530 million for possibly misclassifying thousands of workers as contractors when it should have designated them as employees. 

HR startup Deel is also in hot water for potentially similar practices: A California Senator is urging the state’s Labor and Workforce Development Agency to investigate their business practices. The company possibly hired hundreds of employees but incorrectly classified them as independent contractors. If the investigation shows misclassification occurred, Deel could also face hefty fines and legal ramifications.

When a company incorrectly designates employees as contractors, it risks financial consequences and reputational damage for noncompliance.

Velocity Global helps companies remain compliant by assisting with converting misclassified employees in more than 185 countries, ensuring their full-time talent is legally employed and offering peace of mind.

Read below to see how Velocity Global helped one customer work through misclassifying contractors.

Misclassification can happen to anyone

Many companies inadvertently face worker misclassification—engaging global contractors without realizing they should classify their talent as employees based on local employment laws. One such company, a cybersecurity organization focused on AI, experienced this common issue and contacted Velocity Global to help.

Illegal employment contracts

The cybersecurity organization was hiring globally and trusted their employer of record (EOR) at the time to help mitigate compliance risks. However, problems arose when a member of the company’s general counsel reviewed employee contracts issued by their EOR provider.

The general counsel found that their EOR partner had been distributing illegal, noncompliant employment contracts and agreements to new talent, thus misclassifying their talent as independent contractors. 

Once they discovered the issue, the cybersecurity firm knew they needed to act quickly to transition their contractors to full-time employees. Because the company had recently gained funding to expand its global operations, it needed to shore up its workforce management and ensure hiring compliance as it grew into new markets.

Compromised intellectual property

As a result of the illegally issued employment agreements, the cybersecurity company’s IP protection was also at risk. Because the contracts were noncompliant and improperly tied to registered entities, they invalidated any IP protection put into place.

When the cybersecurity company discovered their current EOR wasn’t compliant, they turned to Velocity Global.

Finding the right partner to reach full hiring compliance

Righting hiring compliance errors was paramount to the cybersecurity firm to avoid severe penalties and reputational damage. The company knew it had to reclassify its talent quickly and compliantly, so it turned to Velocity Global for help.

Unrivaled knowledge and expertise

Initially referred by a different customer of Velocity Global, the cybersecurity company was aware of Velocity Global’s in-depth knowledge of entity establishment, the role of EOR, and its legal expertise in global hiring compliance.

Here’s why the cybersecurity firm chose to partner with Velocity Global to help bring them back into hiring compliance:

  • Outside legal review. Global law firm Baker McKenzie thoroughly reviewed the cybersecurity company’s employment agreements to ensure compliance with local laws in each market where they operate, helping Velocity Global gain the cybersecurity firm’s trust.
  • Trusted referrals. The cybersecurity firm received a referral from a security solutions company to partner with Velocity Global, helping establish trust in Velocity Global overall.
  • HR guidance. While onboarding, Velocity Global’s dedicated account team worked closely with the company’s internal HR professionals to ensure all employment agreements were drafted compliantly.
  • Fast action. Because the cybersecurity firm was growing and extending new offers to international talent throughout the EOR transition, moving quickly was critical. Velocity Global drafted and ensured compliant employee agreements within weeks to avoid delaying the company’s growth.
  • Fortified IP protections. Protecting intellectual property was vital to the firm, so Velocity Global included the necessary IP protections in all new and existing employment agreements to ensure the contracts would hold up in a court of law.
  • Transparent pricing. Velocity Global provided transparent pricing to help the cybersecurity firm understand the finer details of the partnership and have peace of mind in their total cost of ownership. 

Unhindered hiring compliance and expansion 

Despite the massive undertaking, Velocity Global helped the cybersecurity company successfully transition contractors to full-time employees in multiple countries, including Canada, France, and the U.K.

Velocity Global provided the firm with an EOR solution that now enables them to hire talent in more than 185 countries without the need for entity establishment.

Make misclassification a thing of the past

After partnering with Velocity Global, the cybersecurity firm compliantly transitioned all its contractors to full-time employees, protected their intellectual property, and avoided any legal and reputational ramifications from potential misclassification. 

Thanks to Velocity Global’s EOR solution, the cybersecurity agency has now retained and hired employees in more than seven countries in the EMEA & LATAM regions.

But most importantly, the cybersecurity company now has the peace of mind that Velocity Global will ensure it continues to compliantly hire new talent. Velocity Global’s expertise and far-reaching global network won the company’s trust and gave them the confidence they needed to operate legally across the globe.

Seamlessly convert contractors with Velocity Global

Misclassification is a common mistake and poses a risk to companies that hire global contractors. Regardless of where companies are in their hiring process, Velocity Global has the expertise, experience, and capabilities to help them convert contractors easily without delaying business operations.

Contact Velocity Global today to learn how we can help you create the workforce you need to grow your business beyond borders and accomplish your long-term goals.

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