Hiring Independent Contractors Abroad

Introduction Legal
Cash Management Reporting and Compliance
Finance (Including Payroll) Research Compliance (Federal)
Human Resources Risk Management (Safety and Security)

 

Employment laws in foreign countries are often complex, and they are typically designed to protect the worker, not the employer. Extreme care therefore should be taken when hiring independent contractors (also called  "service contractors" or "self-employed contractors"). A written employment contract may be required in the language of the home country and reflecting specific language documenting the relationship between the worker and the employer.

Employers must beware of classifying a hired worker as an independent contractor in virtually all countries. Host-country authorities may later deem an independent contractor an employee, which leads to substantial employer penalties and reputational damage as well as the risk of creating physical presence or permanent establishment (see Legal section for additional discussion). This means it is essential to engage professional assistance familiar with employment laws of the host country when hiring independent contractors abroad.

It is often good practice to have a formal policy in place that documents the school's position on engaging contractors (including the applicable tests for qualification). Just having a policy can often work in the institution's favor in the event of an audit by the local tax authority. In practice the policy may be inconsistent, but it documents the school's intent to follow local employment laws.

Schools often "hire" employees initially as independent contractors to accelerate the commencement of academic or research activities while the registration process is progressing.  To minimize risks when the classification of such relationships technically qualify as employees, schools may engage a local Professional Employment Organization (PEO) in certain countries to compliantly compensate contractors until individuals can be converted to employees and paid under a local payroll process.

Finally, a written contract in the foreign country's language with specific language documenting the relationship between the worker and the employer may be required by local law. Contracts documenting a contractor relationship do not determine the employment status, however.

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