Everyone’s talking about what the “new normal” will look like, especially in terms of how our professional lives will change as a result of the Coronavirus pandemic. We’ve seen that working from home is possible in most cases, so why can’t that home be in another country?
When you run a lean business, hiring contractors —as opposed to permanent part-time or full-time employees — can often be a smart, cost-efficient business choice.
However, you might be wondering how the legals work when engaging contractors who are located overseas. What laws will apply? How do you protect yourself and your business? How do you pay foreign independent contractors?
In this article, we’ll cover the key legal issues you need to be aware of when considering engaging overseas contractors.
What Is The Difference Between Employees and Contractors?
Your legal obligations as an employer depend on whether you employ someone as an employee or as a contractor.
There are common factors that, when considered together, contribute to whether an individual is an employee or an independent contractor. In most cases, overseas workers will likely be considered an independent contractor according to the factors listed below and, in particular, based on the degree of control and autonomy they exercise in relation to how work is completed. This is not always the case, however, so it is still important to exercise some diligence when engaging workers overseas.
Degree of control over how work is performed
Whereas the work completed by an employee is performed under your direction on an ongoing basis, independent contractors have autonomy over how they complete their work.
Hours of work
An employee will generally work standard or set hours.
In contrast, independent contractors will, according to an agreement, decide what hours to work in order to complete a specific task.
Expectation of work
While an employee will usually expect that they will have ongoing work, independent contractors are engaged for a specific task.
Tools and equipment
As the employer, you will provide the necessary tools and equipment to your employee.
Contractors will provide most, if not all, of the tools and equipment required to complete work. They do not receive an allowance or reimbursement for this.
Method of payment and leave entitlements
Employees generally receive regular payments and leave entitlements.
Employees bear no financial risk. Instead, as the employer, you will be held legally responsible for any actions your employee performs under their employment contract.
In contrast, contractors bear the risk for profit or loss on each task, responsibility and liability for poor work or injuries sustained. As such, they will generally have their own insurance policy.
What Is A Contractor Agreement?
If you wish to engage a contractor to provide your business services, it is recommended that you enter into a Contractor Agreement.
This is especially important when it comes to hiring a foreign contractor as language barriers and cultural differences can lead to miscommunication.
The agreement should also consider the local laws of both countries.
A Contractor Agreement is drafted to protect your interests and will set out important details such as:
- Scope of the work
- Time requirements
- Price, payment method and currency of payment
- Intellectual property
- Use of equipment
- Conflicts of interest
- Liability and indemnity
- Dispute resolution mechanisms
- Governing law and jurisdiction
How Can You Protect Your Business’ Intellectual Property?
As set out in the list above, Intellectual Property (IP) is one of the items that should be dealt with in a contractor agreement — and a really important one, too!
Without the right clauses, generally an independent contractor will, by default, own and retain the IP and copyright of any work they create, even if it is something you engaged them to do. So it is important to ensure that your Contractor Agreement contains a clause stating that IP and copyright of any work created under the agreement will be transferred to you.
For example, if your business engages an independent contractor to design your logo, the Contractor Agreement should include a clause stating that they will transfer their rights in IP to the business. This will make sure that you can use the logo as a brand asset without risking copyright infringement.
When engaging an independent contractor, you will also want to ensure that all information you provide to them, such as businesses materials and assets, remains confidential. Getting a contractor to sign a Confidentiality Agreement or a Non-Disclosure Agreement (NDA) is an effective way to protect private information from becoming public.
Which Country’s Laws Will Apply?
Your Contractor Agreement will need to include a clause that sets out the jurisdiction and governing law. Governing law refers to which country’s laws will apply to the agreement, and jurisdiction establishes which country’s judicial and court system will handle any disputes.
If you’re a British business, it will probably make sense for you to have everything under the laws of England & Wales as you’ll have easier access to the legal services and the courts.
You may still face difficulties where your overseas contractor is subject to local laws. When engaging an overseas contractor and drafting your Contractor Agreement, you should check for any local laws that may apply, and whether there is any conflict with the standards of your jurisdiction.
How Do You Pay Foreign Contractors?
So long as you have the correct information, paying contractors located overseas doesn’t need to be difficult.
The main things to consider here are whether you will need to withhold tax from payments.
Generally speaking, contractors will take care of their own tax affairs.
Making the payment
The currency and method of payment should be outlined in the contractor agreement. Although using your bank may be the most convenient option, transaction costs can be expensive. It may be worth researching businesses that specialise in providing low cost money exchanges at a good rate. Some examples include Transferwise, PayPal, World First and OFX.
Navigating the world of hiring overseas can appear tricky, especially if you need to look into the employment laws of another country.
If you’re looking to engage an overseas contractor, we’re here to help! Feel free to get in touch with us at [email protected] to arrange a free, no-obligations chat.
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