The world of work is changing, and the way companies use contractors has changed too.
Contractors were traditionally thought of as an ad hoc solution for short-term projects or to help manage a temporary increase in workload. But today, more and more companies are seeing the benefits of using independent contractors on a more long-term basis as an alternative to permanent employees.
And in 2022, a contractor doesn’t necessarily have to be located where you are to work for you. By opening their doors to remote contractors, companies can get access to a vast pool of talented professionals around the world — and even save money at the same time.
In this article, we’ll take you through everything you need to know before you hire a remote contractor for the first time, including the potential benefits for your organisation and the risks and challenges you should be aware of.
Table of Contents
- What is a remote contractor?
- Benefits of hiring remote contractors
- Considerations when hiring remote contractors for the first time
- 8 questions to ask yourself when hiring a remote contractor
What is a remote contractor?
An independent contractor is a professional who works for a company but is not its employee. Independent contractors (sometimes called freelancers or contractors) operate independently and are not on the company’s payroll. Instead, they invoice their clients for their services, often on a monthly basis.
A remote contractor is an independent contractor who doesn’t work at a location owned by their client. Typically, a remote contractor works from their own home, which could be in the same town, across the country, or even in a different part of the world from the company they work for.
Working with remote contractors comes with many benefits for an organisation. For example, because a contractor is a business and not an employee, you can bypass a lot of the hassle and expense that hiring people entails by using contractors instead.
However, contractors typically come at a higher hourly rate than you’d expect to pay an employee. And there are some other challenges associated with working with remote contractors in particular that you should be aware of.
Benefits of hiring remote contractors
Here are some of the advantages of choosing to hire remote contractors instead of relying on permanent employees:
1. Expansive talent pool
Since remote contractors are, by definition, located all over the world, companies that are open to working with them can have their pick from a large global talent pool.
This gives you a better chance of finding the best people to help drive your business forwards.
2. Knowledge and expertise
Contractors typically move frequently from company to company, which means they amass a great deal of knowledge and expertise in their chosen fields.
Since you can work with contractors on a short-term or flexible basis, this gives you access to top talent at a much lower price than you’d pay for a permanent employee with the same skills and experience.
3. Increased efficiency
Contractors usually work remotely for multiple clients at the same time, which means they have an incentive to get their work done quickly and efficiently.
This can save time and money for your organisation compared to using permanent employees.
4. Potential for cost savings
Freelancers typically come at a higher hourly rate than full-time employees.
However, when you engage a contractor, you don’t have to shoulder all the additional costs that hiring an employee represents, like social security or pension contributions, paid holiday or sick leave, and even office space and equipment.
Considerations when hiring remote contractors for the first time
If you’ve never worked with remote contractors before, there are a few things to be aware of and some common pitfalls to avoid.
Here are some of the things you should consider before hiring a contractor or freelancer to work remotely:
Communication
Contractors are not your employees and typically work on their own time, from their own homes. You’ll need to carefully consider how you’ll communicate with them about their work.
While you usually have less control over exactly how a contractor does their work compared to an employee, it’s still important to have systems in place for effective communication. This ensures that they understand your expectations and know how to contact you if they encounter any problems.
You should be careful not to overcommunicate, as this can leave contractors feeling that you don’t trust them and that you’re treating them as employees. However, not communicating enough can also be a problem, as the contractor might feel lost and unsure of the work they have to do.
It’s also a good idea to assign one point of contact in your organisation for each contractor. This means they don’t have to waste time figuring out the best person to contact, and eliminates the possibility of them getting mixed messages from different people.
Negotiating rates
Unlike employees, contractors tend to set their own rates, although there is usually some room for negotiation. You should think about the budget you have available for a project before you start reaching out to contractors about it.
By communicating your budget early in the process, you can avoid wasting time with contractors whose expectations aren’t in line with yours. However, remember that while a contractor’s fee might seem high when you’ve only ever had permanent hires, you don’t need to pay additional costs and can pause a contractor’s services as required. This means you could still end up saving money.
Depending on the nature of the work and the contractor’s preferences, their rate might be based on:
- An hourly or daily rate
- A project-based rate for the delivery of the full project
- A retainer basis where you pay a lump sum each month to guarantee a certain amount of their time
When a contractor is paid on a project basis, they might request a deposit before the work can begin. They may also ask for partial payments at certain project stages, such as after a specific time period or once an initial draft has been delivered.
You should always agree on any particular payment terms with the contractor before they start work.
Misclassification risks
One of the biggest risks when engaging independent contractors is employee misclassification. This is when a worker is mistakenly classed as a contractor or freelancer when they are actually an employee in the eyes of the local government and tax authorities.
Governments all over the world are keen to crack down on independent contractor misclassification, as it can be used by unscrupulous companies as a way to avoid paying for employee benefits that they are required by law to provide. Failure to comply with the rules — even by accident — can result in fines, penalties and other negative consequences for the company.
Because independent contractors are defined slightly differently in every country, independent contractor misclassification is a particular concern for companies that hire remote contractors abroad. It’s essential that you understand exactly what counts as an employee in any country where you’re considering hiring remote contractors to ensure you’re not at risk.
Asynchronous work
Remote contractors typically work according to their own schedule and may even work in a different time zone than your head office. They won’t necessarily be at work at the same time as your internal team, which can make communication difficult.
This way of working is called asynchronous work, and you’ll need to carefully consider how you’ll communicate with the contractor despite them not being at work when you are.
For example, this might mean adding them to a Slack channel so they can catch up with any news when they log on or asking them to send you regular updates to summarise their progress.
Paying your remote contractors
While getting money across international borders is much easier than it used to be thanks to online and digital banking, there are still some challenges involved in paying your remote contractors.
First, remote contractors might need to be paid in their local currency, so you’ll have to bear in mind potential changes to the exchange rate when you’re defining your budget.
Your bank might also have charges in place for international transfers, so you may want to look into solutions that have been expressly set up to handle this, like Wise or Stripe.
8 questions to ask yourself when hiring a remote contractor
Thinking of hiring a remote contractor for the first time? Here are a few questions to ask yourself beforehand to make sure you’re prepared:
- What is the scope of your project?
- What is the expected timeline?
- What budget do you have available?
- How will you communicate with the contractor?
- Who on your team will the contractor report to?
- Will the contractor need to work synchronously with your team?
- What documentation or resources will you need to provide?
- How will you pay the contractor?
Compliantly hire and pay remote contractors with CXC
At CXC, our mission is to compliantly connect the gig economy by managing compliance risk, tax reporting and payroll for companies who need to pay remote contractors and employees abroad.
We have legal entities in over 65 countries, and we’ll help you eliminate any unnecessary risk exposure through our network of labour law attorneys and HR specialists worldwide.
Our global payroll solution lets you compliantly and conveniently manage your payroll globally.
We’ll also handle compliance risk mitigation and tax reporting on your behalf — so you can focus on growing your business.
Have a question or need help?
Our friendly team is more than happy to help you clarify any questions you may have, even if it is unique or you are at an early stage of implementation.
Contact us today to find out how we can help you.
