By Globalization PartnersOctober 2018
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Companies have different options when it comes to hiring international employees. However, before deciding whether to hire part-time workers, full-time employees, or contractors, it is essential to know and understand the types of workers there are, not only to choose the best fit for their business goals and needs, but to avoid penalties or fines and back taxes for misclassification.
International worker classification
There are three broad worker status classifications that are common globally. However, the rights and benefits each group is entitled to may differ between countries.
Full-time employees have an agreement with their employer to work at least 35 hours a week (typically) and receive a salary and benefits in return. Full-time employees have more rights and better access to benefits than contractors or part-time employees, such as minimum wage, paid vacation, sick pay, parental (paternity/maternity/adoption) leave, emergency leave, social safety net contributions, and statutory advance notice if their employment is ending.
Notably, at-will employment is unique to the U.S., and organizations should carefully consider the risks of firing full-time employees who are based internationally.
Part-time employees work fewer hours than full-time employees but receive many of the same benefits of full-time employment. Part-time employment is common in the U.S., but less common internationally, especially in Eastern Europe.
Part-time employees generally have rights to a salary that’s equal to full-time employment rates, pension benefits, holiday leave, social safety net contributions, training and advancement opportunities.
Contracted workers — also known as “gig workers” — are a growing subset of the workforce, with companies like Uber, Postmates, and Amazon relying on independent contractors to support their companies’ services. Reliance on independent contractors may become even more common among organizations as they grow globally, as it’s often seen as a convenient way to leveraging human capital on a global scale.
While on-demand work may initially seem like a mutually beneficial situation for both the worker and the employer, the reality is that these on-demand workers do not typically have access to employment-related benefits, such as vacation, sick time, and paid parental leave. Additionally, in most countries, on-demand workers are not able to access social safety net programs, such as worker’s compensation, and don’t make social security contributions. As a result, the courts, legislatures, and companies both in the U.S. and abroad are challenged with how to correctly classify these workers and provide them with some access to benefits.
International workers’ rights and benefits
Individual countries vary on how to determine if workers are employees or independent contractors leading to different outcomes, even within the same company.
1. Worker classification in the U.S.
Although there is no global test for independent contractor classification, tribunals often consider factors such as whether the employer has control over the worker, whether the worker has a trade or independent business in that line of work, and whether the work is done outside the usual course of the employer’s business.
These factors are laid out in the “ABC test” for classification, which is applied in some states, including Massachusetts, and was adopted earlier in 2018 in California. Additionally, throughout the U.S., courts commonly use a “right -to-control” test in assessing employment misclassification claims. The “right-to-control” test considers all factors of the parties’ relationship to conclude who has the right to control the means and manner by which the work is performed.
In a recent New York decision, for example, couriers for delivery service, Postmates Inc., were deemed independent contractors. The court used the “right-to-control” test to determine there was a lack of requisite “supervision, direction, and control necessary to establish an employer-employee relationship” between the couriers and the company.
2. Worker classification in the UK
In the UK, a new worker classification was created, which entitles part-time workers to certain rights and protections, including statutory rights. However, they may not have access to the same benefits as full-time employees. Also, the government provides detailed guidelines related to part-time workers’ rights, where it’s stated that “Part-time workers are protected from being treated less favorably than equivalent full-time workers just because they’re part time.”In the UK, a new worker classification was created, which entitles part-time workers to certain rights and protections, including statutory rights. Click To Tweet
Contractors may be both workers and employees if they’re hired through an agency, and there is a special scheme for contractors, depending on the industry they work in.
Other classifications of workers that exist include:
- Apprenticeships, provide on-the-job training across a variety of sectors. However, apprentices may not have access to the same rights as full-time employees, depending on the location of the program. In some countries, like the UK, apprentices have some rights, which may include holiday pay.
- Self-employed workers are similar, but not quite the same as contract employees. Rights for self-employed workers vary depending on their residency, but they generally do not have the right to benefits like minimum wage and paid leave.
3. Worker classification in Europe
The Court of Justice of the European Union (CJEU) stated that national courts are responsible for worker classification, and whether contractors should be considered as employees entitled to employment rights. However, the CJEU noted that being classified as an independent contractor under national law, does not prevent a person from being classified as an employee under European Union law.
In Italy, there are stringent limitations to the use of agency workers, specifically contractors, which cannot exceed 1 percent of a company’s total number of permanent employees. Companies are also permitted from replacing workers on strike and cannot replace a collective dismissal of other workers who did the same or similar jobs.
France passed legislation in 2017 creating “portage” companies. Freelance workers can enter into employment agreements with a portage company to allow them to obtain the benefits of employment and maintain the flexibility of freelance work. Portage companies do not manage day-to-day work, but do manage things like employee benefits, payroll, billing, and paid time off.
In Spain, every type of worker is required to have a drafted contract from their employer, and any company doing business in the country should reference the Statute of Independent Contractors established by the Law 20/2007 of July 11.
In countries like France, Germany, and the Netherlands, distinguishing a contractor from an employee depends on the nature of the relationship between the parties. However, there are several key criteria that companies can use.
The story is no different in Eastern Europe, where each country has its own criteria to classify workers, and its own misclassification laws.
4. Worker classification in Asia-Pacific
In Australia, part-time employees are entitled to the same benefits as full-time employees on a pro rata basis. Employment relationship also has more regulations than a contractor relationship. However, misclassification in Australia breaches the law and companies could be liable for superannuation charges.
In India, the government prohibits companies from controlling independent contractors, and the agreements have to be drafted as legally enforceable contracts.
Independent contractors in China function as exclusive corporate entities and require a legal employment contract. However, the Chinese government considers anyone who operates under a company’s rules an employee.
Regulations in the Philippines state that contractors must be registered in the country’s Bureau of Internal Revenue.
5. Worker classification in Latin America
Almost every country in Latin America considers any individual rendering services to a company to have an employment relationship, regardless of whether they’re full-time or part-time employees, or contractors. Argentina, Brazil, Colombia, and Venezuela consider that hiring a contractor the same as hiring an employee, as contractors are entitled to all employment benefits.
In Mexico, the legislation establishes that contractors are not subject to subordination. Therefore, they are not entitled to receive employment benefits. However, courts classify workers depending on how the services are rendered.
Every region has its own country-specific regulations, making it complicated to comply with all of them. If you want to avoid common worker classification mistakes or hire employees on an international scale, let us help.