Using Contractors Overseas – Understand the Risks

Multinational companies may find it enticing to test a new market by using contractors overseas. These firms believe that they can avoid the hurdles of setting up a legal entity, which is needed to hire an in-country employee, by simply working with a local representative to perform consulting work. As wonderful and easy as this sounds, it’s actually inaccurate and presents many risks, especially if you’re using an American or domestic originated agreement to hire contractors overseas.

Independent contractor status is touchy in international markets. In regions spanning from Europe to Latin America to Asia, contractor agreements constantly end up in court and multinationals end up with big ticket bills due to their “safe” consultants. Protect yourself from a nasty legal battle and make sure you understand the risks of using contractors overseas before hiring one.

Risks with Contractor Agreements

You may have a solid agreement with your contractor, but in other countries, the courts typically rule on the side of the employee. Basically, if your independent contractor decides to fight their employment status in court, your agreement will likely be thrown out. There are many risks involved in these cases, which we describe below:

Using a US Independent Contractor Agreement

If you’re using a US-based agreement, it’s most likely due to the fact that you do not have an entity set up in the country where your contractor performs their work. This presents many problems if your contractor decides to battle their job status in court. Risks include:

  • Your agreement is void, so your employee can claim anything in order to win because the US agreement is not valid in foreign markets.
  • The labor authority rules on employee vs. employer cases and you will need to be present in court with a local entity