Balancing Potential and Pitfalls: Top 5 Riskiest Countries for Engaging Freelancers

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By Cristin Monnich, Associate Director, Agent of Record, GoGlobal 

In an era of rapid transformation within the world of work, companies are embracing the agility and expertise that freelance workers bring to the table. This dynamic shift towards freelancing, however, comes with its own set of intricacies, offering both promising opportunities and potential pitfalls. To unlock the full potential of freelance engagement, it’s imperative to understand the multifaceted landscape of risks and rewards that each country presents. 

As businesses venture into these markets, they must navigate the delicate balance between harnessing freelance talent and adhering to intricate labor laws. This blog post delves into five prominent global markets, each offering its unique blend of freelancing prospects, legal frameworks and associated challenges.   

By gaining insight into the distinct dynamics and underlying risks within each country, companies can make informed decisions to ensure successful and compliant freelance engagements. 

#5: Brazil

The Brazilian market offers a wealth of freelancing talent across a variety of sectors. However, the country’s complex labor laws, such as the “pejotização” issue where employers hire workers as legal entities to avoid taxes and labor rights, often lead to legal complications.  

In 2020, a Brazilian tech company faced a series of lawsuits over worker misclassification, leading to significant fines and penalties.  

To mitigate this risk, employers should work closely with local experts or legal counsel to ensure compliance with Brazil’s labor and tax laws. 

#4: United Kingdom

With its rich mix of industries and ease of doing business, the UK offers plenty of opportunities for freelance engagement. However, changes in the IR35 regulations, designed to combat tax avoidance by workers supplying their services to clients via an intermediary, have increased the risk of litigation for companies. For instance, in 2020, several businesses faced hefty fines following IR35 tax investigations.

Mitigating this risk can be achieved by conducting thorough IR35 assessments and maintaining clear contract terms.

#3: Germany

Germany is an attractive destination for hiring freelancers, particularly in its thriving tech and creative industries. Despite the allure, it’s crucial to be aware of the risk associated with Germany’s Scheinselbstständigkeit or “false self-employment” law. Having freelancers work under conditions similar to those of employees can lead to significant fines for employers.

For example, a case in 2021 saw a German company being heavily fined for misclassifying their workers under this law

To circumvent challenges, businesses are advised to diversify their freelancer portfolio and avoid exclusive, long-term contracts with a single freelancer.

#2: France

Opportunities to hire freelance workers abound in France, given its diverse and educated talent pool. However, France is known for its strict labor laws, with specific guidelines on worker classification.

In recent years, France has seen a crackdown on misclassification of workers, with several instances of companies being subject to hefty fines and penalties. A 2020 case saw a French delivery company penalized for worker misclassification, underscoring the strict enforcement of these laws.

To mitigate this risk, companies are increasingly seeking legal advice before hiring freelancers in France to ensure accurate classification and adherence to the stringent French labor laws.

#1: United States

The United States, known for its diverse talent pool and the vibrant gig economy, presents a lucrative opportunity for businesses seeking freelance workers. Yet, it is also notorious for the high risk of litigation related to worker classification.

Strict laws, like the AB5 in California, have tightened the definition of independent contractors, making it easier for freelancers to claim employee status. Recent years have witnessed a rise in cases where businesses faced litigation due to misclassification of workers. If employee status is determined by an auditing agency, this can open the door to a multitude of claims by a single worker, or potentially a worst case scenario: a class-action lawsuit brought about by a group of workers.  A notable case from 2022 saw a major rideshare company facing a class-action lawsuit in New Jersey over worker misclassification.  

Misclassification risks can be alleviated. Increasingly, businesses in the United States are implementing arbitration clauses in their contracts, a strategy that has shown success in limiting liability exposure in various 2022 and 2023 legal cases. 

Empowering freelance engagement through EOR solutions

The case studies of Brazil, the United Kingdom, Germany, France and the United States have repeatedly highlighted the legal complexities and potential consequences of misclassification.

As labor laws around the world continue to evolve, a strategic ally can offer a crucial advantage for engaging freelancers. Enter the Employer of Record (EOR) solutions. By partnering with an EOR, businesses can mitigate the most significant risks associated with engaging independent contractors.

When businesses engage freelancers through an EOR, they benefit from a comprehensive understanding of local labor laws and regulations. This understanding is woven into the contractual and operational framework, ensuring that freelancer engagements are structured in compliance with the law. This not only helps companies avoid penalties and legal entanglements but also fosters a confident and sustainable global workforce.

The future of freelance engagement lies in not only recognizing the potential rewards but also in intelligently navigating the inherent risks. Through strategic partnerships with EOR providers, businesses can confidently navigate the intricacies of worker classification, ensuring compliance, reducing risk and fostering an inclusive and thriving global workforce.

In a landscape of continuous transformation and increasing complexity, EOR solutions are guiding companies toward successful and compliant freelance engagements.

Check out GoGlobal’s Independent Contractor Solutions or contact us to talk with an international HR expert.