The essential guide to working with remote contractors

Is there a specific project you'd like a contractor to work on? Alternatively, do you need temporary help for some part-time work and, if so, how long will you need assistance? Determining this will help you create a job post or scope of work, which should include a description of the work, deliverables, budget, payment terms (whether fixed-price, hourly, or retainer), and deadlines for the deliverable or the end of the contract.

Step 2: Source and recruit the contractor

How can you find qualified freelancers?

Recruiters can match contractors with appropriate gigs. Recruitment companies typically have a long contact list and can help connect you to freelancers quickly. However, recruiters cost money, either charging an hourly rate for their work, charging per project, or taking a percentage based on what you pay the contractor.

Job boards are another way to source contractors from a wide talent pool. Post on websites like Indeed, LinkedIn, Seek, or Glassdoor, which all have a large global presence.

Freelance marketplaces, such as Upwork or Fiverr, help you connect directly with freelancers around the world who are open to taking on new work. You can post contract openings or target specific contractors with availability. These sites tend to show you reviews of the freelancers’ past work, so you can assess whether they’re up to the task. Many of these sites will also handle payment of that freelancer once jobs are complete. This is typically best for truly one-off projects rather than ongoing freelance relationships.

You can also tap into your network. Ask your contacts if they can recommend any contractors. If you’ve worked with contractors in the past, ask them if they have any peers they think would be a good fit for your needs.

Step 3: Conduct interviews and get quotes

Once you’ve identified a qualified contractor, conduct a short screening process to determine if they’re the right fit. You might exchange a few emails or perform an interview by phone or video. Remember: They won’t be a full-time employee, so finding a cultural fit may not be crucial. Instead, your interview should focus on their skills, past work, communication style, and availability.

Ask them for their rates. Do research to understand the going rates for their specialty and be prepared with your budget. Once you've agreed on a price, it’s time to extend an offer.

Step 4: Generate a contractor agreement

So you’ve found an excellent contractor and they’ve agreed to your terms. Great! Now, it’s time to generate a contractor agreement. This document will specify the terms and conditions for your working arrangement, including the scope, obligations, and deadlines. 

The agreement is also proof that you aren't in an employer-employee relationship. It can include non-disclosure agreements and payment terms, as well as any confidentiality clauses and termination clauses. 

When hiring contractors globally, ensure that your agreement is legal both within your country and the country where the contractor is based. Though you can do this by yourself, it’s advisable to familiarise yourself with local laws and have a lawyer or HR team review it before giving it to the new contractor. Rippling's simple paperless hiring process makes it easy to onboard contractors by gathering their necessary information, documents, and e-signatures. Our contractor agreements can help keep you compliant, no matter where your contractor is based. Plus, once the contractor is onboarded, their data is housed alongside that of full-time employees, giving you a single directory for your whole workforce.

Step 5: Understand tax obligations and reporting requirements

Australian businesses hiring independent contractors overseas typically don't require these contractors to complete Australian tax forms. The tax obligations fall on the contractors based on their country of residence's tax laws. However, Australian businesses must ensure they comply with their own tax obligations and reporting requirements under Australian law. This includes maintaining records of payments made to overseas contractors and understanding any applicable Double Tax Agreements (DTAs) that Australia might have with the country where the contractor is based, which could influence withholding tax rates or reporting obligations.

Don’t let compliance overwhelm you: Rippling makes it easy. 

Step 6: Agree on a payment method

You’ll want to agree on a payment method that works for both you and the contractor. Typically, you’ll pay the contractor in their local currency, unless it’s otherwise agreed on in writing.

Rippling has a country-specific series with guides to contractor payments. However, generally speaking, your options include:

• Bank transfers. In this scenario, you’d open a local bank account and use that to deposit funds into your contractor’s account or use your current bank to send a global bank transfer. 

• Digital wallets or payment platforms. Not all digital payment platforms are available globally. Still, some employers use platforms like Wise or PayPal to transfer money to contractors across borders. Exchange rates can vary, making it difficult to predict your outgoing amounts.

• International money orders. This method can be slow because the employer needs to physically purchase the money order, and the contractor needs to physically deposit it upon receipt. Money orders can also come with fees and bad exchange rates.

• Global payroll services. Contractors aren't typically included in payroll since they aren't subject to the same withholdings as employees. Instead, they invoice for their services, which is processed through accounts payable. However, with Rippling, you can pay both employees and contractors, wherever they’re based, in a single pay run. 

Step 7: Throughout it all, keep classification in mind

If you misclassify full-time employees as contract workers, you risk fines, legal action, and reputational damage.

Remember: No single factor determines whether your worker has been misclassified. Also, the risks of misclassification amplify the longer you continuously work with a contractor. Read our full guide on misclassification or read more about misclassification below. 

Frequently asked questions about working with remote contractors

How do I know if I’ve classified my contractor correctly?

Regardless of where your contractors are located, there are some key aspects to keep in mind:

1. Impact of work. A contractor’s duties shouldn’t be integral to the business or its success. Can you manage without the contractor’s services? If not, then they should probably be classified as an employee.

2. Permanence. Your contract should have a definitive end date, whether that’s at the conclusion of a specific project or period. However, if your worker is paid hourly, weekly, or monthly with no end date, then they should likely be classified as an employee.

3. Degree of integration. Contractors are separate from the rest of your team members and should be treated as such. Your contractors shouldn’t be subject to performance improvement plans, salary reviews, perks, or employee benefits, such as health insurance. They should take care of their own expenses for tools or travel. 

4. Degree of control. As an employer, you can’t control when or where contractors complete their work. If you do, then they may need to be reclassified. 

5. Exclusivity of service. Contractors should be able to work for multiple clients. If your contractor only has time to work for you, then they should likely be reclassified.

The legal tests for misclassification will vary depending on where you and your worker are based. Still worried about whether you’ve classified your workers properly? Try out Rippling’s free Worker Classification Analyser. With a 90-second quiz, we can help assess your risk of contractor misclassification for workers across the globe.

What are the risks of not classifying a worker correctly? 

Misclassifying employees as contractors is illegal and, unfortunately, very common. Of 102 enterprises audited by the Fair Work Ombudsman, 11 either employed only permanent staff or did not hire contractors. Among the 91 enterprises that were operational and utilised contractors, 21 (23%) were found to have incorrectly classified employees as independent contractors.

If you’re caught misclassifying an employee as a contractor, the repercussions depend on where you and your contractor are based. You could face fines, repayments of unpaid taxes (plus possible penalties), employee benefit repayments, lawsuits, wage claim audits, punitive damages, or even jail time.

Why is this such a big deal in labour law? Unlike employees, contractors aren’t covered by worker protection laws, collective bargaining rights, unemployment benefits, or workers’ compensation. Contractors don’t get employee benefits and are also responsible for paying their own payroll tax contributions. What’s more, employers with misclassified workers are improperly reporting taxes.

Again, Rippling’s free Worker Classification Analyser can help assess your risk of contractor misclassification for workers across the globe. If you’re still unsure, contact a legal expert.

Do I have to pay my remote contractor minimum wage?

No. Unlike employees, contractors aren’t covered by worker protection laws, such as minimum wage. Contractors negotiate for their rates. However, because contractors pay their own taxes in full to their own country and take on the cost of their supplies, it’s considered best practice to pay a fair wage for their location.

What are the tax implications of hiring remote contractors overseas?

International remote contractors only pay taxes to their countries of citizenship and/or residence, even when the client paying them is based abroad. Contractors typically handle their own tax payments to their country and are subject to that country’s tax laws. Australian companies usually don't need to withhold tax from payments to contractors, but you should always double-check that there are no foreign tax obligations.

Companies with remote contractors do need to know when to report annual earnings to their contractors. One small hitch is that different countries have different dates marking their tax years. For example, the US tax year runs from January 1 to December 31, but in Australia and Bangladesh, the tax year goes from July 1 to June 30.

Should I report payments made to foreign independent contractors?

If the contractor is an Australian citizen working abroad, Australian-based companies must report payments to the Australian Tax Office. If they' are're not an Australian citizen and don't work in Australia, then payments don't need to be reported.

If working with Australian contractors, ensure they provide an Australian Business Number (ABN), which you can verify online through the Australian Business Register (ABR) to confirm their business details.

For contractors based outside Australia, it's essential to document the nature of the work, the contract terms, and the payments made. Although there's no requirement for specific tax forms like in the US, maintaining detailed records is crucial for tax purposes.

Want help with tax forms? Rippling collects any necessary tax information from contractors and files them on your behalf. 

How do I convert an independent contractor to a full-time employee on payroll? 

Onboarding a contractor is similar to onboarding any other full-time employee.  First, notify the worker about your desire to hire them full-time and make sure they want to be converted. Some freelancers prefer to remain independent, while others may be excited about the stability of full-time employment. Write up a contract, which officially offers employment, outlines the employment relationship, and terminates the contract agreement.

Transitioning a contractor to a full-time employee in Australia involves several important steps to ensure compliance with local employment laws and tax regulations. Firstly, you'll need to collect the new employee's Tax File Number (TFN) for tax withholding purposes. Next, you're required to make compulsory superannuation contributions on their behalf, which helps secure their retirement savings. It's also essential to provide them with the Fair Work Information Statement, outlining their rights and obligations under Australian employment law. Adjusting your payroll system is crucial to accurately manage their salary, tax withholdings, and superannuation contributions.

Finally, enrolling them in your company's benefits program will offer them the full advantages of full-time employment, including health insurance and various leave entitlements. These steps ensure a smooth transition and compliance with Australian regulations, contributing to a positive start for your new full-time employee.

It sounds overwhelming, but Rippling can quickly transition contract workers with legally compliant paperwork, benefits administration, and payroll. Learn more.

As you bring on full-time remote employees, consider whether you have an entity in their country, which is often a requirement for hiring abroad. Opening a local entity can be a complex and time-consuming process. Instead of initiating your own entity, you can opt to use an employer of record (EOR). An EOR takes on the responsibility of establishing the entity to hire employees on your behalf, minimising risk, and handling all of the legal requirements, payroll, employment contracts, annual leave, and taxes. EORs, such as Rippling, can accelerate and streamline the process, so you can onboard new foreign employees quickly.

How do I fire a contractor? 

Contractors can’t be fired, as they aren’t employees. However, their contracts can be terminated.

When and how you can initiate termination depends on the terms of your contract agreement. Typically, either party may terminate the contract agreement after providing notice. Set the terms in your contract agreement—you may allow for immediate termination or require a notice period of two weeks to a month. Generally speaking, contractors don't receive employee entitlements, such as severance. But, again, outline this in your contract so that the terms are clear for all parties, and make sure all terms are compliant with local laws.

Effortlessly manage global contractors with Rippling

Managing contractors has never been easier, no matter where they’re based. With Rippling, your contractors' data is housed alongside that of your full-time employees, giving you a single directory for your entire workforce.

Rippling can pay all types of contractors automatically, gather e-signatures and store documents, and assign contractors accounts for business apps. Contractors can track their hours in Rippling with our electronic timesheets and clocks, which can be synced directly to payroll.

Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.