EOR Workers vs. Independent Contractors: Which Model Should You Use for a Small International Team?

When you need a small international team of workers in countries where you don’t have entities, which employment model is better, an employer of record (EOR) or an independent contractor model? While the decision depends largely on the nature of the work that’s required, finances and risk are also factors to consider. Let’s look at how the models differ and the risks involved with choosing the wrong model. We’ll also address how to convert contractors to EOR employees if your needs change over time.

Independent contractors or EOR workers? A mix of both can work well

EOR vs. independent contractors isn’t always an “either, or” proposition. Many organizations that need workers in markets outside their own will use a combination of contractors and EOR employees. This is because different team members perform different functions that allow for different working arrangements.

If you are trying to decide between independent contractors and full employees, these factors will help you determine which type of worker makes more sense.

When should you use an independent contractor vs. a full employee?

If you determine that your needs can be met by independent contractors, which are usually more cost-effective, you must ensure the contractors are classified correctly according to the laws of the jurisdiction they’re in. If your relationship with the contractors resembles an employment relationship according to those laws, you can be fined for worker misclassification. Your company may also be responsible for benefits and contributions the worker should have received.

Note that in many jurisdictions, it’s the nature of the work and the actual relationship between the worker and the company that matters, not what the contract says. Understanding the web of regulations that define a contractor as opposed to a full employee — who receives benefits and paid leave and has taxes withheld — can be complicated, especially on a country-by-country, state-by-state, or province-by-province basis.

Use our Worker Classification tool to help you determine whether an employment situation is an employment relationship that requires a full employee, or whether it’s suitable for an independent contractor.

What are the benefits of employing through an EOR?

When companies employ through an EOR, the EOR becomes the legal employer of the workers in their country. The EOR prepares a locally compliant employment contract, provides the necessary benefits, and ensures the proper deductions and contributions are made. The EOR also provides a platform for companies to manage worker pay, analyze headcount, and perform other HR functions. Compliance with relevant local, state, and federal employment laws – depending on the country - is the EOR’s responsibility.

When relying on independent contractors, the company is responsible for compliance with relevant laws and regulations. Safeguard Global’s Contractor Management solution alleviates the administrative workload by streamlining the payment process and ensuring compliance with local laws related to contractor payment, but the solution does not manage compliance with other kinds of employment laws.

The cost of noncompliance

Noncompliance is a risk that should not be taken lightly. For our recent report, Untangling the CFO Paradox Between Confidence and Restraint, we surveyed 400 CFOs across the US and UK, and all of them said their organization had suffered losses from noncompliance. Seventy-eight percent reported losses of up to $1 million USD, while 22% reported losses of $1 million USD or more.

Global hiring and expansion come with a variety of risks, and worker misclassification figures largely among them. To mitigate that risk in particular, companies should switch from contractors to an EOR solution if the nature of the work allows for it.

How do the costs of Contractor Management compare to EOR?

Safeguard Global’s Contractor Management platform is a portal for managing and paying independent workers more easily, and it ensures that your contractors are paid in accordance with local laws. The fee begins at $5 USD per person per month for 11 or more contractors. For one to 10 contractors, it costs $10 USD per person per month.

Safeguard Global’s EOR solution begins at $599 USD per person per month. The EOR solution can be paired with Global Recruitment to provide comprehensive support for identifying, hiring, onboarding, and paying the workers you need in countries where you don’t have a legal entity to facilitate lawful hiring.

Safeguard Global’s EOR solution and services handle compliance with local employment laws and regulations, and it continuously monitors these laws and adapts to changes and amendments as necessary. It’s this compliance support that adds real value, given the heavy cost of fines and back payments that can result from violations. In some countries, willful violation of employment laws can also result in jail time for company executives.

When should you convert a contractor to an EOR employee?

If the working relationship between you and your contractor is starting to take on characteristics of an employment relationship, it’s time to convert the contractor to a full employee. If the contractor is in a jurisdiction outside your own, an EOR can employ the contractor on your behalf.

Safeguard Global’s Employee Classification tool can help you identify reasons your contractors may be classified as full employees under local law. When you’re ready to convert your contractor, our guide, How to Convert Contractors to EOR Employees, can help.

Can Safeguard Global convert an independent contractor to an employee?

With 400+ experts based in key global labor markets and the ability to hire in 187 countries and territories, Safeguard Global is well positioned to help you understand worker classification laws around the world and convert your independent contractors to EOR employees.

If you intend to retain your independent contractors, Safeguard Global’s Contractor Management solution simplifies the process of paying all your contractors compliantly.

Talk to an expert today about the composition of your team and whether a mix of independent contractors and EOR employees is the best mix for you.