If you're managing a global remote team, you may already have a few freelancers working alongside your full-time employees.
Adding contractors to the mix provides many advantages for your business, including the flexibility to scale as needed.
Still, there are differences between contractors and full-time employees, including what benefits they're entitled to, that employers must be aware of.
Maintaining compliance and avoiding the risk of misclassification requires understanding the ins and outs of these entitlements, including vacation and holiday pay.
Key takeaways:
- Even if full-time employees and independent contractors work together on the same projects, they may not receive the same benefits.
- Most freelancers aren't entitled to employee benefits, such as sick days, paid holidays, or vacation pay.
- Contracts help establish expectations for independent contractors and make it easier for your company to avoid the risk of misclassification.
What's the Difference Between an Employee and a Contractor?
The answer is pretty straightforward.
Generally, contractors are hired on a freelance basis for a specific job or a particular time frame. Often, they fill a specific niche outside of a company's normal day-to-day business activities — say, writing copy for a company's website overhaul or video production for a commercial.
Contractors use their own equipment and set their own schedules. They aren't salaried and likely work hourly or on a retainer or contract basis.
On the other hand, an employee generally works a set schedule determined by their employer and uses company-provided equipment.
In return, employees receive a salary governed by local laws overseeing minimum wage and overtime pay and are entitled to statutory benefits like sick pay, health insurance, and paid vacation time.
It seems simple, but there's a catch.
Labor laws tend to differ from country to country. The employer is responsible for correctly classifying each employee, no matter where they're based. If you fail to follow a country's employment laws, the consequences can be costly.
So, Are Contractors Entitled to Paid Holidays?
Generally, no. As self-employed professionals, independent contractors manage their own schedules, handle their own taxes, and budget for time off by setting aside money to cover those unpaid days. They often factor those costs into their hourly or project rates to ensure they're covered.
Freelancers, after all, are typically paid only for the work they deliver. If contractors don't work on a company holiday, they generally won't invoice for that day.
That said, some contractors may negotiate public holiday pay as part of their agreement with a company. And for those working on a retainer, consistent payments can sometimes function like PTO.
Sounds like offering paid time off to contract employees is a benefit that could set your company apart, right? It's true. Offering all workers paid time off could give you a leg up on attracting the best freelance global talent. But proceed with caution.
Offering paid time off or similar benefits to contractors may increase your risk of misclassification. Penalties can include steep fines, owed back pay, and potential jail time in severe cases.
The best bet to avoid misclassification risks? Seek out legal advice from experts in each region where you employ freelancers or partner with an Employer of Record.
How to Manage Your Contractors' Time Off
Even if it's unpaid, independent contractors will occasionally take time away from work, which you'll need to plan for.
To keep everything running smoothly, establish a process for how and when contractors should inform you of any time they plan to take off for vacations or holidays. This will make it easier for you to arrange any necessary coverage while they're away.
The easiest option might be handing off the extra work to another freelancer or a full-time team member. You could even let the freelancer taking time off subcontract the work by bringing in someone they trust to handle their tasks while they're away.
When possible, encourage contractors to plan vacations with project milestones in mind to minimize disruption. Remember, however, that freelancers don't have the same responsibilities to your company as full-time employees do. You can't control how or when they work without risking misclassification.
The Importance of Clear Contractor Agreements
One way to help minimize misclassification risks is by creating an employment contract anytime you're onboarding a new independent contractor.
A clear agreement can define the freelancer's status from the start, ensure your business's information remains confidential, and help minimize the risk of misclassification.
Think of a contract as a roadmap for your working relationship that details:
- Who owns the intellectual property created by the contractor
- What services the contractor will provide, what deliverables you expect, and the specific tasks necessary to complete the assignment
- When the contract starts and when the project is due
- How the contractor will be paid
The contract should NOT include specifics such as what hours a contractor is expected to work or where the work will be performed since that would veer into more of an employee/employer relationship.
If you want to address time off, clearly state in the contract that the worker's compensation is based on hours worked or deliverables completed and that, as an independent contractor, they are not entitled to paid leave for holidays, vacation, sick leave, etc.
They're paid for the work they perform — nothing more. This helps set expectations from the start and supports proper worker classification.
Hire, Manage, and Pay Contractors With RemoFirst
Managing a global team of contractors can be complex, but it doesn't have to be. At RemoFirst, we help companies seamlessly hire, manage, and pay freelancers in 150+ countries for only $25 per contractor per month.
Our network of local experts understands the intricacies of international labor laws. When you partner with RemoFirst, you can feel secure in the knowledge that your contracts are fully compliant, no matter where in the world your freelancers are based. You can also rest assured that your contractors will be paid accurately and on time.
If you want to simplify your international contractor management, sign up for free to start hiring independent contractors today.
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