Key Takeaways
1. Remote contractors are independent, self-employed individuals who work on a contractual basis for a company, and do not work ‘in-office’. They are separate from employees and can also be called independent contractors, contract workers, or freelancers.
2. Typically, a company will hire a remote contractor for the convenience of hiring someone quickly to undertake extra work, or because they need an expert in a specialist area for tasks that cannot be completed by their own employees.
3. Hiring contractors comes with pros and cons, but ultimately, it is down to the individual company as to whether or not their way of working lends itself to working with contractors.
4. Companies must carefully consider whether hiring a remote contractor is beneficial to the business in that it meets business needs and makes commercial sense. Companies should be aware that hiring remote workers carries different risks and legal responsibilities than hiring employees.
An “independent contractor”or “remote contractor” is someone who provides a service(s) to multiple clients, and is paid based on the particular service they offer. Whereas, an employee is someone who works primarily one company in exchange for a fixed salary.
Many companies find that hiring remote contractors offers benefits: They are able to find highly skilled workers that are specialized in a particular field due to convenience and flexibility.
In this guide we look at the pros and cons of hiring remote contractors compared to other international hiring solutions.
What Are Remote Contractors?
Remote contractors are self-employed individuals who work on a contract basis for a company and work remotely, rather than in-office. They are separate from remote employees and can also be called independent contractors, contract workers, or freelancers: Contractors do not receive the same treatment as employees do in terms of receiving employment benefits, or having to follow the same schedule as an employee would.
The main difference between contractors and employees is that contractors are required by law to declare their earnings and file their own taxes. Therefore, they are not on the company payroll, meanwhile, employees are paid a salary by their employer. In employment law, there are clear boundaries between salaried employment, self-employment, and contractors, so companies must ensure they are classifying the worker correctly so as to avoid noncompliance (more on this below).
Remote contractors typically work around the needs of their clients, usually on their own schedule for short-term projects. Remote contractors can choose to work from anywhere provided they can access the required technologies for their work which usually involves having an internet connection. They then charge the company based on the work they have completed for them.
Companies tend to hire remote contractors for help in specialist areas or for extra assistance as and when is necessary. This is usually where the company’s own workforce lacks knowledge or expertise in a certain area and therefore it makes commercial sense to bring in someone independent to help out (this is common, for example, when a business seeks to hire remote tech support, or software developers). Hiring employees can be a lengthy process and with it, carries certain responsibilities and obligations to which a company may not be in the position to adhere. Finding remote workers can be a good option for businesses that want the flexibility and convenience of quickly bringing someone in to complete the work.
What Are the Pros and Cons of Hiring Remote Contractors
Hiring remote contractors comes with pros and cons, but ultimately, it is down to the individual company as to whether or not their way of working lends itself to working with contractors.
We explore some of the remote contractor advantages and disadvantages below.
Remote Contractor Advantage #1: Access to Global Talent
As the location of the contractor is not a limiting factor when hiring people, a clear advantage of hiring remote contractors is that a company can tap into the global talent that is available online and therefore access the most skilled workers from around the world. Businesses no longer need to hire local workers, meaning business needs can be met by searching further afield if suitable workers are not readily available at home.
Not only do businesses have the benefit of hiring experts, but they can also benefit from receiving input from someone of another culture, with different experiences and perceptions which can be beneficial to the team as a whole. In this sense, companies are able to expand their horizons as it may be that remote workers can give local insight into their local market that companies are not able to gain themselves. This may open up great opportunities to companies who want to tap into other international markets.
Remote Contractor Advantage #2: Efficiency
Companies are sometimes able to benefit financially from hiring remote contractors rather than employees. Contractors may have more incentive to produce high-quality work and work more efficiently than employees, as they are paid based on their service, and often paid per project. By contrast, employees are usually paid the same regardless of how quickly or effectively they have completed a task.
Remote Contractor Advantage #3: Cost-Effectiveness
Companies may be able to pay remote contractors less than they would need to pay a local contractor or employees, especially if they are based in a country where the minimum wage is lower, or the currency is not as strong as that of the company. Additionally, employers must give employees certain benefits that they are entitled to by law, whereas companies are not required to do this for contractors: For example companies do not need to provide sick pay or holiday leave days for contractors.
Hire contractors globally with Horizons EOR services.
Remote Contractor Disadvantage #1: Control
Managing contractors who work remotely can come with its own challenges. Generally speaking, companies have less control over remote contractors than they do over other types of worker: The individual is usually free to work for other companies, including competitors, and they may not have the same time availability as a regular employer.
Remote Contractor Disadvantage #2: Misclassification Risk
Companies must carefully distinguish remote contractors from employees. This is the only way to avoid employee misclassification, otherwise known as ‘disguised employment‘ or ‘sham contracting’. This occurs when a business labels a worker as a contractor, where that worker is actually an employee. For instance, if a company imposes certain conditions and restrictions on its independent contractors, this may constitute more of an employee/employer relationship. Governments require workers to be classified accurately otherwise companies may be subject to significant backtaxes and penalties.
This is because contractors provide services as a self-employed individual, or through their own company, and will therefore usually be taxed differently to those who are directly employed by a company: In some cases, workers have tried to get around tax laws and have misclassified themselves as contractors rather than employees in order to receive tax advantages.
One way of dealing with this risk when operating internationally is through a global PEO or Employer of Record solution, rather than using remote contractors.
Remote Contractor Disadvantage #3: Compliance Challenges
When hiring remote contractors, depending on the country in which they reside and/or pay taxes, it can be difficult to keep up to date with local labor and tax laws. In order to stay compliant with international legislation, companies should be well versed in the laws applicable to the remote contractor. For example, some countries require that contractors are invoice via GST or VAT-compliant invoicing.
Remote Contractor Disadvantage #4: Tracking Performance
As remote contractors work independently and remotely, it can be difficult to monitor their activity. This can be a concern for companies with particular working cultures where staff are closely monitored or where teams work closely together, as the nature of a remote contractor is that they are able to work on their own terms independently. It is therefore a good idea for companies to consider whether a remote contractor would realistically fit into their way of working and what their expectations are.
A good way to avoid these uncertainties is by having open communication with the contractor so that both parties understand what is expected of them. Having a well-structured and detailed contractual agreement that lays out the terms of the relationship should avoid misunderstandings and problems with managing individuals, as clear deadlines and expectations can be set out. It is good practice to constantly review agreements to ensure the arrangement remains legally compliant and that the contractor’s work still meets business needs.
To learn more about how performance can be tracked in a remote employment context read our How To Track Performance in Remote Teams.
Horizons Remote Contractor and Remote Employment Solutions
Companies must carefully consider whether hiring a remote contractor is beneficial to the business in that it meets business needs and makes commercial sense. Companies should be aware that hiring remote workers carries different risks and legal responsibilities than those involved when hiring employees.
At Horizons, we are able to manage remote contractors for your company, or apply other hiring solutions such as global PEO. If you would like further information on this, please do not hesitate to contact us.
Frequently asked questions
Companies must be careful with the way in which they manage their contractors. The best way to properly regulate and manage a contractor’s work is by having a clear independent contractor agreement that outlines what is expected of each party including when the project should end and how much the contractor should be paid. It is good practice to constantly review agreement contracts to ensure the arrangement remains legally compliant and that the contractor’s work still meets business needs.
It is also important that contractors are not treated as employees in order to avoid employee misclassification.
Contractors can choose to work from anywhere in the world, providing they can access the required technologies for their work which usually involves having an internet connection, and that work is compliant with the law in the country they are resident in.
