By Stephen Nicolaou, Senior Manager, GoGlobal IC Solutions
Outsourcing to ICs, especially across borders, provides access to specialized skills, competitive pay rates and greater flexibility. As the use of independent contractors (ICs) expands globally, lawmakers and regulators around the world are racing to keep pace. This year has seen a deluge of landmark legislation and court rulings around the world, including Australia, Canada and the US.
With new regulations and court decisions shaping the landscape, companies must tread carefully to avoid legal pitfalls and maintain compliance. Due diligence can be especially tricky for firms that use ICs across multiple jurisdictions. Even within one country, the regulations may vary across different territories, states, provinces and cities.
Additionally, as mentioned, governments from Brazil to Serbia to the UK keep moving the goalposts. For example, in the UK, regulatory changes made in 2021 are still under scrutiny as ICs and their clients continue to struggle with compliance.
In this blog post, we explore key considerations for engaging ICs in today’s global economy.
Why do companies engage cross-border ICs?
Engaging ICs from different countries allows businesses to tap into a vast, diverse talent pool that may not be readily available locally. This access to specialized expertise provides a significant competitive advantage, particularly in industries requiring niche skills.
Additionally, businesses can benefit from competitive pay rates in different regions, reducing overhead without needing to establish an in-country entity.
For global companies, ICs offer the flexibility to scale operations quickly in response to market shifts. Unlike employees, ICs are engaged by businesses on a project or temporary basis. This can make it easier to adapt to changing demands without the commitments, costs and complexities of permanent employment.
IC engagement may be especially attractive to companies expanding into new markets, as it minimizes time restraints while allowing for a responsive, agile workforce.
While the IC model offers many advantages, it is not without challenges. Improper management of IC relationships can expose companies to significant legal and financial risks. These risks underscore the importance of adhering to local regulations.
What is required for engaging ICs?
Engaging cross-border ICs requires a deep understanding of local regulations, compliance standards and cultural nuances.
Every jurisdiction has its own rules governing worker classification, taxation and labor rights. Failure to comply with these requirements can lead to misclassification penalties, tax liabilities and legal challenges.
To embrace a compliant and effective IC engagement strategy, companies must focus on key factors such as:
- Drafting contracts that meet the legal requirements of each jurisdiction.
- Clarifying the scope of work, ensuring the IC has control over how, when and where they perform their tasks.
- Accurately classifying and working with workers as ICs rather than employees based on specific local definitions.
- Mitigating risks related to labor laws, particularly in countries with strict enforcement policies.
What are the risks of engaging ICs?
Engaging ICs across borders introduces a range of risks, from legal and financial to reputational damage.
One of the most significant risks is the misclassification of ICS. If an IC is found to be incorrectly classified as a contractor when they are actually an employee, companies can face back taxes, penalties and lawsuits. In some countries, company directors may also face civil penalties.
Incorrect classification can also lead to the creation of a permanent establishment in a foreign jurisdiction. This will subject the company to additional tax obligations. Reclassifying ICs as employees can result in retroactive payments for benefits, social security and employment protections.
Breaching classification regulations can cause long-term and sometimes irreparable harm to a company’s reputation, making compliance a top priority.
A snapshot of IC engagement around the world
Here’s a small snapshot of regulatory considerations in a few key markets:
| Country | Regulatory Framework | Recommended Strategy |
| Brazil | “Pejotização” (hiring as legal entities) | Work with local legal experts to comply with labor and tax laws. |
| United Kingdom | IR35 regulations on tax avoidance | Conduct IR35 assessments and maintain clear, compliant contract terms. |
| Germany | Scheinselbstständigkeit (“false self-employment”) laws | Avoid long-term contracts with single freelancers and be sure to diversify your workforce. |
| France | Strict worker classification and enforcement | Engage local legal counsel to audit, detect and address any cases of misclassification. |
| United States | Narrow definition of independent contractors (AB5) | Use arbitration clauses in contracts to reduce litigation risks. |
By adhering to local requirements and developing robust contracts, businesses can navigate these complexities while reaping the benefits of working with ICs.
Looking ahead: redefining what’s possible with AOR
Engaging ICs offers companies a powerful way to access top talent, enhance flexibility and drive growth. For many functions, it is the right model for engagement. However, success in this area requires more than just opportunity—it demands precision.
Leveraging an Agent of Record (AOR) can be a game-changer for upholding compliance while streamlining operations. With the right strategy, businesses can fully tap into ICs’ potential, drive innovation and still mitigate risks.
In today’s global economy, those who master the art of engaging ICs will not only stay ahead but also redefine what’s possible.
Check out GoGlobal’s IC Solutions or contact us to talk with an international HR expert about your talent management needs.