Every country has its own rules governing whether employers should classify talent as a contractor or an employee. Contractor misclassification occurs when an employer classifies talent as a contractor despite local authorities requiring that talent be classified as an employee. While laws differ by country, some general distinctions between contractors and employees hold true:

Many employers assume engaging contractors is easier than hiring employees because they do not have to offer benefits, draw up compliant employment contracts, or make long-term employment commitments. But misclassification risks—including fines, legal fees, business interruptions, and reputational damage—make engaging contractors more risky than it might initially appear. At the same time, hiring employees is a much easier task when companies work with an EOR. The EOR handles onboarding, payroll, benefits, local HR support, and ongoing compliance so the company can get the peace of mind that comes with hiring full-time employees—without having to take on extra administrative burden.

If authorities or courts find an employer liable for contractor misclassification, they’ll impose serious consequences such as fines and reimbursements for unpaid taxes and benefits. The company will also be responsible for legal fees and potential settlements for the workers it misclassified. Furthermore, the employer could lose out on business opportunities due to lengthy lawsuits or in-court battles. Sorting through legal entanglements draws resources away from business development, making it harder for companies to keep their operations running forward on all cylinders. It can also result in reputational damage that causes other companies or talent not to want to work with the employer.

There are a number of criteria employers must evaluate when determining whether they are correctly classifying contractors. Factors include how long the employer has been working with the talent, whether the talent also works for other employers, and if the employer controls the talent’s schedules. Contact us if you’re interested in learning more.

Converting contractors to full-time employees may seem like a daunting task—especially for employers that originally chose to engage contractors because they didn’t want to go through the process of establishing the legal entities they need to compliantly hire employees in new countries. Or because the employer did not possess the expertise or resources required to create and administer country-specific benefits packages to employees.

Working with an EOR helps employers overcome both challenges while making it very easy for them to hire new employees, offer local HR support, and stay compliant. The company simply identifies the contractors that it wants to convert and then enlists the EOR to become their legal employer. The EOR uses its network of entities to onboard the talent as employees. The EOR also handles payroll, administers locally compliant benefits packages, and offers ongoing in-country support when employees have questions.

Through EOR, companies can not only quickly and compliantly convert their contractors to employees but also keep them fully supported and cared for throughout the extent of the employment relationship.