One of the questions we ask candidates on the acework application form is “Do you have an existing contractor setup?”. Those who have remote working experience are familiar with the concept, but some are surprised by it or don’t know what it means.
Remote companies hire people from around the world, but typically only have legal entities in very few countries. Therefore, they must rely on contractor agreements to work with people in foreign countries. For example, a company registered in the US can usually only offer employment to US-based candidates. Nevertheless, it may be open to hire candidates outside of the US on the basis of a contractor agreement.
The difference between contractors and employees, briefly explained:
Most remote companies make sure that both employees and contractors have the same rights and responsibilities. This goes from their notice period to vacation and sick day policies. Therefore, employment contracts and contractor agreements actually don’t look that different. However, the major difference is that for an employee, the company directly pays their taxes and social security. The amount the employee receives in their bank account will be a net amount.
A contractor, on the other hand, has the responsibility to pay their own taxes, insurance and social security in their country of residence. They have to write invoices to bill their “employer” (like a freelancer). Then the company pays them a gross amount, without deducting taxes and social security first.
Do I need to get contractor ready?
Now that we have established the difference between the employment and contractor status, we’d like to explain how to get “contractor ready.” Being contractor ready means that you can work for any remote company in the world, and not just the ones hiring in your country.
We spoke with Sarah Holzauer, people operations consultant at Azavista, an event planning solution. Azavista is legally registered in the Netherlands, but Sarah lives in Germany and works as a part-time contractor from her home in Bielefeld.
Sarah already had a contractor setup in place in Germany when she began working for Azavista. She says,
“I actually started as an intern in their headquarters in Amsterdam. When I moved back to Germany to continue my studies, I stayed on as a contractor on a part-time basis.”
Sarah had already registered as a contractor in Germany before working at Azavista. That put her in a great position to seamlessly continue her work. Often recruiters prefer candidates that already have a set up to work as a contractor – especially when they need to fill an open position quickly.
Get ready in three easy steps: Register your “business”, get insurance, and set up a bank account
Often people ask if they must first establish a legal entity, like a company, to become a freelancer. However, to register as a freelancer in Germany, and most other countries, you can, but don’t have to, establish a legal entity. In reality, there are just three simple steps to get contractor ready:
- 1. You simply have to register as a freelancer (Freiberufler) at your local tax office (Finanzamt). Alternatively you can register a Sole Proprietorship (Einzelunternehmen). Keep in mind, with an SP you will have to pay trade tax and you will have more accounting responsibilities. Basically, all contractors at remote companies should register as freelancers, and not as legal entities, to keep administrative efforts to a minimum.
- 2. Next up will be choosing your own health insurance. You can choose between private and public health insurance, and should compare the two before deciding. Often it turns out that private health care is actually the better solution. Additional useful insurances are:
- – Occupational disability insurance (Berufsunfähigkeit)
- – Liability insurance (Haftpflicht)
- – Legal expenses insurance (Rechtsschutz)
- 3. Finally, it is smart to open a business account to keep your income and expenses separate from your everyday finances. Kontist or Holvi are new banking solutions specifically for freelancers and contractors. They can also help with your accounting, which shouldn’t be too difficult when you only work for one company.
One definite advantage of becoming a contractor is that you’ll be able to claim wor expenses on your tax return. Examples include anything in your home office that your employer doesn’t cover, commuting (if you must) to your co-working space and hardware, like a new laptop.
But aren’t contractors in constant danger to get fired without notice?
Since remote companies usually operate globally, they must decide on consistent employment policies and processes. This usually goes one of two ways:
- 1. They define a company-wide standard: Notice period, vacation days, sick day policy and so on are the same for everyone in the company, regardless of their location.
- 2. They adjust to each country: You will receive a contract that follows the standards in your country of residence. In Germany that would mean a minimum of 24 vacation days.
Most companies decide on a company-wide standard, which means that often contractors from countries with extremely high employee protection (like Germany) usually face more uncertainty. One common concern of German employees is to have a stable and secure job. This comes with a long notice period and lots of protection from getting fired or laid off.
However, companies usually decide on a standard that is common to where they originate from. US-based firms typically have a short notice period of 2 to 4 weeks for all employees and contractors. European companies tend to also agree on equal standards for all employees and contractors. Therefore, their notice periods are often longer, from one month to up to three months.
So, if you are after more employee protection, choosing a remote company originating in Europe is usually your best bet.
“The typical one-month notice period for contractors definitely required a mindset change from what I was used to in German companies. But normally you quickly develop a sense of how much you’re needed in the company, so getting fired out of nowhere is rarely the case.”
These tools make your work as contractor seamless and stress-free
Acework’s very own Director of Candidate Experience, Renée Johnson, contracts with us in the United States since acework is registered in Germany. She already had significant freelancing experience when she started, so her tools and tricks will help every new contractor get up to speed quickly.
Since Renée has several companies she invoices each month, she uses the platform AND CO (recently acquired by Fivrr) to stay organised. AND CO specifically helps solo contractors and freelancers. It allows you to send out proposals and contracts, as well as invoices in multiple currencies. Within the app, you can also track time for project billing and attach receipts to invoices for reimbursement.
And speaking of receipts, Renée has been using the app CamScanner for years to quickly scan paper receipts on her phone to upload before she looses them!
If you end up working full-time for only one company, sending invoices can be as easy as updating a Word or Google Docs template for every payment.
Both, Renée and acework, have accounts with TransferWise, a low-fee platform to send reliable international money transfers. TransferWise uses the real-time exchange rate and it doesn’t cost the contractor any fees to receive money.
Some companies may use payroll or other services to help with the administrative effort that comes with hiring people from many different countries. One great example is Deel, which helps both contractors and companies to keep payments fast and easy, and also helps with tax forms and compliance in certain countries.
When in doubt, seek advice and use additional resources
If you are new to the world of contracting or freelancing, you will find a wealth of resources from the Freelancers Union. FU is a nonprofit advocacy organisation with nearly 400k members. Many of the benefits are US-centric, such as affordable independent health care, legal contracts, and remote working hubs. However, their website has a wealth of information and tools that are useful to freelancers anywhere. In addition, Sara Horowitz, one of the founders of Freelancers Union, started a new venture called Trupo. It provides customised benefits packages for freelancers to make freelance life just as secure as employment.
Overall, your new remote role will inevitably provide you with more flexibility and freedom. As self-motivated and determined individual you should not shy away from the responsibilities that come with being a contractor for your dream remote company.
At acework we are warriors for greater flexibility and happiness at work. We are here to help you find your remote dream job. Get Remote Ready with us here, sign up and match with opportunities. If you have any questions, comments or ideas get in touch directly (firstname.lastname@example.org).