The benefits of hiring or outsourcing contractors overseas

The world is expanding. That much has been true for years now, and thanks to the internet and the ever-growing capability of its resources, small businesses have the opportunity to expand far beyond their four walls.

Unlike the big guys, small business owners often have a lot more to worry about and infinitely less staff to help them manage the workload. They have to find ways to save expenses while producing strong work.

Small business owners are leveling the playing field  by outsourcing work and hiring contractors as opposed to employees.

Contractors provide heaps of benefits for SMBs, like cutting expenses and providing new solutions and expertise. One way for your SMB to level up these opportunities is to hire overseas.

What is an independent contractor?

Region to region and country to country, the legal definition of a contractor changes. Generally speaking, an independent contractor is treated like a separate business that a company employs for their services or skills. They are also referred to as freelancers or consultants.Their contract is often dependent upon individual projects or based on hourly performance.

The most important thing to note is that a contractor is not an employee.

Employee vs. Contractor:

The difference between employees and contractors is mostly in regards to the legal rights of both. With employees, employers are expected to strictly comply with labor laws, provide benefits, and supply resources like office space. Essentially, there is a lot of legal red tape. The opposite can be said when hiring contractors.

Below are a short summary of the pros and cons to hiring contractors:

The pros:

  • Lower cost
  • Quick hire
  • Unique skill sets
  • No need to comply with local labor or employment laws

The cons:

  • Low company loyalty
  • Lack of control and accountability
  • Challenge when setting rates

Level up – Overseas contractor:

So you’ve heard the benefits of hiring a contractor over an employee. But if your company is expanding abroad or you are recruiting skilled talent in other countries, overseas contractors are an attractive alternative for many reasons. Mainly, they provide  a viable way for a company to access the global talent marketplace.

The benefits

The benefits of hiring an overseas contractor parallel hiring a local contractor but there are a few key improvements. That is, overseas contractors are highly qualified, flexible workers. They are experts in their trade and make their living doing global jobs for a variety of clients all in the same field. They are much more flexible with their schedule and willing to adapt to the needs of their employers.

Overseas contractors can also perform highly-skilled, complex jobs that go outside of the realm of an internal team.

Yes, international contractors often make more money than their local counterparts. But they can also save money in the long run because companies do not have to pay costly entitlements like social security, health care, and pensions.

Another apt improvement to hiring overseas contractors is the global experience they bring to the table. New ideas, clever ways of thinking, and different approaches to the same problems. Overseas contractors were trained in different countries – they offer interesting solutions and ideas to help expand your company and customer retention.

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The Cons:

It’s right there in the name, there are cons to contractors, especially when hiring overseas.

For one, when it comes time to pay your contractors overseas, chances are you’re changing the money to your contractor’s local currency. As the employer making the payment, the charges associated with this are going to fall onto your shoulders. You want your contractors to receive their full payment in their local currency so you will need to factor the costs of any conversions into your budget.

Outsourcing overseas used to be an expensive and tricky process, especially in terms of sending money. But with today’s technology, there are many options.

Another issue is the lack of intellectual property (IP) protection. As mentioned in Velocity Global, your company’s IP is not protected by domestic agreements in foreign markets. It’s often hard for companies to protect valuable information working with overseas contractors.

In general, when it comes to contractors there is no security through an agreement. This is especially true with overseas contractors in terms of foreign policies and restrictions. If a legal battle were to ever occur, your company would need a local legal presence like a foreign subsidiary or International Professional Employer Organization (PEO).

One of the biggest risks to employers is when labor courts get involved. They will look at the work performed, not at the agreements reached when determining the status of an employment relationship. As mentioned, this could lead to employers having to pay back taxes, withholdings, and benefits.

Finally, as a small business owner, you hope that you’re hiring the right person for the job. In a local setting, even as close as an office space, there is a stronger chance that you will be able to observe and guide the work being performed. But with contractors overseas, there is much less control over the quality of the work. International contractors are autonomous and you cannot place the same restrictions or schedules on their work as you would an employee or local contractor. On the flip side, this autonomy can save small business owners precious time, as an international expert doesn’t need the same level of supervision as an in-house employee.

In Summary:

  • Understand how the contractor’s country defines ‘contractor’ and ‘employee’ and be careful of accidentally turning independent contractors into employees by mistake.
  • Determine if your business needs to report or withhold tax on payments made to independent contractors, and know the tax implications for the independent contractor.
  • Prepare a thorough contractor agreement that meets the legal requirements of the country where the work is being performed.
  • Identify the best way to pay your independent contractor, as well as the currency.

Whether you’re a small business owner starting out, or you’ve been in the game for years. Hiring overseas contractors can reap a multitude of benefits for your SMB, from saving you money to expanding the thought leadership of your business.

If you can, why not expand your workforce globally?




* This blog provides general information and discussion about global business payments and related subjects. The content provided in this blog ("Content”), should not be construed as and is not intended to constitute financial, legal or tax advice. You should seek the advice of professionals prior to acting upon any information contained in the Content. All Content is provided strictly “as is” and we make no warranty or representation of any kind regarding the Content.