When companies expand internationally to areas where they don’t have an established entity they’ll often consider hiring independent contractors. In doing this, they surmise, they’ve found a successful way to skirt the country’s labor laws while maintaining the ability to launch business in their new country of choice.
While this choice seems OK at the start, hiring independent contractors instead of full-time employees in international markets can actually come with two significant problems. Globalization Partners Vice President of Sales Jane Booth explains what these problems are, and how you can avoid the “contractor trap.”
Back taxes, penalties, and fines
Companies that go the contractor route run the risk of “misclassification.” This is when a country’s government decides, based on a few key factors, that the worker should actually be represented as a full-time employee.
Were this to happen, the company in question could owe thousands in fees, payroll taxes, mandatory benefits, penalties, and interest.
A bargaining chip for the candidate
The above scenario represents a serious risk, to be sure, but a company has to consider that candidates in countries are used to working as full-time employees. They’re often familiar with the regulations around being hired as a contractor, and they know that they could easily turn whistleblower and be entitled to all of the above.
That employee could ask for a one-time 6-figure payout just to leave.