July 16, 2021
Freelancers vs. employees: What are the differences?
Why converting a freelancer to an employee is a good idea
Converting freelancers to employees - Here’s how!
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For companies with international operations, contractors can be an incredible asset. They are flexible, work independently and (in most cases) they are cheaper to hire than a regular employee, given you neither pay taxes nor social security for them. At some point, however, many companies find themselves facing a situation where it seems appropriate or even necessary to offer their valued freelancer a full-time position. For example, if changed circumstances put your freelancer at risk of being misclassified. In this case, converting your contractor to a permanent employee becomes a real urgency. Here’s how it works.
The main difference between a full-time employee and a contractor lies in their level of independence. Contractors are self-employed and offer their professional services to a variety of clients for whom they work independently. They set their own working hours, usually get paid project-based and are responsible for paying their taxes and making their own social security contributions. Having several clients, they generally divide their working hours between several projects and normally work from their own home or a co-working space.
Employees, on the other hand, are workers who are hired by one single company. Usually, they perform their work within the company premises using the tools and equipment their employer provides for them. Their whole working day is spent working for their employer who, in return, pays them a fixed salary, makes social security contributions and takes out their income tax. In addition, employees enjoy special benefits such as paid annual leave or sick pay.
For more information about the differences between independent contractors and full-time employees, check out our related blog post. Happy with your current freelancers but looking for ways to make your collaboration run even smoother? Then check out our article on which mistakes to avoid in your contractor briefings.
Employees and freelancers bring different benefits to a company. Which one of the two is the better fit usually depends on the company’s business needs. Although hiring a freelancer is often considered to be the less expensive and thus more attractive option, there are many strategic reasons why converting an independent contractor to a full-time employee could be a smart move for your business.
Despite the fact that companies nowadays have access to a global talent pool, it is more important than ever to ensure your business attracts the right talent for its needs. It is therefore crucial to ensure that well-suited contractors who deliver first-class work stay with your company rather than switching to your competitors. The best way to do so is to offer them a full-time position.
If the freelancer you are planning to hire permanently already delivers brilliant results in his or her current situation, just imagine how much value they will bring to your business when offered a permanent position. A contractor who suddenly enjoys employee benefits such as paid leave or a company car is likely to perform even better.
The move of turning a contractor into an employee usually emerges with growing business needs, i.e. an increased workload demanding the creation of a new position. In this case, it’s a lot easier to simply hire someone you already know and who fits in with our company rather than searching for someone completely new.
Independent contractors are known for having a lot of experience due to the variety of projects they work on. Deciding to turn your current freelance worker into a full-time employee means that all their expertise will profit your company - and only your company!
The biggest problem when hiring and managing contractors and freelancers is the risk of misclassification. Rules and regulations for employment classification vary between countries which increases this risk even further. Employing your contractor full-time will immediately solve this problem.
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If the contractor is based in the same country as your company, this is, of course, a very straightforward process: You put an offer of employment on the table, he or she accepts, you both sign a contract and that’s it. But how does it work when the talented freelancer you wish to employ full-time is actually based in a different country, maybe even on a different continent? Well, in this case, the hiring process becomes a little more complicated.
First things first: Before making the move to turn your trusted contractor into an employee, you will have to become familiar with the local laws and labour regulations that apply in the country your soon-to-be employee is based in. Not only can this be a very tedious and exhausting process, but it also requires you to have HR staff in place who are competent enough to set things up.
If you decide to go ahead and make your contractor a full-time employee, you will need a legal entity in their country of residence. Otherwise, you won’t be able to go through with the hiring process. However, setting up a subsidiary takes a lot of time (several months - at least!) and costs a lot of money.
The next step would then be to go even further into local employment law to find out how to draft an employment contract which complies with the local requirements. This includes specific formal requirements for written contracts as well as related topics such as notice or probation periods.
Before finalizing the employment contract, you will also have to define an appropriate salary and benefit package, keeping in mind the local standards in terms of paid leave, annual bonuses etc. When converting from contractor to full-time employee, setting the new salary is one of the hurdles businesses face.
Last but not least, it’s time to add your former freelancer to your payroll - after setting up a payroll system in the new country, that is - and help them become a full part of your team. For a smooth integration process, make sure to provide your new employee with all the tools and equipment they need and set up a proper onboarding session.
There is, however, an easier option to convert contractors to employees than going through all the above mentioned steps on your own. By using the services of an Employer of Record (EOR), you can avoid spending a lot of time and effort - not to forget the financial burden - on setting up a subsidiary company. Instead, you let a third party based in that particular country do the hiring in your name. While they take care of all the legal stuff, you manage the day-to-day activities of your new employee who can start working for you straightaway.
Then this is where Lano can help you! Lano’s Employer of Record solution makes it easy for companies to go from freelance to full-time employment. From compliant contracts to global payroll, we’ve got you covered. Interested in knowing more? Then check out our Employer of Record solution in detail here.
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