Are you interested in hiring remote talent? Whether you already have a remote team or are about to build one, you will soon realise the numerous benefits of remote hiring. However, hiring global talent comes with a set of challenges, and compliance and administrative issues are often overlooked at first. Needless to say, you are well-advised to tackle these challenges head-on and dive into the topic as early as possible. This article will help you navigate the basics of hiring a remote contractor.
Start with thorough research of labor laws
Each country has its labour laws that define different types of work relationships. Sometimes the information is hard to find but don’t be disheartened. The main challenge, especially with the companies in the US, is determining if the service provider is an independent contractor or an employee. By definition, an independent contractor is someone who has the freedom to decide how and when the work will be performed. The company hiring such contractors can only influence the outcome. Naturally, other factors determine what it means to be a contractor. They can be financial (reimbursing expenses, paying for tools) or regarding the type of relationship agreement (vacation, health and pension plans). It would be best to hire a local labor expert to help you understand the case in-depth and create the appropriate agreement.
Keep your company risk-free with the right (tax) documentation
Once you define your relationship and set up a legally-binding contract, you might be required to fill in additional forms (especially if you are in the US). If you are working with foreign contractors or entities as a US company, you must issue the W-8BEN or W8BEN-E form. They help establish the status of a foreign individual and the work performed outside of the US. The W8-BEN form is required for a contractor acting as an individual, whereas business owners use the W8BEN-E.
Know who is responsible for paying contractor taxes
It’s worth looking into which party, you or the contractor, is responsible for the contractor’s taxes. The responsibility depends on the local labor laws and how they categorise service providers. There are many statuses such as auto-entrepreneur, solopreneur, agency owner, etc. The independent contractor is usually responsible for covering their taxes. Sometimes, as a US company, you need to withhold a percentage to pay for their taxes. The withholding rate depends on the tax treaty between the US and the foreign country. When there is one, there might be no withholding at all. Make sure you align on this with your contractor, so you avoid causing risks and penalties for each party.
Maintain clean accounting with invoices
Taking care of your accounting is fundamental, especially when it comes to a working relationship between a company and an independent contractor. The information needs to match on both sides to avoid auditing and penalties. The contractor is usually the one invoicing the company, so make sure to double-check and provide the correct company information details. In some cases, the contractor needs to confirm the amount they received with a receipt. Although this may seem like tedious work, it’s necessary to keep the books clean. It would be best if you took the time once a quarter to make sure you have all the invoices from your contractors.
Choose the right payment method for contractors
Paying out your contractors can be a challenge depending on their location. Finding the best payment method is crucial if you want to avoid hefty fees, delays, or other complications. Luckily, there are many options available since payment providers recognised the need to streamline global payments. One example is Transferwise, a payment solution that provides quick and easy payments to many currencies at the best rates. Learn about any regulations or restrictions you and your contractor have and find what works for your case. Make sure the money a contractor receives comes from channels approved by their local labor laws to avoid trouble. Weigh your options carefully and ensure the payment method you choose has a smooth and easy way of processing to avoid headaches every month.
Save time with payment automation
Running a company means taking care of many things. People management is hard enough, not to mention the administration and paperwork attached to it. If you have multiple contractors and you need to pay in many different currencies, you will find yourself buried in manual work. Just like investing in a useful communication tool, it’s worth considering investing in one that automates the process mentioned above. For example, Deel automates this administrative process, in addition to helping companies with compliance regarding contractors. By having payment automation, you won’t worry about creating documents, gathering invoices, and paying out your contractors manually every month.
Acework created this article in collaboration with our partner Deel. At acework we are warriors for greater flexibility and happiness at work. We are always curious how the rest of the remote work community gets this done. Get in touch and let us know your ideas and best practices (email@example.com).
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