Companies today are looking to stay ahead of their competitors by hiring the best talent across the globe. However, to scale up operations quickly, they are turning to independent contractors instead of full-time employees.
Independent contractors are self-employed persons or entities who offer their services on a project-by-project or fixed-term basis. Unlike employees, independent contractors don't receive any statutory benefits from the companies they work for, and they control when and how they work. According to the Internal Revenue Service (IRS), a person is not an independent contractor if an employer controls what they do and how they do it.
There are many reasons your company may choose to hire independent contractors. For starters, independent contractors already have the knowledge and skills to handle their jobs, meaning you won't have to invest time and resources in their training. Besides, they are ideal for short-term projects or when you need to fill in gaps during peak seasons. And because they don't require benefits packages, they can be more affordable than employees.
If you’re looking to leverage the services of independent contractors, this article discusses the best ways to hire, onboard, and pay them.
How To Hire Independent Contractors
When hiring new independent contractors, you should be careful not to engage in employee misclassification, as this could have serious implications for your business. This is when you define your new hire as an independent contractor when the terms of your agreement or the nature of their job show they are an employee.
Because the difference between an independent contractor and an employee can sometimes be blurry, many companies commit employee misclassification without knowing. Some companies also classify employees as independent contractors to avoid paying statutory benefits and payroll taxes.
Misclassifying workers can lead to serious legal and financial penalties from government regulators and potential lawsuits from the individuals you’ve misclassified.
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How Skuad Can Help Hire Independent Contractors Compliantly Without Misclassification Risk
Skuad is your ultimate employer of record for independent contractors. With vast knowledge and experience in hiring across multiple countries, we can help you hire and manage a remote team of contractors from almost any country of your choice. Below are several ways Skuad can help:
Avoid Employee Misclassification
You can avoid employee misclassification and the consequences that accompany it when you engage Skuad before hiring independent contractors. After settling on the contractor(s) to hire, Skuad will craft and send compliant employment contracts for them to sign before beginning work.
These contracts include details such as:
- Duties, compensation, and confidentiality requirements
- Intellectual property (IP) protection information regarding the work created by the contractor
- The contractor status of the worker, showing they are an independent contractor and not an employee
Upon hiring, Skuad will also manage the independent contractors to ensure they are not performing duties that go against the contract terms. As a result, the likelihood of engaging in employee misclassification will be low.
But even if your company faces an issue of employee misclassification, you’re safe from all legal risks when you partner with an EOR like Skuad. That’s because EORs assume responsibility for all employees or contractors they oversee.
Hire Contractors Without Establishing an Entity
Before hiring in a foreign country, you’re required to establish a legal entity in that country. However, setting up your entity can be expensive and time-consuming. Apart from the long list of registration requirements, you might need to hire a local representative as well as legal and accounting teams.
By partnering with Skuad, you don’t have to establish entities in the countries you are hiring from. Skuad is licensed to provide EOR services in multiple countries worldwide and will handle the hiring, onboarding, and payroll process for you.
Attract and Hire Skilled Contractors
Skuad has resources all over the world. If you’re looking to expand your business internationally, we know where and how you can get the best independent contractors for your needs. With multiple skilled contractors working for you, you can complete more projects quickly and efficiently.
How To Onboard Independent Contractors
Many companies rush through the process of onboarding when hiring foreign independent contractors. This often results in a low-performing contractor and a dissatisfied company.
A good contractor onboarding, on the other hand, has the following benefits:
- Bolsters contractor engagement and performance: A good onboarding process helps the contractor align with your company’s values and goals.
- Aids cultural assimilation: The onboarding process offers a great opportunity to get your independent contractors acquainted with your company's culture.
- Sets clear expectations: Independent contractors are often hired to perform a specific function making use of their specialized skills. Good onboarding communicates the role(s) of and expectations for the contractor.
- Saves time: Good onboarding ensures the contractor knows their tasks by the time they begin work. Your company can also provide any tools needed for the job in advance. Upon hiring, the contractor can get to work immediately without wasting valuable time learning about their responsibilities.
How To Onboard an Independent Contractor With Skuad
The onboarding process for new independent contractors can be tedious and overwhelming for your in-house human resources (HR) team, especially if you're hiring many independent contractors at once. The good news is that Skuad can streamline and simplify the entire process. Here are several ways Skuad can help:
- Doing background checks on new hires
- Collecting signatures
- Handling all paperwork (contract agreements, tax documents like W-8 or W-9, and confidentiality agreements such as NDA)
- Adding contractors to your company’s payroll
- Generating reports
With Skuad, you can also have peace of mind that all your records and employment-related data are maintained and backed up properly. This is useful if you need to access the data in the future.
How To Pay Independent Contractors
Paying foreign independent contractors can be complicated, as you’re dealing with different currencies, banks, tax laws, and payroll requirements. Besides, if your contractors are distributed worldwide, you have to factor in time zone differences when paying them. Not to forget that independent contractors determine their schedules, so collecting data from them for payroll processing can be challenging.
The best way to pay independent contractors online is to use Skuad’s automated payroll platform. With 100+ supported currencies, this platform allows you to handle all your global contractor payments from a single unified dashboard. And you don’t need to make payments for each of your contractors. You just need to remit the monthly compensation for payroll in your preferred currency, and the money will be sent to all the contractors on your payroll in their currency of choice.
In addition, Skuad ensures that independent contractor payments are made in compliance with the relevant employment laws. This eliminates risks that may arise from breaking employment and payroll laws. And if you want, you can easily access all your payroll reports from the dashboard, so there’s no need to keep manual spreadsheets from different countries.
How To File Independent Contractor Taxes
Independent contractors are required to file their taxes. However, depending on the country you’re hiring from, you must keep track of all tax payments and report to the relevant authorities. Here’s how you do it:
Hiring US-Based Independent Contractors
Before anything else, you should request a filled-out Form W-9 from your US-based contractors. This form provides details such as the contractor's name, address, and tax identification number (TIN) or social security number.
In addition, you need to file Form 1099-NEC (Non-Employee Compensation) to report to the IRS how much the contractors earned during the year. The deadline for issuing this form is January 31, and the form only applies to contractors who made more than $600 in the previous year.
Hiring US Citizens Living Abroad
Independent contractors who are US citizens but living abroad are treated the same way as US-based contractors. As the employer, you should file Form 1099-NEC to the IRS if your contractors earned over $600 within a year. However, there are instances when tax obligations change, so it's advisable to consult the IRS on your specific case. You can also check IRS Publication 54 to learn more about tax implications for contractors living around.
Hiring Foreign Independent Contractors
If you're hiring contractors from foreign countries, you need to ask them to provide the IRS Form W-8BEN. This form proves the contractor is not a US citizen. It also guides the hiring company on tax withholding and reporting obligations.
If the payments made to foreign independent contractors are not US-sourced income, you don't need to withhold taxes or report the payments to the IRS.
How Skuad’s Platform Simplifies Filing of Independent Contractor Taxes
Keeping up with tax compliance requirements for your independent contractors can be complicated. Fortunately, Skuad’s automated payroll platform comes with built-in compliance, allowing you to run payroll compliantly, no matter where you’re hiring from.
Here are some of the ways Skuad’s platform can help you:
- Withhold taxes from your contractors’ paychecks automatically, so you don’t have to collect from each one of them individually
- File forms with the IRS (W-9, 1099, W-8BEN) compliantly
- Keep track of contractors’ earnings and deductions to ensure there are no errors.
Simplify the Process of Hiring, Onboarding, and Paying Contractors With Skuad
Working with a global EOR like Skuad is a sure way to avoid the hassle that comes with hiring, onboarding, and paying foreign independent contractors.
Skuad's global network reaches more than 160 countries, giving you access to talent from almost anywhere across the globe. And with Skuad’s automated payroll platform, you’re assured of efficient payroll management, intellectual property and data protection, and full compliance with country-specific employment laws and tax regulations.
Schedule a demo with a Skuad today.