An easy way to test the market in your global expansion is through foreign independent contractors, but contractor management is very difficult. Working with independent contractors gives your business the freedom to operate overseas without hiring permanent employees who require pricey withholdings and taxes. Full-time employees may not be in your budget if you’re in the global startup phase. While this is an effective model for expanding into new countries, contractor management does come with its own set of complexities and risks that you need to keep a tight grip on to avoid costly penalties. Below we discuss how you can manage independent contractors during your international expansion.
Step 1: Ensure the highest level of enforceability
Your team should be aware of the nuances surrounding independent contractors overseas, but before you dive any further into those details, you must first ensure that you have an enforceable contract. The basic requirements of a legally enforceable contract include an offer, acceptance of that offer, competent parties, lawful subject matter, mutuality of obligation, and consideration. Enforceability gets very difficult though across international jurisdictions, many times that is the crux of any international contractor agreement.
When working overseas, there may be other requirements such as making a copy of the contract in both English and the local country’s language. Work with an in-country expert to hit all of these necessary points during the creation of your agreement.
Step 2: Comply with local regulations during contractor management
It may seem obvious, but laws and regulations vary greatly across the world. Every country has its set of rules that it deems proper, and when you’re an international business, it’s your responsibility to keep a handle on these complexities. We suggest an international consultant to make sure you’re compliant or have a loyal member of your in-house team to manage the local regulations because these change often.
For example, in Brazil, an independent contractor is classified as an individual who provides services to the companies without a working employment link. In Brazil, many times the government finds ways for it to be illegal in practice. They must have the independence to perform the work without being subordinate to the company’s rules and regulations. Plus, there is no exclusivity in the relationship between parties. Labor legislation does not cover independent contractors, so they are operating at will.
Step 3: Protect your company’s intellectual property (IP)
In the first step, we discuss enforceability of contracts and here is a good place to mention that domestic agreements in overseas markets do not protect your IP. It’s often difficult for small to midsize businesses to protect its IP because of the various laws. What you need to know now is that your IP trademarked or registered in the US is not protected in any other country.
If you have vital information that needs to be protected, this should be the first step on your list. Some simple ways to protect your IP for international operations include 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. Be aware you may not have enforceability if something does happen), and register your IP in your target country.
Step 4: Use a project management system / tool
Manage your contractor's work through a project management system to ensure forward motion and completion of duties. By clearly defining workflows and providing adequate training about a process, the contractor will be more successful. Project management systems also lead to higher productivity and prevent tasks from being forgotten.
Step 5: Don’t treat contractors like employees
This may be the most important step because it applies to most foreign countries and their laws surrounding independent contractors. Since many global markets have generous benefits plans for their working citizens, there are strict rules regarding employment relationships. Overall, your contractor must be autonomous, and in no way, treated like an employee. You cannot give them a set schedule, they cannot be required to work in an office.
The problem employers face is that local employment laws can override your agreement. This means your “contractor” can bring claims against you since your foreign contract is unenforceable against employment violations. If your contractor decides to fight their job status in court and wins, they are then classified as an employee. This reclassification means that you are now responsible for all of the benefits entitled to your employees. In global markets, these are vast and not optional, which means it starts to get very pricey for the employer. You can learn more about these requirements in this post.
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Working with independent contractors overseas is complex and risky. The safest way to test a global market is through an International PEO or FSaaS. To learn more about your options for international business, contact us today!