Independent contractors, full-time employees, part-time employees… There are several different types of employment organizations can choose from when scaling their global workforce. But with different country-specific regulations that govern each employment type and the uncertainties that come with expanding into new markets, knowing which option to go for can be challenging.
Let’s have a look at the three main types of global employees that are full-time employees, part-time employees and independent contractors to see what sets them apart and what their respective pros and cons are.
Independent contractors are self-employed professionals that support businesses with specific projects during a fixed period of time. In contrast to employees, they are not officially employed by the organization, which means that they handle their own taxes and social insurance contributions.
Another important aspect to differentiate independent contractors and full-time employees is that contractors are not entitled to benefits such as paid leave or bonuses. When working on a freelance-basis, they usually work for several clients at the same time, putting in the amount of hours that is needed at that specific moment.
Access to specific skills
Ideal for short-term projects
No need to provide benefits
Easy termination of the contractual arrangement
Risk of employee misclassification and different rules for worker classification in each country
No company-related knowledge
Limited availability since services are also rendered to other businesses
Limited control over how the contractor carries out the work
Full-time employees work exclusively for the organization where they are employed. They work a fixed amount of hours every week and are either paid a fixed monthly salary or hourly wages. While working, they are under the direct control of the employing organization and have to carry out their tasks in the manner that is prescribed by the employer.
Exclusive access to their knowledge and skills
Continuous availability for long-term projects
Greater legal certainty
Often requires the creation of a local legal entity
High cost due to payroll taxes and benefits
More legal responsibilities
Proper termination required
Part-time employees are also officially employed by an organization. In contrast to full-time employees, however, their weekly workload is smaller and they generally work fewer hours per week. Just as full-time employees, they are entitled to statutory benefits and have their taxes and social security managed by the employing organization.
Ideal option for projects that are too large for contractors, but too small to warrant hiring a full-time employee
Greater flexibility than full-time employees
Lower cost compared to full-time hires
Different rules for part-time employees in every country (working hours, employment contract requirements, and more)
Same administrative workload as for full-time employees but reduced availability for projects
When talking about global employment options, there is another crucial distinction businesses should take into consideration. In addition to the different employment types, organizations can choose between two distinct approaches to hiring abroad, which are direct employment and employment outsourcing in the form of a global employment solution.
In the context of global teams, direct employment can either mean hiring employees in a new market under a foreign legal entity or creating a new local entity for the purpose of hiring local talent. While the latter provides more legal clarity and simplifies things such as payroll, it is also the more expensive and more time-consuming option.
Employment outsourcing, on the other hand, allows businesses to save time and money while transferring the compliance burden and legal responsibilities to a third party. Especially when hiring employees in many different locations, it’s often easier to opt for a global employment solution like an Employer of Record than to set up offices all over the world.
There are many different factors that influence which global employment type is best suited for an organization. Most of these factors are directly related to organizational needs as well as to the business’s goals in the new market. When deciding which global employment approach to follow, businesses should answer the following questions:
What kind of projects will the new hires work on? Will they work on long-term or short-term projects?
What kind of skills are needed in the organization? Are the new hires needed to close existing skill gaps? Or is the business looking for highly specific skills that will only be needed for a single project?
What is the level of commitment to the new market? Will local hires be used to test the market before making a final decision? Or will they start building a local presence right away?
What kind of activities will they engage in? Will they carry out activities that create revenue? Will they be involved in crucial decision-making processes?
How many hires will be needed to carry out the planned projects and activities?
The Lano Academy is for informational purposes only and should not be construed as legal advice. Lano Software GmbH disclaims any liability for any actions you take or refrain from taking based on the content contained in this article.
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