The reasons why you need your own staff
Hiring contractors – or independent service providers – in a format that does not require employer-employee relations may sound like a positive solution in terms of budget, as well as professionally. However, most organizations are unaware of the regulatory hazards such employment entails, and are therefore exposed to major lawsuits based on complex labor laws. This becomes an even greater threat to the company’s employment relations when it comes to hiring global contractors.
What are the challenges in hiring contractors, and why should you maintain business interactions based on Hired and committed employees? Here are some of the hazards you should know:
A Minimal Level of Organizational Control
The control you have over contractors is not equal to the control you have over hired employees. Any work contract signed between an employer and a contractor is supported by obligations and privileges that ensure the contractor’s complete autonomy during your collaboration. Employers who hire contractors and try to intervene in their work as they would with hired employees will be liable by law for salary-related taxes, insurance, compensation, and more. Thus, for instance, company employees are entitled to work-accident insurance as part of their employment, in exchange for their waiving the option to sue the employer in case of damages. Contractors, on the other hand, are not covered or entitled to such compensation, and so if they are hurt while carrying out the work, the employer is liable to a complicated damages suit. Other types of undesirable intervention in relations with a contractor include defining work methods, professional training provided by the employer, and even permission to use the company’s equipment for the purpose of the work.
Breach of Copyrights and Subjugation of Intellectual Property
If the employer hires a contractor to provide some sort of creative product, i.e. intellectual property, this does not mean that project will be subject to the employer’s formal ownership. In this case, the autonomous contractor will be entitled to the copyright, unless the work contract expressly prescribes otherwise. Intellectual property laws are subject to a vast and detailed realm of the law which does not allow for any grey areas when it comes to employers and employees, but this is not so in the case of independent contractors.
Hazard of Breaking Labor and Employment Laws
When a company hires contractors as part of its legal interaction with government offices and authorities, regulatory audits may find irregularities and flaws in the process of employment. The finer legal points entailed in defining the contractor’s nature of employment may give rise to suspicion in regulatory authorities like the Ministry of Labor or the Income Tax Authority.
The reason employers receive the short end of the bureaucratic stick when it comes to employer/contractor relations may be explained by economy. The authorities will often prefer employer-employee contracts, because in this way the institutional operation is taxed more effectively and widely, thanks to taxes on income and insurance funds. There are a number of measures an employer may take in order to reduce the risk of labor law and/or income tax claims. One example is conducting an internal audit with the purpose of ascertaining the precise definition of the contractor’s status vis a vis the employer. The basic and most important step, before beginning work, is drafting an employment contract with the independent contractor, which is supported by law and sets all aspects of the collaboration in writing, explicitly. This can help reduce any future damage which may cause great losses or even the closing of the company.
Summary
Direct hiring of contractors poses actual risks for the employer. This is of the utmost business-related, financial and bureaucratic importance, and could have a definitive effect on your company’s organizational and operational activity. This becomes even more bureaucratically complex when it comes to hiring contractors outside of the employer’s home country, as regulatory laws change between countries.
In order to reduce the risk of being sued by contractors in unforeseen circumstances, or the risk of getting entangled in complicated local regulatory snafus, we recommend using the services of companies that have expertise and specialize in labor law bureaucracy, on a local and international level.
Global People’s local and international experts are here for you to assist in establishing a team that is stable, reliable, and committed and form a legal and fully compliant employment plan so that you can focus on growth.
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