How to Avoid the 5 Major Global Risks of Hiring Independent Contractors Abroad
Want to know how to avoid the common risks of hiring independent contractors (abroad)? I'm sharing the simple legal tips you must know to avoid losing your money and business.
The right independent contractors can take your business to the next level, but if you're anything like me, you want to avoid the major risks of hiring independent contractors, which could destroy your business. As a lawyer myself who drafts contracts for (global) online entrepreneurs like you, I'm sharing exactly how to avoid all the common risks of hiring independent contractors in foreign countries.
You will learn all about how to avoid the major risks of hiring independent contractors, so you'll know exactly which steps to take when hiring freelancers from abroad to reap all the benefits of a foreign independent contractor, not the potential disasters.
After learning all about the key steps you must take to avoid the risks of hiring independent contractors, you'll keep your money and business protected, and your business can only flourish.
This post is all about the crucial steps every entrepreneur must take to avoid the major risks of hiring independent contractors in foreign countries.
Risks of Hiring Independent Contractors
The major risks to avoid when hiring a foreign independent contractor
Risk #1: Misclassification
The #1 risk of all the risks of hiring independent contractors every entrepreneur worries about is misclassification.
If the tax authorities classify your independent contractor as an employee, you could get hit with major fines, back taxes, and liabilities for social security contributions and other employee benefits.
Governments from different countries are putting in more effort to combat the exploitation of loopholes in labour laws. Even if it is not your intention to go around labour laws so you can pay your hires less, without the right protections, the (foreign) government could still come after you. Not only would that hurt you financially, but the public scrutiny you could face would also hurt your (company's) reputation.
So, how do you combat these risks of hiring independent contractors? Here are some simple legal tips:
Clearly state in your contract the status of the contractor as a contractor and that you explicitly exclude an employment relationship.
Avoid any language in your hiring contract that could imply employment, such as a fixed salary, vacation days, supervision, etc.
Include terms in your hiring contracts that make clear that your contractors are completely independent in how they perform their work. It must be clear that your contractors can determine, at their sole discretion, how, when and where they perform their work.
Include an indemnity so that the contractor will hold you harmless (compensate you) for any penalties, back taxes and other costs you may incur if the contractor is classified as an employee by the tax authorities.
Also, clearly state that you acknowledge that the contractor performs work for other clients.
Also, consult a tax advisor on what tax filings you may need to make for independent contractor classification.
Risk #2: Availability issues & less control
Another one of the risks of hiring independent contractors is availability issues and less control.
Independent contractors are, by definition, self-employed and operate autonomously. This means you have less control over how and when your contractors complete their work (as you would have with employees).
Usually, independent contractors will work for multiple clients and have other priorities, and that can create some time management issues.
Your contractor might not (1) always be available for a call with you, (2) be able to manage their own time properly, or (3) go completely MIA.
That could ultimately result in some major risks for your business, such as the following:
Project delays that could have a ripple effect on your short and long-term deadlines
Your client relationships and, ultimately, your company's reputation could get hurt if late deliveries of your contractor's work result in late deliveries of work to your clients.
Potential losses due to getting paid less by your clients for late delivery and lower client retention
So, how do you combat these risks of hiring independent contractors? Here are some simple legal tips:
Clearly define the scope of work so your contractor knows exactly what they need to do for you and they can manage their time better.
Set deadlines for each task, even for tasks that don't have an end date. For example, when hiring a contractor for customer care, set the number of hours within which the contractor must answer each customer's email.
Clearly state the hours during which the contractor is available for work (but not when the contractor performs work for you specifically).
Set financial penalties, termination and payment suspension rights for when the contractor does not deliver or meet deadlines.
Risk #3: Intellectual property concerns
The next one of the major risks of hiring independent contractors is copyright ownership of the contractor.
When hiring independent contractors abroad, intellectual property concerns become more important.
In most countries, the work that independent contractors create automatically becomes their property, not yours, unless you have a proper contract that determines otherwise.
But if you do not have the proper legal terms in place, your independent contractor could claim ownership of all the work that the contractor created for you. That could then result in the following consequences:
The contractor could share those deliverables with anyone else.
The contractor could reuse the work and deliverables you paid them to create for their other clients, even competitors.
The contractor could even start their own business and sell the deliverables or services of your business to their own customers.
So, how do you combat these risks of hiring independent contractors? Here are some simple legal tips:
Clearly specify in the scope of your contract what deliverables the contractor creates for you and what services they provide to you.
Include iron-clad IP assignment and transfer terms in your contract that state that anything the contractor creates under the contract will become fully and exclusively owned by your company.
Include confidentiality provisions to protect all your business's information during and after the contract period, so the contractor can't share anything about the work created for you with anyone else.
Risk #4: Lack of company loyalty
The clear risk of the common risks of hiring independent contractors is a lack of company loyalty.
Although employees have become increasingly less loyal nowadays as they hop from one job to another almost every year, independent contractors are typically even less dedicated to your company because they work for multiple companies. An independent contractor will usually prioritise higher-paying clients over you in a heartbeat.
That leaves you with the following risks:
Lower quality work, especially if your contractor splits time between you and other clients the contractor works for at the same time
You could get dumped for a higher-paying client mid-project
Lack of alignment with your quality standards
So, how do you combat these risks of hiring independent contractors? Here are some simple legal tips:
I know I mentioned this before, but also, for this reason, a very specific and clear scope in your contract ensures that the contractor knows exactly what to do and what quality of work you expect.
Pay your contractor the hourly fee the contractor requests or find another contractor (if the requested fee is unreasonable), as negotiating the price down will lead to less attention and quality.
If your contractor has been working for you for a year, maybe you could offer to pay a higher fee yourself.
Consistently show your contractors your appreciation for their work with positive feedback (no one really can really get praised enough).
Ask your contractor regularly for feedback and communicate about what you can do differently so the contractor can perform better.
Especially with long-term independent contractors, I would advise not to include exclusivity and non-compete clauses, as that could be a trigger for reclassification and impede the contractor's independence and ability to work for other clients.
Risk #5: Increased liability and potential legal issues
I've already discussed the liability risks you run in case of reclassification, but there are more liability risks and potential legal issues of hiring independent contractors, such as the following:
The contractor could deliver work that infringes another person's copyrights, for which you could get sued.
The contractor could deliver bad work to your clients or even cause damages to your clients, and your clients could then make claims against your company.
The contractor could end up in a dispute with you or have a claim against you and sue you in a foreign country.
So, how do you combat these risks of hiring independent contractors? Here are some simple legal tips:
Include an indemnity so that the contractor will hold you harmless (compensate you) for IP infringement claims from third parties.
Include an indemnity so that the contractor will hold you harmless for damages of third parties that are caused by work delivered by your contract or your contractor's services.
Choose a legal system that is favourable to your business, such as the laws of your home country.
Choose the best court or arbitral tribunal for your business, like the court of your country or arbitration in your nearest city (depending on which country or state your contractor is registered in).
Ultimately, avoiding all the major risks of hiring independent contractors (globally) hinges on iron-clad hiring contracts. With the proper terms in your independent contractor agreement, you can profit from a flexible, global workforce without running any major risks.
The key protections your contracts must have when hiring freelancers from abroad
Now, you know how to avoid the most common risks of hiring independent contractors. We've also touched upon what you need in your hiring contract to avoid those risks.
But there are more protections that you need in your contract when hiring freelancers from abroad, such as the following:
Protections against getting charged for extra work (you did not ask for)
Protections against less work than you have paid for
Protections against getting charged more for changes to the scope
Learn more about these and other key protections you need in your contract to avoid all the risks of hiring independent contractors abroad in this blog post on the 5 Critical Protections You Need in a Freelance Service Agreement Template When Hiring a Freelancer.
The perfect hiring contract template
Want an iron-clad hiring contract that protects you against all the risks of hiring independent contractors (locally and abroad)?
Get your client-friendly freelance agreement on this page of my contract shop!
This post was all about how to prevent the major risks of hiring independent contractors abroad to avoid losing money and your business.
Learn more about the crucial terms your contract must have when hiring a creative foreign independent contractor in this blog post on the 9 Must-Haves for All Work for Hire Agreements (When Hiring a Creative).
Are you hiring a freelance videographer? Then you must read this blog post on the 9 Essentials for Your Videographer Work for Hire Agreement (When Hiring a Videographer).
Need an independent contractor agreement that includes all the protections to avoid the major risks of hiring an independent contractor abroad? Get your client-friendly freelance agreement on this page of my contract shop!
