How to employ contractors from across Europe and outside the country you are based in
In the tech and IT industries there is a growing trend to hire contractors to support business operations and projects. Forbes noted the predominance of contract workers at tech mogul Google in 2019, where they had 121,000 temporary, vendor and contract workers (TVCs) globally compared to its 102,000 full-time employees. Then, in 2020, the pandemic hit which made demand for skilled contractors to support tech and IT projects and companies skyrocket.
Whilst tech and IT organisations continue to consider how contractors can further support their business in the new normal, the prevalence of conferencing technology and managers gaining a high level of comfort communicating with and coordinating teams remotely, opens up a whole world of international contractor engagement possibilities.
Engaging contractors in other countries could be the answer to:
- Setting up offices in different countries
- Providing significant cost-saving opportunities
- Supporting local market research
- Consulting on geographical-based legislation, compliance and governance requirements
- The possibilities offered by foreign contractor support are endless!
But how do you go about navigating the different employment laws and regulations that govern independent contractors in different countries? We have put together a brief guide to help you get the most of your contractor engagements abroad.
How to define a contractor?
Contractors are individuals that offer a flexible alternative to permanent employment, providing skills or services to businesses for a set period. They may work on a contract basis for a set number of hours, a certain time frame, or for the duration of a project. With a number of transferable skills, contractors can often work with a variety of businesses or can work one or multiple contracts at a time.
Contractors can be self-employed or run their own limited company and it’s important to understand and be prepared for the changes coming into effect this April to IR35 legislation, as this will impact the way businesses engage contractors. It is now down to the employer to determine the status of a contractor and you will incur fines if HMRC determines it has been done incorrectly.
Why engage a contractor?
Many businesses choose to hire contractors when they need specialist skills and expertise to be applied to a particular project. This can be more cost-efficient than hiring a permanent employee, especially for projects or processes that are not required day to day. Engaging a contractor can be hugely beneficial for your business if you:
- Require specific or niche skills for a particular project
- Are looking to optimise growth and require an subject matter expert
- Need to manage uncertainty during economic downturn
- Boost inclusion
- Are in a period of technological change
- Require additional cover e.g. maternity leave or absences
- Seeking an immediate solution
5 Considerations when hiring independent contractors abroad
If you are looking to use overseas contractors, there are many factors to consider if you want to stay in compliance with local regulators and minimise operational costs such as:
- Status determination
As per IR35 legislation in the UK and the many equivalent laws in other countries, you may need to determine whether a contractor is an employee or self-employed for tax purposes.
- Local employment law
Just because an individual is considered a contractor in the UK does not mean that they are contractors in another country, as each has its own laws to determine this. Some countries require obtaining a contractor license which can help you avoid incorrect determination risks.
- Contractor agreement
A substantial written agreement is essential when you are hiring any contractor, especially if they are from overseas. Avoid using a template contract as you’ll need to take into consideration local labour law, scope of work, compensation value, project duration and other factors.
Paying contractors abroad is a lot more complex than sending money to their bank account. You’ll need to assess different payment options that make the most sense for both you and your new contractor.
- Local tax regulations
Independent contractor taxes tend to be their responsibility since they are self-employed. However, depending on what country they are working in the company may be involved in the process of compiling and reporting compensation.