Name: How to (Legally) Hire International Contractors
Uploaded: 2026-01-22T19:01:04.797Z
Duration: 44 min 56 s
Description: How to (Legally) Hire International Contractors

Transcript for "How to (Legally) Hire International Contractors": Welcome, everyone. Let's get started. We're excited to have you here at today's session. It's amazing to see people from all over the world. We've got someone from Houston, Miami. We had someone from Columbia, from Dallas. That's awesome. So thank you so much for joining. Before we get started, I just wanna cover some housekeeping items. So firstly, this webinar will be recorded and shared with you. Second, we'll use the chat feature to send you some messages from organizers and speakers. I also want to encourage you to post questions throughout the webinar in the q and a section, which will be monitored and answered during the webinar. We'll also save some time at the end to answer questions live. If you have any questions or you want more clarification after the webinar, you can always contact us at rippling dot com. Now that we've covered the housekeeping items, let's keep moving right along. Okay. Let's kick off this session with introductions. My name is Patrick, and I work as an employment and product legal counsel on the Rippling EOR team. I have almost five years experience working in the EOR space, which has given me a strong practical overview of the common issues and challenges companies face when employing talent across multiple jurisdictions. Now I will let Prude to introduce herself. Thanks, Patrick. Hello, everyone. It's very nice to meet you. My name is Pru, and I'm also an employment and product council here at Rippling. I'm based in London, and I cover a wide range of countries in the EMEA and APAC regions, and Workham's classification is a topic that comes up frequently. Now let's move on to the agenda for today. In this webinar, we'll walk you through everything you need to know about bringing a self employed contractor on board, wherever they are in the world. First, we'll explain the key differences between an employee and a contractor. Then we'll discuss some common classification considerations and risks of misclassification. Next, we'll cover what to expect in 2026, including any trends when it comes to misclassification claims. Finally, we'll recap what we've learned, share some helpful resources, and have some time to answer any questions you might have. So let's get started by talking about the key differences between employees and contractor classification. International contractors can offer significant benefits to your company, but if they're not classified correctly, they can also lead to opposite consequences, such as legal issues, financial setbacks, and reputational damage. That's something Patrick will get into more later. That's why it's crucial to understand the key differences between contractors and employees and ensure that you classify them correctly and compliantly. Now when we're looking at the difference between a contractor and employee and an employee, A contractor is an individual or entity that provides services to another entity under terms specified in a contract. They are typically self employed and are not considered an employee of the entity that they're providing goods or services to. On the other hand, an employee is an individual who's hired by an employer to work for a company on a regular basis, and they are integral to the business's work. Employees are entitled to certain benefits and protections, such as minimum wage laws and workers' compensation that contractors are not. Now I just wanted to point out here a common misconception, and that's that we're talking about temp agency employees. So that would be someone that you hire into a position where they're doing the same things as your other employees, except that they are being employed through a consulting or temp agency who's providing their salary and benefits. That's not what we're talking about for the purposes of this presentation. Just to be clear, what we're talking about here is what I call independent contractors. This is an important distinction because legally, these workers do not have the same protections as employees from a legal lens both locally and internationally. I'd like to go through the key differences between these classifications. One key element is direction and control. Generally, employees perform work under the direction and, importantly, the control of their employer, and they're supervised on a daily basis by their direct manager. Contractors will work on a temporary or pro per project basis, often for several clients at the same time. They're also free to set their own working hours and schedule. Another element to look at is training and equipment. Employees may receive training from their employer, and they'll also be provided with equipment and other necessary tools to complete their tasks. So that would be things like a laptop, a desk, a chair, and so on. Whereas contractors are responsible for their tools. They purchase their own equipment to perform the work that is expected of them. Another element is how taxes are withheld. So for example, in The US, employees fill out a w four for the IRS and have Social Security, income tax, and other mandatory tax related fees taken out of their paychecks by their employer. Contractors though, they invoice by job. They generally send invoices to the company, and they fill out form w nine and pay self employment taxes. Another element to look at is labor law protection. So employees are protected by many employment laws that do not protect Internet independent contractors. This might include things like unfair dismissal rights, minimum wages, overtime, mandatory benefits, leaves of absence, and in certain jurisdictions, protection from discrimination. Now we look at this all and consider the totality of circumstances. This generally boils down into the following factors to determine how a worker should be classified. We need to look at the nature and degree of control over the worker. A true contractor will control the key aspects of how they complete their work. We'll then look at the permanency of the relationship. A true contractor, their agreement should have a defined end date. Another factor is skill and initiative. So whether you've hired that contractor for their highly specialized skills and expertise. We need to look at any investments made by the worker and the potential employer, as well as the ability for there to be a chance of profit or loss depending on the managerial skill. So for instance, a true contractor can realize a profit or incur financial losses from their work. Lastly, the extent to which the work is integral to business is really important. So a true contractor's work isn't considered integral to the business. I'm now going to turn it over to Patrick, and he's going to talk through some of the country specific nuances and misclassification risks. Thank you, contractor are pretty consistent globally. Those tests are based on several factors, not a single factor, as Prue has already highlighted in the previous slide. But of course, there are some country nuances. We'll talk through a few examples to give you a flavor of the position globally. In Europe, we can see a strong country dependent approach. In France, for example, one of the key factors is subordination. In other words, it looks into whether the company has the power to give instruction, control how the work is performed, and impose consequences if those instructions aren't follows. This is very similar to control and integration tests. In The UK, there are three main categories of work relationship: employees, workers, and self employed contractors. Deciding which category someone falls into isn't based on just one rule. It depends on several factors, including: first, mutual obligation, which means that one party is required to offer work, and the other is required to accept and carry it out. There is no option to refuse the work. The second one is control, so the extent to which the work is directed or supervised. The third one is personal service, which means that the work must be performed personally rather than being delegated to someone else. You may ask the definition of UK worker. UK worker is someone who must do work personally and usually can't send substitute. They sit between contractor and employees. They have less control than contractors, but more flexibility than employees. For example, a plumber you hire is a contractor. You don't control who comes or how they work. By contrast, a delivery courier working for a platform is often a worker. They must do the work themselves and follow certain rules, but still have flexibility over when they work. Canada's approach is similar The US, focusing on the level of control the employer has over workers' activities and workers' opportunity for profit or loss. In other words, typically contractors are more financially independent, so they bear any financial loss if the work isn't completed to the right standard, as opposed to employees whose personal liability in most countries is capped by certain amount depending on jurisdiction. Australia uses whole relationship test looking at both the contract and how the work happens in practice. It's worth to add that high income contractors can opt out of some statutory provisions. In The Philippines, classification uses a fourfold test, mainly focused on control, who sets how and when work is done. Economic dependence also matters. Contractors should be independent and be able to work for multiple clients. So if your contractor issues just one invoice, most probably something is not okay here. In India, classification looks at several tests. The focus is on concept of control and subordination, and looking at whether contractor is integrated into the company's business and workforce. Workers must demonstrate autonomy to be classified as independent contractors. And the last country is Brazil. In Brazil, the control test and subordination are central. Workers who are economically dependent on one employer or lack autonomy in how they perform their work are typically classified as employees. Brazil labor laws give a strong protection for employees, and courts are generally seen being pro employees, which makes compliant contractor classification even more important and complex. But you may ask what is consistent across the board. All have penalties for misclassification. I know this is not what you wanted to hear, but without that, this whole presentation wouldn't make too much sense. So broadly speaking, this falls into four categories: tax issues, labor, civil lawsuit, and reputational damage. When it comes to tax issues, companies could find themselves having to pay back employee related taxes and Social Security payments, plus fines and penalties imposed by tax and Social Security regulators, often can go back to several years to recover unpaid taxes if a contractor has been found misclassified. As for the labor claims, contractors can bring employment related misclassification claims, so bringing claims that only employees can bring, and as a part of that arguing they were misclassified. They can claim for holiday pay, unfair dismissal, notice period, remote work allowances, or other amounts applicable jurisdictions. They can get compensation going back several years and sometimes covering the whole period that the contractor was working for the company. As for the CV lawsuits, contractors can file lawsuits or even class which can lead up which which can lead to major payouts and penalties, especially in common law jurisdictions where class actions are on the rise. And the last but not least, reputational damage, which is very hard to measure. And as we know, public scrutiny is on the rise, driven by growth of the gig economy and remote work. Misclassification can seriously damage companies' brands. So hopefully, that has given an idea why it's crucial to avoid misclassification. Costs, financial and reputational damage can snowball quickly. This happens when a business classifies a worker as a contractor, when in reality they should have treated the worker as an employee. Thanks, Patrick. We're now gonna take a look at a hypothetical example. So say there is a start up company, and in the first few years of your start up, you hire a contractor in The UK to do design work for your company. You pay them £50,000 a year. Over time, your business grows quickly, and you keep this contractor busy full time. But you don't want them working for anyone else, and you don't let them delegate the work to another contractor. Unfortunately, you then start having issues with the contractor, and three years into the contract, you end your design contract with them. Disgruntled and convinced that you that you canceled their contract because they were late on their last project after battling the flu, the contractor goes to see an attorney. I'll walk you through The UK numbers now so you can see what I mean when talking about how the cost of misclassification can snowball really quickly. So if we take this UK example, the first cost that you might incur is a tax violation fine. When you hire a worker as an employee, their income is subject to income tax and national insurance withholdings under UK tax rules from the beginning. Suppose the HIMRC, who's The UK tax regulator, carries out an audit of the contract relationship and decides that you've misclassified an employee as an independent contractor instead of honoring an employee slash employee relationship. In this case, you may be subject to the following penalties. You'd be looking at back payment of income tax and national insurance contributions going back six years based on the misclassified employees' wages. So that would be £22,000 of unpaid income tax at a rate of 20%, as well as £32,000 of unpaid national insurance contributions. On top of that, you'd be liable to paying interest and penalties. Obviously, tax is much more complex than what I've just described, but but for the sake of this example, I've simplified it. The next cost that you would incur would be potential employment claims. So assume that this employee has spoken to an attorney and the contractor believes that they have claims for unfair dismissal, holiday pay, and unpaid pension contributions on the basis that they should have been hired as an employee from the beginning. The worst case scenario is that the contractor is successful in all of his claims. So you could be looking at unfair dismissal damages awarded in about £12,000, notice pay, so employees are entitled to minimum notice periods. So here, that would be a three week notice period at about £2,000. You'd be looking at paying unpaid pension contributions, so that would be about £12,000, and then holiday pay as well. So in some circumstances, this can go back to the beginning of the engagement. So three years worth of holiday pay would be about £16,000 in this scenario. As you can see, the consequences and penalties can very quickly add up. If this was a contractor in The US, there's an added layer of risk of there being a class action lawsuit, which can very quickly snowball into 6 or 7 figure liability depending on how many contractors you have. So we may now ask what to expect in 2026. In 2026, an increasing number of countries are expected to adopt stricter laws around contractor versus employee classification. This shift is driven by rising concern over worker classification, particularly with respect to growing gig economy and remote work, which brought the issue into the center stage. So employees, companies, and regulators are all much more alive to it. There is also another piece. Governments are intensifying enforcement of misclassification rules due to potential loss of tax revenue from remote workers. Status classification will continue to be a big topic of the agenda for governments, companies, and individuals in 2026. We are already seeing announcements and changes in labor laws and enforcement in several countries. For example, in Canada, misclassification lawsuits have been on the rise where damages in recent lawsuits have ranged from $30,000,000 up to even to $200,000,000. In 2025, in Brazil, the Supreme Court suspended all pending lawsuits alleging that contractors should be reclassified as employees in order to await a a binding national decision on jurisdiction fees so that the court is deciding whether labor courts or civil courts should handle claims challenging contractor classification and who has the burden of proof when determining whether a contractor is an employee, does the seat with the worker or the company. The Supreme Court has not ruled on these issues, but it is an area to monitor if you currently engage or plan to engage contractors in Brazil, which is a huge market for for The US company looking for for additional talent talents. In the European Union, there is a platform workers directive, which is looking at increased regulation and enforcement of platform workers. It typically refers to gig economy workers. One of the key rules one of the key rules this directive is introducing is a presumption of employment for platform workers. EU directive has to be implemented by each European Union member state country by the 2026, and there probably will be country specific nuances since every member state country can adapt it slightly in a different way. But it gives you an idea of the trend at European Union level. Australia changed its rules in 2024 to use whole relationship test, looking at both contractual arrangement and also the factual relationship between both parties. In Netherlands, the Dutch tax authority has extended the so called soft landing period for enforcement on worker misclassification until first January twenty twenty seven. This means that during 2026, employers will be exempted from receiving standard penalties for misclassification. And Poland, recently the government attempted to introduce legislation aimed at addressing so called false self employment, where individuals engage under B2B agreement let's call it contractor agreement, to simplify it where, in reality, they were operating as independent contractors. The proposal would have given the National Labor Inspectorate the power to immediately reclassify the B2B contract as employment contract by administrative decisions. So there wouldn't be a need for court proceeding. Following strong pushback from the business community and other stakeholders, including independent contractors, the government withdrew proposal. That said, further action in this area is likely, and the situation remaining one to watch. And in The UK, the labor government continues to crack down on sham contractor arrangement with increased enforcement. It has announced that it will consult on simplifying the current three tier employment status system into a two tier system clarifying the categories and making it easier to correctly classify workforce. As we discussed, courts generally use a totality of circumstances and look at all factors together, not a single factor, for example, title, agreement, pay status, but also an actual relationship between parties. These are all very important factors to assess and classify your workforce correctly. One red flag can be the ratio of contractor to employee population. So you should keep an eye on this as your business grows and matures. And one public announcement: some workers are very employment savvy and will ask to be engaged as a contractor when the reality of the relationship is an employment one. Do not give into the temptation. Make sure you have thought through each contractor engagement and classified workers properly. We'll now have a look at how you can legally hire independent contractors. So once you're confident you can legally classify someone as a contractor, how do you go about engaging them? What the agreement says is generally not determinative in a misclassification suit. In other words, it's not enough that the contract says someone is a contractor if all other aspects of the relationship suggest that they're really an employee. The contract is definitely still an important factor though and something courts will take into consideration. A few things to keep in mind with the contract. So it should detail the specifics of the working relationship. It's essential to make clear what the specifics of that relationship are, and the agreement should say that it's an independent contractor relationship. Agreements should define the services that the contractor will provide or projects that they'll complete, but make clear that they're solely responsible for the manner and hours in which the services are performed. So that's the element of control. It should also set out that there's no exclusivity of service. So, generally, employees perform services exclusively for the employer, while contractors can provide the services to more than one person or business at the same time. Contract does not require, in in this instance, that they exclusively provide the services to you. Another thing that the contract should list is the term. So, typically, contractor agreements have a set term with a specific end date, or they are project based. Finally, the contract should include a termination section. This should spell out how the parties can terminate the relationship and with how much notice. There are some other considerations that are pretty important when hiring contractors. We won't go into all of these today, but one worth calling out is invoices. You do need a way to have an invoice be both created and approved and to pay contractors either by the hour or at a set rate. Taking these steps decreases misclassification risk, and having a paper record is consistent with a contractor arrangement. An easy way to avoid misclassification risk altogether is to hire these workers as employees through an EOR entity or your own entity. EORs can provide locally compliant employment agreements. They can make sure the employee is getting all the rights and benefits that they're entitled to under the law. They can ensure that social security and pension contributions are being made, that taxes are being paid, and EORs are also there to help with compliant off boardings as well. Or if you still want to keep them as contractors, COR or contractor of record is the best solution to avoid misclassification risks. If you're not sure where to start when engaging a new employee or a contractor, we have lots of information available on the Replink website and blog, including an interactive classification tool. As you might be thinking, these considerations can be difficult to navigate with confidence, leaving companies in an uncertain position about their risk. That's exactly why we've made the worker classification analyzer. This is an interactive quiz intended to help companies assess their risk of misclassification. I suggest giving it a try if you have contractors that you're unsure about. You can even use this tool if you're not a current client. Now if you need any help with this, Rippling's global advisers can review your compliance setup and spot any potential misclassification risks. I also wanted to mention that we've just put up a quick poll, so you'll see that in the next to your q and a section. So we'd love you to get involved with that. Now I want to chat about our COR product. So Rippling COR service manages international contractors by handling contracts, payments, and compliance with local contractor laws. It helps companies engage independent workers legally without triggering employee classification, therefore shifting contractor misclassification risk to rippling. Essentially, COR prevents misclassification by ensuring contractor agreements align with local law. It helps to manage compliance variation and automates legal documentation using up to date templates that are reviewed by local experts. If your focus is instead on hiring employees globally, Rippling's employer of record or EOR service legally employs full and part time employees on your behalf in countries where you don't have a local entity. Rippling manages all country specific employment obligations, including payrolls, taxes, Social Security, benefits, and compliance with local labor laws, and provides access to localized tenure tenured HR experts. EOR ensures that hiring, onboarding, and ongoing employment actions are executed compliantly in each jurisdiction, removing the risk of missteps in local labor law. Some key benefits of using an EOR include, it prevents errors around notice periods, mandatory benefits, and terminations, which can get really tricky depending on the jurisdiction. It eliminates liability by shifting compliance responsibility to Rippling as the legal employer. It allows you to stay up to date with changes in local employment laws, and it translates legal requirements into compliant real world employment practices. Now no matter how you decide to manage your global workforce, Rippling offers everything you need to run a global team. We're the only HR platform to fully internationalize our entire product suite, including a localized HRIS system, native global payroll, and worldwide benefits. With Rippling, you can hire top talent from anywhere confidently. Now thanks very much, everyone. That's the end of the session. So we'll we'll now move to some questions that people have submitted. You can see there's been some great engagement throughout the session, so thanks for that. And we'll just have a look through those questions now and take some time. Now I saw that there was one quest oh, sorry, Patrick. No. Go ahead. Go ahead. you. There was one question that we had in relation to the cost of hiring a UK employee. The question was whether it essentially costs another 50 k to hire someone as an employee compared to a contractor. So we won't go into all the details of costings or hiring an employee today, but I just wanted to point out that the example we gave earlier in the presentation was really looking at a worst case scenario if you had proceeded with if the employee had been successful in a misclassification claim. So we were really talking through if the potential damages that might be awarded in that case. We weren't saying necessarily it cost double to have someone as an employee versus contractor. So I just want to quickly clarify that. Yeah. I noticed another question around whether fractional hires technically can be considered independent contractors. So I will I will answer as a as a classic lawyer. It depends, of course. But to give you a sense, of course, you need to you need to look into all all factors. And even if the the the fractional technical software engineers who work only twenty hours a week, he they still can be considered employee as opposed to independent contractors. We would need to look into whether that your company has control over that person, whether that person is integrated into your business, and economically dependent. Right? If that person would issue multiple couple of invoices to other clients and will have flexibility in terms of how they shape their working schedule, you will most probably have good arguments to to to classify that person as as independent contractor. We also had a question about whether it's a problem to qualify as a contractor if the person receives the same amount of fee each month. So not necessarily. I mean, that is not the sole test of determining the classification. In many cases, the contractor, as Patrick mentioned, will will invoice you, and you would have had an agreed fee for that project or scope of work. And so if you're continuing to pay that person for the same fee over several months, that's not necessarily a problem, particularly if there's a defined end date to that contract or agreement that you've you've put in place. And there was another question around virtual assistant from from Philippines. Someone wrote that whether those kind those kind of workers could be considered or should be considered contractors or or employees. So I would say that even even without a direct contract, there may be a misclassification issue because it really depends whether Virtual Assistant works under your direction and perform core business function function or it or whether they are economically dependent on on on your company. So authorities look at the at the substance of relationship, so not only the the the the paperwork. So even if there is no contract behind the the the the relationship with your virtual assistant, they they can be they they can still try to claim employment status in their in their home country, which in this case would be Philippines. Thanks, Patrick. We've had someone else ask whether Ripley might say if someone should be on the COR product, the contractor contractor of of record, record, should should they they or or shouldn't shouldn't be eligible for that, and whether they need to be on EOR instead. So something that our global advisers at Rippling do is they use a classification assessment. So they would take details from you on that specific situation, and they would compare that against a risk assessment that we've built for each country. So not only does it look at these sort of tests that we've been explaining in this webinar, but also it looks at the risk threshold for that particular country and then weighs it up. So in some cases, we might determine that, yes, COR is not appropriate for that particular worker, particularly if if what they're doing in practice is more akin to an employee. And in those cases, we would recommend that you consider our EOR service, and we could provide guidance on that further, you know, on a case by case basis. I saw another interesting question. I don't know if I understood it correctly, but it was the question was, what is the trajectory for The US regarding this? I'm not US lawyer, but speaking of misclassification, I can come up with some sort of example. So in my opinion, the misclassification, like, globally is quite important from from The US perspective because there are many US companies that hire workers globally. Right? And not all of them are making proper assessment when hiring workers globally. So I I assume that many workers hired through by US companies may be reclassified as as employees because they they are under under control of of the principle that engages them. We had another question about whether you could might might need COR as well as EOR at the same time. So it really does just depend on the type of work that is to be done and the degree of control that you might have in supervision over that employee. So some employees might be solely suited to be as a regular employee hired through Ripley's EOR. So in those circumstances, Ripley would be the legal employer and responsible for, you know, paying taxes and Social Security pensions and and whatnot and managing that employment relationship. And we work closely with our clients who, you know, need to hire those employees. But that would be a more typical employment situation where you're in control of their day to work today work, and we have supervision of them. There might be more cases where it's more appropriate for a worker to be placed on the COR, and so that will be determined with you. But, definitely, those those options are available. Someone also asked, is there a distinction between a contractor and and consultant? I would say that it's more of a naming convention. So consultant can be independent contractor, and contractor can be independent contractor. I I know that it might not it might sound odd, but we need to look at what is behind the the the relationship. So we need to look at the contract and the the the the real the the actual relationship between between both parties. But but one of the trigger that will will will show you whether someone is a is a is a true self employed contractor would be whether that person has a self employed company. Right? Because most of self employed contractors, they act within the capacity of their self employed companies. We we've had a question that some on board of a comment that some of these rules for contractors versus employees seem ambiguous, and that even contractors are gonna get some sort of direction from the company. That's why it's really important to look at this from a broader perspective. There's not just one sole rule that determines classification as we've mentioned. So it's not just about direction from the company. It's things about in terms of how financially sustainable that contractor's work is, if they can support themselves by doing work for multiple clients, working across multiple projects, and they're not solely reliant on your business for their income. Additionally, as we've discussed, there's there's factors like the permanency of that contract. So it's not, as I said, just about the direction that your company is giving them. If there's a defined end date and they're on a per project sort of scope of basis of work, then that's another good factor that they're more akin to being a contractor. K. I'm looking if there is some other questions, but I don't see them. We have a question that it sounds like using a contractor of record is the safest way and least burdensome way to go. Do you agree? Look. I think that's really dependent on the situation. There's there's pros and cons to both approaches. And, of course, what we encourage you to do is reach out to Rippling with any questions after this session if you require specific advice, and one of our global advisers can be in touch to discuss that case and determine what's what's the right service for you and and your workers. So please don't hesitate to reach out after the session. Think we've got almost finished here. We've just got one minute to go. So if anyone has a really burning question, please feel free to send it through. If not, everyone can have a little bit of time back, and and we really appreciate you carving some time out of your day to be here with us. As mentioned, we will be sharing the slides and recording of this presentation with attendees, our global advisors at Ripling are here to help you correctly classify your workers. Alright. Thank you, everyone. Enjoy. the rest of your day. Great. Thank you everyone for having us and and listening to to our presentation. Thank you.