Contractor Management

Employer Of Record For Independent Contractors

Mayank Bhutoria

Download our ebook, "Hiring Across Borders With an Employer of Record," to learn how to easily and compliantly hire international talent.

For businesses of all sizes, ensuring compliance with ever-changing local labor laws has never been easy.  Now that employers, for want of evading talent crunch and surging hiring costs in their base country, are hiring talent across borders, they are dealing with newer compliance challenges. Particularly when dealing with contractors, employers have to solve for regulations around employee classification (more on that later), cross-border payments, tax forms, etc.  

Employer of Record services are helping businesses by easing employer-contractor engagements. They simplify contractual obligations, facilitate seamless international payments, and reduce contractor onboarding to a few easy steps. With the EOR market predicted to grow at 6.8% CAGR, using EORs to engage with contractors will be a no-brainer for businesses in the coming years.

To help you stay ahead of your competition, we’ve written this article to teach you how to work with an employer of record for independent contractors and how to choose one for your business.

How Does An  Employer of Record Help Businesses Work With Independent Contractors?

An EOR  helps businesses onboard and pay talent from countries where they don’t have a registered presence.  Regarding independent contractors, an EOR is the legal employer, handling administrative tasks and legal obligations like payroll processing, tax compliance, and benefits administration. Partnering with an EOR for independent contractors allows you to streamline hiring and managing independent contractors so you can better focus on your core business objectives.

Read more: Employer of Record software

Difference Between an EOR for an Employee and an Independent Contractor

An EOR deals differently with an employee and an independent contractor. Let’s learn how an EOR works for an employee and a contractor.

Categories EOR for Employees EOR for Independent Contractors
Employment Relationship EORs assume all legal and administrative responsibilities of an employer - payroll, tax withholdings, social security contributions, and adherence to employment laws. EOR ensures that the terms are clear, compliant with local laws, and protect both the contractor and the client company.
Payroll Management Comprehensive payroll services are provided for employees, including tax withholdings, salary payments, and managing deductions for benefits. The focus is often on facilitating invoicing and payments rather than payroll.
Taxation Deducts and settles payroll taxes; manage benefits. In cases where employers need to submit tax forms to regulatory bodies, EORs can help collect these forms from contractors and submit them to the authorities. Secondly, countries like India expect employers to deduct tax at source for contractors.
Employee Onboarding and Termination EORs handle the complete process of hiring and, if necessary, terminating employees in compliance with local laws. The EOR's role is usually confined to contract initiation and conclusion for contractors.

Advantages of Employing Contractors Through An EOR

Partnering with an EOR offers numerous advantages for your business and independent contractors and helps build a compliant work environment.

Accurate employee classification

The internet is rife with examples of businesses fined for improperly classifying their employees. Employee misclassification is a violation triggered when employers incorrectly classify their employees as contractors and vice versa. In practice, employee misclassification happens when businesses do not offer benefits, avoid making social security or pension contributions (treating them like contractors), but engage them the same way they would full-time employees (control work location, work timings, etc).

Governmental agencies that regulate labor laws view employee misclassification as a serious violation for the following reasons:

  • Workers who are misclassified are deprived of fundamental workplace rights, such as minimum wage and overtime pay, which makes it more challenging for them to sustain themselves and their families.
  • Employers who adhere to the law face a competitive disadvantage when competing against employers who misclassify their employees, pay them below the legal requirements, and neglect to provide other essential worker protections.

However, employers without really intending to, misclassify employees. For example, by imposing conditions on a contractor to work from a certain location and within a certain time of the day, employers inadvertently engage a contractor similar to an employee. This also triggers employee misclassification

Businesses can employ independent contractors through an Employer of Record to ensure their contingent workers are properly classified. EORs, like Gloroots, have extensive knowledge of local and international labor laws and ensure that workers are classified correctly according to the legal standards of the country where they are employed. 

Minimize global compliance risks

When dealing with international contractors worldwide, complying with labor laws, tax regulations, and other legal requirements requires specialist resources.

EORs ensure your business complies with local and international labor laws. They also take care of contract generation and management, disputes, and other legal complexities, along with mitigating the potential risks associated with misclassification and non-compliance.

Streamlined Payroll Services

Managing payroll for multiple independent contractors is time-consuming and complex. An EOR ensures you pay your contractors on time accurately in their local currency. EORs also handle tax withholdings (if the local laws dictate to), and other compliance-related tasks, reducing the risk of errors and penalties.

Read: How Gloroots helped Sketchnote pay all of its international contractors in one go?

Key Responsibilities of an EOR for Independent Contractors

An EOR takes on multiple responsibilities when it comes to managing independent contractors. 

1. Onboarding and Offboarding

EORs can help organizations with background checks, contractor profiles, employment eligibility verification, and the onboarding process for new independent contractors. The EOR also drafts, reviews, and manages contracts between the company and independent contractors. They also ensure that contracts clearly define the scope of work, deliverables, and payment terms. They also manage to offboard when contractors leave the organization, ensuring a smooth transition.

2. HR Administration

An EOR handles various HR administrative tasks, including creating contracts for independent contractors, maintaining contractor records and personal profiles, handling contractor inquiries, etc. Thus, your in-house HR team doesn’t have to deal with contractors’ needs, and contractors have the support they need.

3. Tax Compliance

For contractors, an EOR takes responsibility for payroll taxes, manages deductions, and ensures tax compliance. They also prepare and file tax forms, such as W-9 and 1099-MISC, ensuring contractors fulfill their tax obligations.

Read more: How to Pay Remote Employee

How to Choose a Suitable Employer of Record

Choosing the right EOR for your business is important to ensure a smooth and successful partnership. Here are some factors to consider when selecting an EOR:

1. Expertise and Experience

 Look for an employer of record for independent contractors with a proven track record and extensive experience managing employment-related services. They must know the unique requirements and challenges of employing and managing independent contractors.

2. Geographic Coverage

Hiring contractors across multiple countries will require you to work with separate payroll vendors and compliance experts for each country. EORs with extensive geographic coverage will eliminate the need to work with different vendors as the EORs will act as a single-stop shop for all your global hiring needs. Such extensive coverage will also enable you to use the EOR as a scalable solution for all your global hiring efforts

3. Technology and Integration

Evaluate the technological capabilities of the EOR and ensure that its systems can seamlessly integrate with your existing HR and payroll systems. 

4. 24x7 Client Support and Communication

Consider the fast responsiveness and accessibility of the EOR's client support team to select the right EOR partner. Choose an EOR committed to providing timely assistance to your contractors’ needs and can also address your specific requirements.

5. Fixed Pricing

EORs who can work on fixed pricing models are better for businesses for the following reasons:

  • Budget Predictability: Fixed pricing allows businesses to have predictable and stable costs to mitigate the risk of unexpected costs or fluctuations in service charges. This makes it easier to budget and plan for the future. This offers stability for companies, minimizes financial uncertainties, and enables them to focus on their core operations.
  • Transparency: Fixed pricing models are typically straightforward and transparent. This clarity can help clients understand the costs associated with EOR services without surprises or hidden fees, fostering trust between the client and the EOR provider
  • Simplicity: Fixed pricing simplifies billing and invoicing processes. Businesses can avoid the complexity of calculating fees based on various factors, making financial management more straightforward.

6. Offers Payment in contractor’s local currency

An EOR offering the flexibility to pay contractors in their desired currency is suitable for managing international contractors. It simplifies the payment process and reduces currency exchange complexities

7. Transparent Reporting:

An efficient EOR contractor ensures transparent reporting and analytics. They allow clients real-time access to relevant data on payroll, compliance, and workforce metrics. It allows organizations to make informed decisions backed by a clear view of the operational landscape.

Why choose Gloroots as Your Employer of Record?

When planning to partner with an EOR for contractors, you can consider Gloroots a reliable and efficient partner. Here are some reasons to choose Gloroots to expand your business and better manage your contractors:

Gloroots can onboard your contractors quickly. We enable this near-real-time onboarding through our SaaS platform, which automates contract generation and streamlines payrolling and invoice approvals.

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