When should businesses consider hiring employees through an EOR instead of contractors?

Introduction

It’s time to hire new team members. You’ve decided the position will be remote, and you’re open to working with people located in other countries. Should they be employees or independent contractors? How would you go about the hiring process?

Hiring foreign independent contractors may seem more straightforward than hiring global employees. However, it would be best if you considered which will be a better fit in the long run.

Picking the right team member can help your business. For instance, 25% of job applicants are searching for better work culture. An inefficient hiring process can cost the company about one-third of that position’s salary. This doesn’t even consider the cost of establishing a local entity to hire.

When you hire new workers, they must fit with your business and the rest of your team. So, let’s consider whether you should hire international employees or independent contractors and how an Employer of Record (EOR) can help.

What is an independent contractor?

An independent contractor is all in the name. They are workers who contract with clients on an independent basis. They are also called freelancers or sole proprietors. Often, countries differentiate between independent contractors and employees. Companies must pay taxes and provide benefits for each of their employees. However, the same is not required for independent contractors.

Here are some key differences when deciding whether to hire international contractors or employees:

• Level of supervision: Independent contractors are in charge of themselves. Their clients need help managing how they work or controlling the process.
• Control work hours and location: With independence in mind, contractors can schedule work time and breaks. In addition, the contractor gets to choose the place they work on their service.
• Employment cost: Instead of the employer setting the salary, the independent contractor sets their rates. They get to decide the price they think their service is worth. This can be an hourly rate, a set rate, or another way.‍
• Level of protection by employment laws: This is the part where independent contractors must be careful. Their countries’ employment laws protect employees, but independent contractors are not entitled to the same protection. They don't receive statutory benefits, a minimum wage, or overtime wages.

When should you hire foreign independent contractors?

After hearing how contractors and employees differ, you may have strong feelings about hiring foreign independent contractors. Perhaps the lack of control is unappealing to you — or maybe you like the idea of cost savings. Whichever way you’re leaning, certain situations may be more beneficial to hire international employees or contractors. For example, hiring global employees offers more consistency and a longer-term commitment.

Now, consider when hiring foreign independent contractors would be in your best interest.

Short projects

If you have short projects that you need completed — especially projects outside your company’s primary pursuit — you may want to hire international independent contractors. Contractors can provide the expertise of their field without the business needing to hire them long-term.

Wavering workloads

There are certain periods when a company has substantial work to complete. Then, the next month could have little to nothing to offer. This is a perfect chance to use independent contractors. You can contract out when you need the extra hands. But when the work is done, they can work for other clients.

Starting small

Small businesses may need to gain the capability of hiring full-time employees. When you are starting small, your revenue is smaller, too. Independent contractors can fill those gaps and not need certain full-time positions.

Managing a newly launched organization

Are you starting a new business? This can mean any or all of the above situations. You may need some beginning projects, like starting a website, that you can’t take on yourself. You may also not know how large of a workload some positions will be. Independent contractors can help until things become more stable. Then, perhaps you can convert them to employees.

What is an EOR?

An Employer of Record (EOR) is a third-party platform that enables organizations to hire employees, onboard talent, manage payroll, and ensure compliance with country-specific employment laws without the organization setting up a subsidiary. Hiring an employee from another country can be a major undertaking. Most countries require a company to own a local entity to hire their residents. Once established, you must comply with local employment laws, including minimum wage, taxes, and benefits. This doesn’t consider best recruitment practices, onboarding, and more.

An EOR can help you with the hiring process for both international employees and independent contractors. If an EOR offers services in a country, it has an active local entity. In other words, it simplifies and destresses international hiring processes.

You can even use an Employer of Record for independent contractors. Skuad’s EOR provides a unified platform to gather and save all necessary documents securely. Also, contractors will enjoy features like invoice templates and instant payment in over 100 currencies.

When should you choose an EOR to hire employees?

If you're ready to hire international employees, an EOR may be for you. Here are some situations in which EOR services can help make international hiring easy.

When you require financial support

You will need a local entity to hire in most countries. You can establish your legal entity, but it is an expensive undertaking. Businesses need starting capital when they create an entity. Depending on the country you try to hire, the capital required may be extensive.

Companies that work with Skuad’s EOR service don’t need to worry about establishing their entity; EORs have already established legal entities in the country. Thus, the company would hire international employees through them. The EOR will take on the legal responsibilities of your employees, but they will be under your management.

When you want to attract talent with relevant benefits

Other countries may not require the same benefits that yours might.

On top of that, international hires may have different priorities. Cultures, living costs, and more play into the benefits that employees find important. Trying to keep all of your global benefits straight can be overwhelming for your HR team. However, EOR services are made with this exact issue in mind.

An EOR like Skuad has legal experts who can guide your business through the complexities of your employees’ expected benefits. They will know what the country’s government requires and what supplemental benefits will make your company competitive.

Data protection and security

Keeping your company and employees’ sensitive information safe is necessary. There is always the concern for data breaches when relying heavily on technology, even more so when considering outsourcing business processes, such as with EOR services.

However, outsourcing shouldn’t be stressful. Skuad’s EOR services can make your business more secure. We have a globally encrypted platform to protect your data. We also ensure this protection meets the highest standards, including the European Union’s General Data Protection Regulation (GDPR).

Intellectual property ownership

An EOR’s protection doesn't stop at your data, either. At Skuad, we also understand the importance of securing intellectual property rights. This can be especially true when you're working with independent contractors.

Skuad has comprehensive intellectual property agreements that its partner companies use with its workers. These agreements guarantee that the company retains:

• Copyright
• Trademarks
• Exclusive rights

Establishing a subsidiary or a local entity to hire foreign employees

Some businesses may think outsourcing with an EOR will force them to lose control over their employees or be a waste of money. They may think that since they can open a subsidiary or a local entity alone, such is the best way forward. While creating a subsidiary may be suitable for some companies, there are several reasons why an EOR can help businesses.

High cost

Establishing a local entity is not a cheap endeavor. The average global startup cost is 19.8% of gross national income per capita. While the startup costs differ by country, businesses can expect to pay for initial capital, a local location, and a local representative.

Slow process

It takes time to establish a subsidiary or a local entity in a new country. You must establish a local office and register with the appropriate government offices. On average, it takes 20 days to create a business.

High risk

With your local entity, you will be responsible for compliance with local employment law. If you are found to be uncompliant, you will have to deal with all the legal repercussions.

Using an EOR service like Skuad adds a layer of legal protection to your company. Because we would be the legal employer, we take on the liability and other legal responsibilities that come with it.

Hiring with Skuad is efficient, cost-effective, fast, and compliant

When it's all said and done, you need to do what is suitable for your company.

To make the right decision, you need to understand all your options. Hiring foreign independent contractors is excellent for temporary work, whereas hiring global employees will help you retain workers and build your workplace culture. The hiring process, in either case, can be simplified with an Employer of Record.

Choosing the best Employer of Record also depends on what is right for your business. As such, Skuad works to provide the best employment solutions to our partners. We have established services — hiring, onboarding, paying, managing, and shielding — in over 160 countries.

Book a demo today to learn more about how Skuad can help you.