When Hiring Workers Across Borders, Don’t Misclassify

From Corporate Counsel — “U.S. companies aren’t facing this classification danger solely on domestic turf and under domestic employment laws.

There’s plenty of potential for a similar slipup in other countries, too, where companies might not have as strong a presence and therefore less of an ability to detect and remediate employment mistakes. The laws of other countries also may levy higher penalties for calling someone an independent contractor when he or she is actually a real employee.

Fortunately for companies with a presence outside the U.S., Donald Dowling Jr., a partner at White & Case, told CorpCounsel.com that there are relatively comparable standards in most countries around the world for deciding who is a contractor and who is an employee. “If the classification would make you nervous in the U.S., then it’s probably going to be an issue abroad,” said Dowling, who concentrates much of his practice on cross-border employment issues.

In a newsletter he authored earlier this year, Dowling listed 13 questions that employers should ask before they choose to call an overseas service provider an independent contractor.

The questions primarily deal with the issue of subordination: whether contractors depend on the company they are doing work for, or if they work independently of that company. If subordinate, there’s a good chance they are employees. As a starting point, Dowling said, it’s often good to ask whether the work is part time or full time, and whether there’s an end date to the work. “If it’s a full-time, indefinite-term arrangement—not limited in time—that’s when you really have to get nervous,” he noted.

From there, employers should ask other questions about how much control they have over the service provider’s work hours and schedule, and whether the employer provides supplies and pays expenses for the service provider. If the company is paying a so-called contractor’s business expenses or is telling him or her when to come to and leave work, for example, the contractor might not really be a contractor.

Another good question for employers to ask is how they are training these service providers. “A one-time training to let them know what they are going to be doing for you is probably fine,” said Dowling. But he added that inviting contractors to the general training sessions a company holds for its employees should be forbidden if independent contractors are to remain in that category. Giving a contractor the same types of formalized performance evaluations that actual employees would receive also is not allowed.

Although it’s somewhat comforting that standards for who falls into what category don’t vary much across borders, what’s scary is that the costs of getting classification wrong do in fact vary. And they are often much higher outside the U.S. than what employers are accustomed to domestically. Outside the U.S., the newsletter explained, employers who misclassify may have to cough up cash for back vacation and holidays, back mandatory benefits (such as bonuses), severance payments, and a variety of other fines and fees not required on American soil.

To avoid potential liability, companies may have to bite the bullet and hire workers who don’t authentically fit independent contractor guidelines and classify them as employees, despite the costs and headaches that might entail….”

Read the full story at When Hiring Workers Across Borders, Don’t Misclassify

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