For companies that work with global talent, there has been a rise in choosing to work with contractors or freelancers, instead of full-time employees, in order to bypass the headache of dealing with the legalities of international hiring.
However, companies that use this model can open themselves up to risks of contractor misclassification if the workers’ duties more closely resemble that of a full-time employee. Here we discuss the benefits of converting contractors into full-time employees and considerations before making the change.
Benefits of Converting Contractors or Freelancers into Full-Time Employees
There are several benefits that come with moving from a contractor/freelancer scheme to a full-time employee, including:
- Stability: As a full-time employee, employees have a stable source of income and job security. This means they don't have to worry about finding new clients or projects regularly, and will always receive a regular paycheck.
- Benefits: Full-time employees usually receive benefits such as health insurance, retirement plans, paid vacation and sick leave, and other perks. These benefits can add significant value to an employee’s overall compensation package (and commitment to their employer).
- Career Growth: Full-time employees may have more opportunities for career growth within their company. They can usually attend training and development programs, take on new projects and responsibilities, and work towards promotions.
- Collaboration: Full-time employees often have more opportunities to collaborate with colleagues, which can lead to increased creativity, better problem-solving, and a more enjoyable work environment.
- Greater sense of belonging: Being a part of a team can help workers feel more connected to their work and the company. As a full-time employee, they may feel a greater sense of belonging and ownership in the organization, which can lead to increased job satisfaction.
7 Considerations When Converting Contractors or Freelancers into Full-Time Employees
When converting an independent contractor or freelancer into a full-time employee, there are several important considerations for employers. It's recommended to consult with a qualified global employment law attorney or HR professional to ensure that the conversion process is in compliance with all relevant laws and regulations — here are some key things to keep in mind:
- Classification: If your contractor or freelancer is performing the work of a full-time employee, it’s important to make sure they are not being misclassified and are converted into the right category. For example, the UK’s IR35 law was introduced to prevent tax avoidance by contractors who work through limited or personal services companies, and can lead to hefty fines.
- Job duties: Employers should evaluate the job duties and responsibilities of the independent contractor to ensure that they are consistent with the requirements of the new full-time employee position. This may involve drafting a new job description, establishing performance metrics, and setting expectations for the employee's role in the organization.
- Legal and tax compliance: Converting contractors or freelancers into full-time employees may require compliance with different legal and tax regulations in the country where the contractor is located. This includes payroll taxes, social security contributions, and other employment-related taxes in that country.
- Compensation and benefits: Employers should determine the appropriate salary and benefits for the new employee position, taking into account factors such as industry standards, the employee's qualifications, the company's budget, and new benefits granted. This may involve negotiating a new compensation package with worker.
- Compliance with employment laws: Employers should ensure that the new employee position is in compliance with all applicable employment laws in that country, including minimum wage and overtime requirements, anti-discrimination laws, and other legal requirements.
- Notice requirements: Employers should be aware of any notice requirements that may apply when converting an independent contractor to an employee. This may include providing advance notice of the change in employment status, or notifying the employee of any changes to their compensation or benefits. A notice period will also apply if you ever choose to terminate the full-time employment contract.
- Communication: Employers should communicate clearly with the independent contractor throughout the conversion process to ensure that they understand their new role and responsibilities, as well as any changes to their compensation or benefits.
How to Convert Contractors or Freelancers into Full-Time Employees via an Employer of Record (EOR)
An Employer of Record (EOR) is a type of outsourcing service that allows companies to employ workers in different countries without having to establish their own legal entity or payroll system in that country. An EOR acts as the official employer for your global workers, handling all legal and administrative responsibilities related to employment, such as payroll, tax compliance, benefits management, and more.
Using an EOR to convert contractors or freelancers into full-time employees has many benefits, including:
- Compliance with local regulations: EORs are well-versed in the local laws and regulations related to employment, and will make sure that the employee conversion process is compliant with all relevant legal requirements in that location.
- Streamlined administrative processes: EORs handle all administrative responsibilities related to employment, such as payroll and tax compliance, allowing employers to focus on their core business operations.
- Cost savings: By outsourcing administrative responsibilities to an EOR, employers can save money on establishing their own legal entity and payroll system in the country.
- Fast and efficient employee conversion: EORs have the necessary expertise and resources to quickly and efficiently convert contractors or freelancers into full-time employees.
Steps for using an EOR for employee conversion
- Find a reliable EOR provider: Look for a reputable EOR provider that has experience working in the country where the contractor is located. You can do this by conducting research and reading reviews from other clients.
- Negotiate terms with the EOR: Work with the EOR provider to negotiate the terms of the employment, including the salary, benefits, work schedule, and any other relevant terms.
- Sign an agreement with the EOR: Once you've agreed on the terms of employment, sign an agreement with the EOR provider. This agreement should outline the responsibilities and obligations of both parties, including the payment terms, communication channels, and any other relevant information.
- Provide details of the contractor: Provide the EOR provider with the details of the contractor, including their name, job title, job description, and other relevant information.
- The contractor signs an employment agreement: The contractor will sign an employment agreement with the EOR provider, which outlines the terms and conditions of employment.
- The EOR legally hires the contractor as an employee on your behalf: The EOR provider will hire the contractor as a full-time employee and become their legal employer. This means that the EOR will handle all the administrative tasks associated with employment, including payroll, taxes, health benefits, and compliance with local laws and regulations.
- The contractor begins working as a full-time employee: Once the employment agreement is signed, the contractor can begin working as a full-time employee, and the EOR provider will handle all the administrative tasks associated with employment for that worker.
Converting contractors or freelancers into full-time employees is a complex process that requires careful consideration of legal and financial factors. Working with an Employer of Record (EOR) like Remofirst can help simplify the process and ensure compliance with local regulations. It's important to choose an EOR provider with a strong track record and to communicate openly and clearly throughout the conversion process.
Overall, converting contractors or freelancers into full-time employees can be a smart move for employers looking to build a loyal and productive workforce. By carefully considering the benefits and challenges of the process and using an EOR where appropriate, employers can ensure a smooth and compliant transition for their workers.
Want to learn more about converting a contractor to full-time via an EOR? Request a demo of Remofirst today.