Remote working - employment vs contracting

See which one is right for your startup and check out the pros and cons of EOR, PEO, and more

Remote working is more popular than ever. With distributed teams scattered across the globe, the question of how to work with your international team is an important one. Should you contract or employ full-time, which is better, and what's the impact. We discuss the pros and cons to help you navigate the uncertainty.

Your startup needs the best talent, not just the best of the local area, but the best possible and that means your team could be scattered across the globe.

Plus, paying thousands in rent each month is definitely better avoided.

With this attitude becoming more common, plenty of tools have sprung up to help us communicate better, manage asynchronously and effectively collaborate when working remotely.

How to actually employ and pay these global teams has remained somewhat of a mystery for some start-ups, as well as larger companies who face legal and regulatory issues when it goes wrong.

We will help you understand the remote solutions available and navigate which is right for your company.

Contracting

Contractors are independent, third-party workers. They might work for themselves, or for a separate company. They work on contracts for specific purposes and don't have benefits like holidays, healthcare, and parental leave.

Employment

Hiring an employee means your company onboarding an employee, adding them to payroll, withholding and paying taxes for them as well as being obliged to provide holiday and abide by employment law.

Which is better?

On the face of it, contracting sounds cheaper and more flexible, giving the company more benefits, however, it's important to understand that it's not as simple as that.

Understanding which to use depends on how you interact with them. Treat them like an employee in some aspects such as supervision and time commitment, and they will be legally viewed as an employee worker.

If you treat someone as an employee, you can't simply call them a contractor. For example, if you have a bakery and you hire someone to make your cakes, tell them how to do so and expect them there Monday-Friday, they will be an employee. If you needed someone to design your logo for the bakery and pay them based on delivery of the logo only, then they will be a contractor.

Many staff may feel more comfortable and valued if they are employees so it can affect morale.

Misclassifying, using a contractor agreement when you should have used employment, can result in penalties and fines from the local tax authorities and even potential issues with shareholders or investors.

Employment vs Contracting

How do I employ people who are not in my home country?

If you want to have a virtual work environment with people who are not based in the same country as your startup, you have a few options.

1. Incorporate a subsidiary

Set up a company in that country to employ staff.

Pros:

More control over the process, fewer risks with intellectual property, compliant with regulation. Can be cost-effective if you have several employees in one country, or essential if you employ significant functions such as sales or key decision-makers.

Cons:

Costs involved in maintaining and set up, increased admin.

2. EOR and PEO

EOR (Employer of Record) services, PEO (Professional Employer Organisations), remote staffing agencies, or similar hiring entities are overseas professional companies that employ people on your behalf. They are fully compliant with local laws and allow you the benefits of employment without the commitment of setting up a company.

Pros:

Quick, compliant with regulation, and low admin to maintain. (although, a PEO and an EOR are different, and you need to be sure which one you need. EG in the US, you will most likely need a PEO)

Cons:

Can be expensive, and generally only makes sense for under 5 employees per country.

3. Contracting

For freelancers who you treat as contractors.

Pros:

Lower costs due to no taxes or benefits, less compliance burden, no geographical restrictions.

Cons:

Limits on how you can treat them.

For all of the above, the final consideration is payments. Check out our post on international currency accounts and US banking in our blog.

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