Why your Independent Contractor may be the Devil in Disguise



The use of Independent Contractors is on the rise, a seemingly attractive option for SMEs looking to go global and for MNCs who are expanding into new countries where they don’t have business entities or HR departments. Seems simple enough: find a worker, draw up a contract and compensate them accordingly. No big deal.

Well, it can be a big deal if the process is not managed properly, and there could be huge consequences for the hiring organization.

Here’s why your Independent Contractor (IC) may be the devil in disguise:

  • He or she works in a country where the rules say that the IC is responsible for filing and paying their employment taxes locally, as opposed to the hiring organization. What if the IC doesn’t make the payments? In that case, the hiring organization would not only be responsible for making the payments retroactively, but may also be subject to penalties, which are often twice what the original taxes were.
  • HR regulations are different for ICs than they are for workers who are deemed to be “de facto” employees; classifying the worker correctly is critical and every country has its own definitions. Often it’s defined by whether they work traditional business hours or on a project basis, whether they use their own equipment, if they are bearing any of the financial risks, etc. This classification will ultimately determine who is responsible for paying the taxes: the hiring organization or the worker. The challenge is understanding the classifications in each country and this is not the kind of information that can easily be found just by searching the internet, at least not “reliable” information. It needs to be researched thoroughly for each individual country.
  • Let’s say an organization has been engaged with an IC in a particular country for several months and is now ready to establish a business entity in  that country. This may involve a parent/subsidiary or partner relationship and thereby, triggers the need for an audit of the company’s financials. If the IC has not been managed according to all of the HR rules and regulations of that particular country, an audit may put the organization at risk for non-compliance and subject to fees. If, for example, an audit reveals that the worker is in fact deemed to be a de facto employee, then the hiring manager may have to comply with additional payroll obligations e.g., benefits, paid time off, etc.
  • If an IC is generating revenue for the hiring organization in any particular country then the organization may be at risk of Permanent Establishment and may be required to pay corporate taxes.  What makes the global IC arrangement particularly “devilish” is that foreign entities tend to be particularly vulnerable when it comes to tax audits and HR compliance, than a local business would be.
  • The real devil may come out when the IC relationship is terminated, especially if the worker is disgruntled. They may take their knowledge to a competitor, refuse to hand over their contacts , or they could sue the hiring organization. This can be quite risky for the hiring organization because the majority of HR laws around the world are designed to protect the well being of workers.

Many organizations find these risks too much to bear and ultimately choose to outsource their global workers to a Global Employment Outsourcing company. That solution mitigates their global HR risks and frees up their time so they can focus on their core business and their global growth strategies.



Image credit: <a href=’http://www.123rf.com/photo_9519668_disguise.html’>sorad / 123RF Stock Photo</a>


Are Shrinking Wage Gaps Creating an even NEWER Normal for HR?

Shrinking Wages

Cost pressures combined with skill gaps and an educated global workforce have all been contributing to a surge in global recruitment outside corporate HQ locations. This strategy has become less of a nice to have and more of a strategic imperative; a new normal.

But now there’s a newer normal. Definitive research from respectable analyst organizations are proving that wage gaps across mature, emerging and newly emerging markets are shrinking. This is not surprising but it’s interesting to consider how quickly these gaps are shrinking. They are closing up quickly enough that they will have a direct and significant impact on global business within the next two decades.

Countries that have traditionally offered lower wages e.g., China, India, etc., are experiencing a shrinking wage gap compared to the U.S., U.K. and other mature markets. They will slowly and steadily transform from labor markets to consumer buying markets.

This creates a newer normal for organizations overall, but let’s consider how it will impact HR and recruitment.

Migration of Manufacturing

Shrinking wage gaps may mean migrating manufacturing facilities from one country to another, a huge undertaking. Internal managers will have to be relocated to set it up, local workers will have to be hired and trained, finance may have to set up local entities and HR will need to manage the recruitment, as well the ongoing HR and payroll. On top of that, managing payroll for a manufacturing staff is always a tricky endeavor with various labor types, collective bargaining agreements, etc., especially in a country where HR is not accustomed to the local regulations.

New Buying Markets

As countries such as India and China become larger consumers and more countries enter into the buying market, new opportunities will open up for organizations to sell their products and services in a growing list of countries. That’s wonderful but who’s going to do the selling? Sales and marketing staff will have to be engaged, which means more recruitment for the HR folks; recruitment in countries they’ve never dealt with before, where they don’t have an entity or an HR department. What makes this even more challenging are the markets in scope. Take Africa, for example, an emerging region that may offer wage advantages for the organization, but it’s also a region with complex and often unclear HR regulations.

Impacts on HR Regulations

A third and important impact all of this will have on HR involves international HR compliance. Global HR professionals already know how complex it is now, how difficult it is to source country-specific regulations, how they have little confidence in the accuracy of the regulations and how challenging it is to stay up to date on new regulations. That all aside, consider this. As the emerging markets move up the buying ladder and younger emerging markets take a few more steps up the ladder, global economic forces will drive even more HR regulations. Countries will be protecting and nurturing their own economies and these efforts will inevitably drive changes to their HR laws, taxes, social costs, etc.

It may sound daunting but it’s actually quite exciting. Revolutionary technologies and experienced global outsourcing service providers will be there to help HR and their organizations remain competitive in a global economy and thrive in a “newer” normal.

Global Growth is a Strategic Imperative, Despite the HR Challenges


While doing some reading about small and medium sized enterprises (SME’s) and their global strategies, I came across two contradictory themes. Most SMEs have a distinct desire to be global. In fact, they know they have to be if they want to remain competitive, but they are just running into too many obstacles. To me, this is completely contradictory because the obstacles they are facing are not difficult to overcome.

With roughly three quarters of the world’s purchasing power residing outside of America’s borders (according to U.S. government statistics), you’d think that every SME would be implementing a global business strategy. But surprisingly, one survey conducted by the NFIB studied external impediments to small business growth and found that 72% of small business owners would like to expand by adding employees within the next five years, but various impediments are currently standing in their way e.g., uncertainty, lack of skilled workers and regulatory obstacles.

Barclay’s report, Guidance to Navigate Global Waters, who surveyed SMEs in the UK stated that:

  • Businesses that export grow by almost a third in just two years
  • Almost a third of SMEs see a positive impact on their bottom line within just six months of expanding into international markets
  • An average of 336,000 more people are being employed across the UK as a result of businesses exporting or selling to overseas customers

The NFIB report also stated that 61% of their respondents reported a lack of skilled employees as an impediment to their growth. They said they would hire at least one additional employee at the current market wage rate in the next six months if they could find people with appropriate skills. While there is a global war on talent, there’s also a whole new pool of candidates available to work virtually from anywhere in the world. And not just any workers, highly-skilled workers!

This means that technology companies can legally engage programmers in India or sales managers in the UK, and non profits can engage temporary workers to help organize humanitarian projects in Africa and pharmaceutical companies can hire contingent laborers in Japan or Brazil. The possibilities are endless. Finding the right talent shouldn’t be an impediment to growth.

Another finding from the NFIB report was the 63% of respondents who said they had a current investment or project impacted by a regulatory matter, and one quarter of them cancelled the project and abandoned the investment altogether. It seems that regulatory issues are huge impediments to their global growth.  Well, I say, don’t let the bullies win! Understanding global risks and local requirements isn’t easy, but it’s not impossible. And once they are overcome, the rewards for opening up a business to a whole new world of buyers, are well worth the effort.

Global growth is in fact a strategic imperative. It just strikes me as odd when there are HRO solutions available to manage global workers and international HR risks. All these SMEs have to do is outsource the HR function and boom, they are global.


Source: http://www.nfib.com/research-foundation/surveys/growth-study

Global Payroll is not a Myth. It’s a Journey.

Global HR FootprintThere’s been a lot of chatter lately about whether or not it’s truly possible to have a globally consistent, fully-compliant global payroll system. Some would argue that its sheer complexity makes it almost impossible to administer an automated and effective  multinational payroll solution.

Yes, it’s true that it is highly complex but it’s not a myth. It’s a journey. It’s a journey that begins with a strategic road map and makes stops across every country in scope.

So what are some of the key steps in the journey?

The first step begins with an analysis of the organization’s global footprint. This includes a country-by-country review of where the company has, or doesn’t have, established business entities as well as identifying the number of payroll entities in each of those countries. And then, a  legal evaluation of existing contractors working in those countries. This analysis will drive the strategic road map.

The next step in the journey is a visit to a cloud, which is the hot technology platform that can be integrated into existing HCMs, accounting and Vendor Management software systems, unifying all the data. The next involves compliance and partnering with a managed service provider who has a global supply chain of vetted HR and payroll companies who are experts on in-country compliance.

Another step is related to global contractors/contingent workers, and having the ability to legally engage new workers in countries where the organization does not have business entities. This can be achieved with a solution called Global Employment Outsourcing, where  a service provider becomes the employer of record on behalf of the hiring organization. It’s completely compliant from an HR perspective which mitigates risk for the organization while giving them new tools to support their global growth.

The total solution has to take a holistic approach, beyond the global HR and payroll department, including finance, technology and risk management and equally important, engagement with regional and local HR teams.

Global payroll is complicated but with the proper planning across a company’s global organization, challenges can be overcome and fragmented processes can be transformed into a standardized system of record.

Top 10 Reasons Why Companies Use Global Employment Outsourcing Services


1. Need to know the truth about the legal status their Independent Contractors

2. Need to replace one of their local workers on a temporary basis

3. They just got funding for a special project and need someone to administer the program

4. They need someone in-country to manage a short-term project e.g., setting up an entity

5. They want to hire someone on a trial-basis before offering them a full time position

6. They need to hire a few people very quickly, and don’t have enough time to establish a local business entity

7. They’ve identified a candidate with a unique skill set but he/she lives in a country where they don’t have a business entity

8. They are closing down their business entity in a particular country but want to keep a few workers “on the payroll”

9. They are in the process of establishing a business entity, but need to employ someone right away

10. They have to get a worker on-boarded in less than two weeks!

Is Global Payroll Hot or Cool?

globalpayrollhotandcoolIs Global Payroll Hot or Cool?

It’s hot! And yes, it’s cool too, very cool.

Anyone who’s been to an HR conference in the past 20 years can probably recall a booth sitting quietly in the expo promoting global payroll solutions, not exactly the coolest one at the party.

So, what’s changed?

A perfect storm of external influences have left the HR industry looking at global payroll solutions to help them fight the war on talent, remain compliant, deal with regulatory pressures and mitigate their global HR risks.

Back when globalization was the word of the day, multinational payroll solutions were cobbled together based on domestic processes and ERP payroll modules, or in some cases “patches.” For large multinationals that could afford major IT investments in all of their international markets, these solutions were good enough. But then came the Enron scandal, SOX and the subsequent wave of new regulations. Then to add to the perfect storm, a cloud emerged, a transformational technology that offered MNCs a whole new way of thinking about their HCM applications, and importantly, an affordable global HR solution for the growing sector of micro-multinationals.

While the clouds were multiplying, a new SSAE 16 standard was instituted, to replace an aging SAS 70 standard and keep pace with the growing push towards more globally accepted international accounting standards. Both SOX and SSAE 16 address the flow of information into financial reporting systems, requiring that organizations evaluate and document all the processes that are used to generate their financial reports, including the processes that are used by their service providers.

More recently, a provisional EU agreement has been reached on the principle of capping bonuses in the European banking industry, while U.S. regulators have convinced seven financial institutions bankers to rein in bonus pay. More rules like this means more demand for global payroll analytics, a major challenge for global organizations.

It wouldn’t be a perfect storm without a financial crisis. The traditional MNCs have weathered the storm, a new wave of micro MNCs have emerged and everyone is adjusting to the new normal. There is a war for talent and traditional recruitment strategies are no longer acceptable. Cost control is imperative and global risk mitigation has taken center stage.

HR managers are becoming true human resource strategists: hiring local nationals, contracting temporary labor, seeking creative contingent worker strategies and maintaining global HR compliance. They have learned to expand their recruitment efforts outside traditional geographic boundaries, leveraging the specialized skill sets found around the world all while controlling human capital costs and implementing employee engagement strategies for their global workforce.

Yes, global payroll is hot, and very cool.

SafeGuard World CEO Discusses Why his Company Established GEO Division

SafeGuard World CEO Discusses Why his Company Established GEO Division – Click for Video

Picture1We went into global employment outsourcing as a product line for two main reasons. We saw two demands coming from our clients. One demand is for contingent labor. The majority of multinationals around the world have a workforce made up of both direct employees and contingent employees. Contingent employees are defined as contractors.

They are not permanently employed. The challenge is that it is very difficult to employ contractors around the world. There is a lot of different employment and contractor legislation of which most multinationals are unaware. There are many firms that are illegally employing contractors around the world. They are breaking employment laws.

We recognize these challenging laws and we seek to help our clients work within them. When clients come along and say, “Hey! We need 10 contractors in this country for six months,” we can help them employ contractors compliantly and legally. One of the reasons we devised a global employment outsourcing service was to be able to help our clients.

The second need that we noticed relates to globalization. It is around organisations saying, “Hey! We want to enter new territories. How do we get the information to do that? It’s really complex. I’ve got to set up entities, I need to find lawyers, I need to find accountants and I need to set up banks. It’s really challenging to do.” A lot of our clients are saying, “Hey, SafeGuard! How can you help us?” Another pre-driver of us devising and creating the service was our clients’ globalization efforts.

We are very proud of the term “global employment outsourcing” because we made it ourselves. Global Employment Outsourcing, or GEO, is a solution devised by client need, and it enables us to fulfill their requirements.