Why an EOR Is the Best Way To Pay International Contractors

Why an EOR Is the Best Way To Pay International Contractors

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Introduction

Expanding globally and building a remote team can be rewarding and challenging. For a company to hire international contractors or remote international employees, they need to know the costs of hiring. Also, they need to know about the potential legal pitfalls of non-compliance with complex employment laws and the options companies have to make hiring or contracting easier, quicker, and legally safer.

The easiest way for companies to overcome the many challenge and risks of international hiring is by working with a third-party global payroll platform. Solutions exist for employers to hire and onboard remote employees in countries where they don’t have legal entities established, for accurate, timely payroll processing, and for payroll taxes to be calculated and remitted correctly, all the while remaining compliant with local employment and tax laws.

Your company can pay contractors and employees if you have an entity in a country where you’re hiring workers. If you have an entity, you can either have your global payroll processed or work with a co-employer, such as a professional employer organization. Alternatively, if you don’t have legal entities, one of the best ways a company can stay compliant while easily paying employees and contractors is by partnering with an employer of record (EOR).

What is an EOR?

An employer of record is a third-party employment platform that enables organizations to hire employees and contractors worldwide. Skuad can enable organizations to hire in over 160 countries across the globe. Hiring foreign contractors and remote employees in foreign countries can only be challenging with local legal entities. Establishing an entity is typically a lengthy and costly process.

An employer of record can solve that issue by becoming the legal employer of your employees on paper. You still direct your employees and take care of day-to-day business operations. Still, the employer of record does the hiring, eliminating the need for you to establish entities, and handles numerous human resources tasks for you. This can be especially beneficial if you are expanding in multiple countries across the globe.

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Benefits of an EOR

Using an employer of record to hire remote workers and contractors can be beneficial to your company in numerous ways:

  • An employer of record removes the legal requirement for an established local legal entity in a country where you’re hiring employees.
  • Your company can be paid by contractor management without a local legal entity to contract with independent contractors, who can be paid by contractor management.
  • Hiring is easy with an employer of record, which becomes the legal employer of the employees.
  • Onboarding brings new hires to the team and onto the payroll seamlessly.
  • Onboarding independent contractors is similarly easy as the EOR can collect invoice and payment information and sign legal contracts.
  • Payroll is accurately processed, payroll taxes are paid, and employee income tax withholding.
  • The employer of record ensures compliance with local employment laws, which differ by country.
  • The employer of record ensures compliance with tax laws and pays payroll tax and contributions for both employee and employer.
  • Benefits are administered to your employees, keeping them in compliance with laws.

Hiring With an EOR

It's essential to follow the local laws wherever you are hiring, including laws pertaining to paying independent contractors. Compared to hiring payroll employees, contracting with independent contractors carries certain risks, such as the potential for misclassifying the workers as independent contractors if they are considered employees from a legal point of view.

There may be an employment relationship if you treat the worker in certain ways, such as telling them how much the employment will cost as if the payments were wages, specifying where the worker must be and at what time, and setting a schedule, and so on.

Contractors are self-employed and own a service business, so they set their prices, choose their workplace and time, and can work for other clients. If that is respected, then misclassification is unlikely. To work with a contractor, an EOR can make legally compliant contracts for them to sign, can collect payment information, make agreements on the work, and pay their invoices accurately and timely.

Hiring payroll employees is easy with an employer of record. Once the recruiting process is complete, and candidates are screened and interviewed, they can be onboarded onto the team, provided equipment or allowances for equipment, given company policies, trained, and added to the payroll. Once the new hires begin work, they can be compensated and paid statutory benefits when necessary. The EOR is the legal employer and can draft employment contracts for the employees to sign when onboarded.

Payments With an EOR

You might still decide to hire independent contractors despite the potential risks. A few options available to your business regarding paying the contractors' invoices are available. The best way to pay contractors online is to use a contractor payment system such as Skuad’s contractor management.

Payments to contractors do not need any withholding of income tax, as contractors take care of their tax filing themselves, nor are any contributions made to social security. Payments to contractors are simple – they send an invoice, and if it is correct, you pay the invoice.

If you’re hiring employees with an EOR, payroll processing is managed entirely by the EOR. Your employees’ hours are accurately tracked, and payroll processing. Employer-paid payroll taxes and mandatory contributions to social security and insurance programs are made. Required employee contributions for these programs are deducted from employee wages, and the appropriate income taxes are withheld, after which the salary payments are deposited in your team members’ accounts at the appropriate payment frequency.

Functions of an EOR

The functions of an EOR are outsourced human resources and payroll services. Your employees are still your staff, and you can dictate how you want your day-to-day operations to be run. The employer of record handles the HR duties while you focus your time and effort on expanding the company and succeeding in your company’s business goals.

Specifically, an EOR:

  • Does the hiring of new employees and getting them onboarded
  • Creates and signs compliant employment contracts
  • Tracks employee hours and timesheets or, in the case of contractors, pays contractor invoices
  • Processes payroll and take care of payroll taxes
  • Handles paid time off for employees.
  • Administers statutory benefits – all the benefits required by local employment laws
  • Takes care of offboarding and terminations in a legally compliant way
  • Stays on top of local employment laws and remains in compliance when laws change
  • Provides human resources support for the company
  • Ensures there is no misclassification of contractors when contracting with independent contractors and stays in compliance with the law

Conclusion

Paying independent contractors may save your company some money by not needing to pay statutory benefits and a minimum wage. However, you can pay a competitive rate to attract the best and most talented workers. Working with contractors comes with a risk of misclassification. Employees are protected by employment laws and would need a minimum wage, overtime, and other benefits, so ensure there is no employment arrangement when working with contractors.

Compliantly paying independent contractors is not an issue if you correctly classify, treat, and pay contractors. Suppose a worker can be considered an employee. In that case, you need to do certain things to ensure employment law compliance, such as making social security contributions, withholding income taxes, providing statutory benefits, and paying payroll taxes.

You can minimize the risk of non-compliance if you do not misclassify your contractors. Payments to independent contractors can be made when they send you invoices. Skuad’s outsourcing platform is the best way to pay subcontractors, contractors, and employees.

Skuad – an EOR Platform

If your company is considering contracting with independent contractors, there are several options for paying the invoice and compensating the contractor. Suppose your company will establish a legal entity in the nations where you’re hiring. In that case, you can pay employees in-house or outsource payroll services to a global payroll service. Otherwise, you can partner with a global employment and payroll platform like Skuad as your employer of record for independent contractors.

The employer of record platform can handle all the hiring, onboarding, benefits administration, and legal compliance for your company without the requirement to establish a local legal entity in the countries where you want to hire.

No matter which method you choose to pay international contractors or employees, make sure to partner with a solution that will handle payments compliantly and remain compliant with all employment and tax laws. For simplicity, flexibility, and compliance, working with Skuad is the best way to pay international contractors.

Book a demo today to see how Skuad can help your company hire international employees or manage payments and invoices for independent contractors.

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