By Globalization PartnersAugust 2020
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When you’re looking to expand operations globally and hire team members in different countries, hiring contractors is an option many companies explore. A contractor with specialty knowledge and experience can help your company with a specific project, and since they aren’t a full-time employee, your company does not have to set up a legal entity.
While this may sound easy, there are inherent risks when hiring contractors. The use of a contractor may not provide your project with the necessary long-term consistency. If they aren’t a full-time employee, but work full-time hours, your company could be liable for contractor misclassification penalties if the arrangement is discovered by local authorities. There’s also a question of who owns the contractor’s intellectual property.
The good news is that there is another option for hiring internationally that doesn’t carry the same risk as hiring contractors, and doesn’t require entity setup. The Employer of Record (EOR) model can help you add employees to your team through their locally compliant bodies, while also helping reduce risks and costs.
What’s the Difference Between Hiring a Contractor and Hiring Through an EOR?
The main difference is that a contractor is someone hired on a short-term basis, doesn’t work exclusively for you, and has a roster of different clients, of which your company is just one.
When you hire through an EOR, you’re hiring full-time employees who will work, report, and be managed directly by you.
Note: Every country has a different set of rules for regulating company-contractor relations.
What is Contractor Misclassification?
Each country has its legal definition of a contractor. When hiring a contractor, it’s essential to have a complete understanding of the local laws.
In China, for example, the government considers any worker who contributes to an organization’s business, or who is subject to a company’s rules or policies, an employee.
If local authorities determine that your contractor falls under the legal description of an employee, you may be subject to penalties for taxes, benefits, and interests on any salary paid to the employee.
Hiring Through an Employer of Record
The main advantage of hiring through an Employer of Record is the EOR takes on all the risk and manages HR, tax, finance, and legal matters related to your international employee. When you don’t have to deal with local laws, this frees up time to focus on other areas of your business.
How Do Contractors and an EOR Fit Your Business?
Whether hiring contractors or hiring through an EOR is right for your business depends on your goals. If you are looking for a short-term solution for a specific project, then a contractor may be your best bet. If you’re looking to start expanding into new international markets and intend to hire full-time employees that will deliver consistent results, consider hiring compliantly and quickly through an EOR.
Looking for More Information?
Do you already have contractors located in another country that you’d like to hire full-time? We can help. To learn more, read The Easiest Way to Turn International Contractors into Employees.