How to convert an International Contractor to an Employee
One of the most common challenges start-up or small companies face when expanding abroad is how to employ their workers. A company may not have the money to hire many employees and all that goes with it such as offices, employment costs and ongoing payroll. Instead, they prefer to use independent contractors for ease of operation and flexibility.
As the company expands in its new market, hiring an independent contractor may not be the right choice. At some point it makes sense for companies to convert their contractor into an employee. By hiring permanent staff, the company will have more control and structure over their workloads resulting in higher rates of productivity and increased revenue.
So, how to convert a contractor into an employee?
The transition process from contractor to employee can be complex. It is not as simple as hiring a newly recruited employee.
Employment laws are complex in foreign countries and are typically designed to protect the employee. As a new employer you are now responsible for the employment relationship, tax and payroll.
In addition, employees are entitled to certain mandatory employment rights.
- Manage Employment Relationship
Once your contractor has agreed to the switch, they must receive a local employment contract in writing. This will provide them all the information about their employment status as well as the significant protection and statutory benefits of the country. As an employer, the employment contract clarifies the terms in which the employee has been hired and how to terminate the engagement.
- Manage Local Payroll and Taxes
Until now your contractor has handled their own taxes. As an employer, you are now responsible for fulfilling your employee’s local payroll and tax obligations. This is known as the employer social charges. Managing local payroll can be difficult, so in order to stay compliant the company has the option of either outsourcing or running local payroll.
How a Permanent Employer of Record (PEOR) provider helps makes the switch easier?
The more work your contractor does for the company, the more likely they will blur the lines of contractor or employee. If this happens, the company may violate employment law in the foreign country resulting in costly fines and penalties. In the long run, it makes sense to convert a contractor to an employee.
However, if a company has no experience in employing workers in a foreign country and lacks the internal resources to manage the administration of global employees, then engaging with a PEOR provider is beneficial.
A PEOR solution takes the complexity out of expanding abroad. They take care of all employment matters, social security costs, social benefits and statutory rights afforded to the employee and remove the burden of local administration. Allowing you to concentrate on building up the business.
If you are thinking of expanding and looking to hire internationally you can contact us at email@example.com or phone +41 32 732 9700 or +1 833 972 6346 and a member of our team will be in touch.