Hiring U.S. contractors is gaining popularity as businesses look beyond their borders to tap into diverse talent pools. While there are several advantages to hiring talent based in the United States, there are also some potential drawbacks.
In this article, we’ll cover what global businesses need to know before hiring their first U.S. contractor. We’ll also explain the difference between an employee and a contractor and the risks and consequences of worker misclassification.
What’s the Difference Between a Contractor and an Employee?
The simplest definition is that independent contractors are self-employed, and employees work for only one employer.
Contractors:
- Are hired by clients to perform specific tasks, often on a short-term basis
- Set their work schedule and location
- Use their personal equipment
- Are paid according to the terms outlined in client contracts
- Pay and file self-employment taxes
- Do not receive benefits, such as healthcare and retirement plans, from clients
Employees:
- Work for one employer
- Need to follow the rules set forth by their employer regarding when and where they work
- Use equipment provided by their employer
- Are paid hourly, or are salaried
- Do not need to file payroll taxes; the employer takes care of it
- Are entitled to benefits from their employer, such as healthcare and retirement plans
A third category of workers is freelancers. Just like contractors, freelancers are self-employed. However, they typically work for several clients simultaneously, while contractors usually (but not always) work for one client at a time.
Benefits of Hiring U.S. Contractors
Access to Skilled Talent
One of the most significant advantages of hiring independent U.S. contractors is gaining access to workers with specialized skills who are known for delivering high-quality work.
Contractors in the U.S. possess expertise in various in-demand sectors, including technology, finance, marketing, and engineering. By hiring U.S. contractors, global businesses can tap into this top-tier talent.
Flexibility
Another advantage of hiring U.S. contractors, or contractors in general, is the flexibility to scale the workforce based on business needs.
If a short-term project is coming up, businesses can hire more contractors, and if work slows down, they can reduce the number of contractors on their team (as long as they don’t violate the terms of any existing contract).
Working with contractors is especially beneficial for startups and small business owners who need help tackling a growing workload but don’t have the budget to bring full-time employees on board.
Expertise
Working with contractors allows companies to harness a contractor’s skills for a specific project. For example, if a business needs someone to design a new logo or build the framework for a new website, they can bring a contractor on board to complete that specific task.
Only employing the staff needed when they’re needed makes it easier for businesses to manage costs effectively.
Cost-effective
Hiring contractors is generally more cost-effective than hiring only full-time employees.
While it may cost more money in wages, as contractors’ hourly rates are typically higher than an employee’s for performing the same type of work, businesses can save on expenses like employee benefits by hiring contractors.
It also eliminates the need to contribute to Social Security, Medicare, unemployment insurance, etc., since contractors manage their own tax liabilities.
Potential Concerns When Hiring U.S. Contractors and How to Mitigate Them
One of the biggest drawbacks of hiring independent contractors in the U.S. versus a country with an emerging economy is that the cost will likely be higher. Although, again, the experience and skill set U.S. contractors bring to the table can make the higher costs well worth it in the long run.
Here are some other considerations when hiring U.S. contractors:
Complex Labor Laws
U.S. labor laws and tax regulations are complicated. Businesses that hire U.S. contractors must understand and comply with federal laws, including the Fair Labor Standards Act (FLSA) and Internal Revenue Service (IRS) guidelines.
Another concern for business owners is the risk of misclassification. If a company classifies a worker as a contractor and it’s later determined that the individual is an employee, it can lead to legal penalties and fines. It could also result in an employer needing to pay back taxes for:
- Medicare taxes
- Social Security
- Income tax
- Unemployment insurance
- Workers’ compensation insurance
- Federal Insurance Contributions Act (FICA) contributions
Communication Issues
Depending on where a company is based, its time zones may not align well with those in the U.S., which could lead to communication delays or even miscommunication.
Setting expectations and best practices regarding turnaround times for communication, deliverables, etc., is essential when working asynchronously. Just be mindful not to exert too much control over the contractor’s work, or you risk them being classified as an employee.
Quality Control
Another potential issue when hiring contractors is maintaining standards for any work performed. Even though U.S. workers are known for their abilities and strong work ethic, not every contractor is the same. Some will be more focused and engaged, and others less so.
Since employers have less control over contractors, it’s essential to set clear expectations, provide detailed project briefs, and conduct regular performance reviews to maintain a high quality of work.
Protection of Intellectual Property
A concern when hiring contractors from the U.S. (or any other country) is maintaining control over any intellectual property the contractor creates.
Businesses should draw up written contracts stating that any work created becomes the sole property of the company employing the contractor. Including confidentiality clauses and non-disclosure agreements in independent contractor agreements can further protect the business.
Hire U.S. Contractors with Confidence
Hiring contractors in the United States offers significant benefits, including access to skilled talent, flexibility, cost savings, and adherence to high work standards. However, being mindful of potential legal, communication, quality control, and IP challenges is essential.
One way to ensure full compliance with legal and tax obligations associated with hiring U.S. contractors is by partnering with an Employer of Record (EOR).
EORs assume full responsibility for compliance, eliminating the need for businesses to navigate complex labor laws. This offers peace of mind and allows company leaders to focus on core business needs instead of trying to become employment law experts.
Sign up today to begin onboarding, managing, and paying international contractors — in their local currencies.
