WT100 Blog

Independent Contractors Abroad: Enticing but Dangerous

August 4, 2012

HSBC Commercial Banking’s “Global Connections Trade Report” projects U.S trade is expected to rise 95 percent by 2026. In the next five years, the annual growth rate of U.S. exports to China are forecasted to outpace U.S. imports from China.
While the U.S. has charted a strong course for exports, exporters can be brought up short if they aren’t careful.
When expanding abroad, it is a fairly common practice to hire an independent contractor as the first footprint to develop and expand relationships with clients abroad. Despite some obvious advantages of hiring a contractor – such as avoiding foreign payroll procedures, benefit structures, and foreign corporate regulations – it is a risky move.
Lawyers, accountants, plumbers, guest speakers and other genuine contractors are not frequently subject to review as a misclassified employee. However, relationships that are long-term and exclusive in nature raise red flags. Foreign employment laws are often more strict than in the U.S., and foreign courts may look beyond the independent contractor agreement and evaluate the nature of the business relationship to determine if the independent contractor is really a de facto employee.
There can be severe penalties, fines and other costs associated with a misclassified employee abroad. And the fees aren’t limited to employment law violations, often there are violations of corporate rules and regulations.
To prevent misclassification issues from arising, exporters should evaluate all independent contractor agreements that are engaged for more than a discrete task. Consider:
1) Reclassifying the position as an employee, or find a surrogate employer. A surrogate employer is a local business that can hire the employee on behalf of a third party. The local business and the third party enter into a contract to enable the employee to provide services for the local business.
2) Draft the independent contractor agreement so that it establishes true independence and complies with local law. Generally, it is best to avoid non-compete clauses, bonus pay provisions, paid vacations, scheduled work hours and other terms, which are associated with employees. In all cases, it is imperative to consult with a local employment attorney for nuances in local laws. In India, for instance, an independent contractor agreement should include a statement that the contractor has a “permanent tax account number” and the independent contractor withholds and pays taxes.
3) Enter into business-to-business agreements. If the contractor can establish a corporate entity through which it engages clients, then many of the misclassification issues disappear. However, this may add a layer of administration the independent contractor may not be able to absorb.

You must login or register in order to post a comment.



Image Galleries

Five Wearable Manufacturing Technologies of the Future

Video applications, Employee Monitoring, Field service, Plant monitoring, Improving employee safety.

For more manufacturing insights, visit www.exactonline.com.



Assurance of Supply: A Top Concern for Manufacturers

Every manufacturer has an assurance of supply problem to some extent due to the complexity of global sourcing. For years, manufacturers were blessed with high margins but margins have grown paper thin. You can’t fill up your distribution centers with excess inventory – not only is there a cost factor but the pace of business and consumer buying trends causes goods to quickly turn obsolete. Assurance of supply provides the speed and agility that is essential to being able to compete in today’s market.


Speaker info: Diane Palmquist, VP Manufacturing Industry Solutions


More Podcasts

World Trade 100 Magazine

wt100 cover december 2014

2014 December

Check out the December 2014 edition of World Trade WT100, featuring our cover story on Air Cargo, The Alliance Awards, plus much more!

Table Of Contents Subscribe

Transportation Capacity

As peak season has gotten underway, what is your experience with transportation capacity?
View Results Poll Archive


World-Class Warehousing and Material Handling, 1st Edition

Filled with proven operational solutions, it will guide managers as they develop a warehouse master plan, one designed to minimize the effects of supply chain inefficiencies as it improves logistics accuracy and inventory management - and reduces overall warehousing expense.

More Products

Clear Seas Research

Clear Seas ResearchWith access to over one million professionals and more than 60 industry-specific publications,Clear Seas Research offers relevant insights from those who know your industry best. Let us customize a market research solution that exceeds your marketing goals.


Use our interactive maps to locate service providers across North America.Interactive Map

Logistics Development Partners 

IWLA Members