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Legal Considerations for Engaging Overseas Contractors vs. Local Contractors

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It is now easier for Australian businesses to connect with consumers and workers internationally. As your business grows, you may face whether you should hire workers from overseas. However, you should consider the various commercial and legal risks that you may face. Additionally, it may be beneficial for you to get legal assistance before starting any hiring process. This article will discuss the various advantages, disadvantages and risks you need to consider when hiring overseas contractors. This includes issues of intellectual property protection, payment and taxation before deciding whether to hire workers locally or internationally.

Employee vs Contractor

Before hiring an overseas or local contractor, as an employer, you must understand the difference between an employee and a contractor, as this will affect the potential legal obligations you may have to your worker. Additionally, misclassifying an overseas employee as a contractor may mean more liability under local laws where the worker is.  

Generally, in Australia, an employee will work in and be part of your business. On the other hand, a contractor will operate their own business while providing their services to you. Some additional differences between an employee and a contractor relationship generally include:

Contractor Employee 
Right to delegation Able to delegate or sub-contract to a third party to perform work.Cannot delegate their duties. 
Working hours Ability to decide the hours that they work themselves. Regular and defined hours, generally set by the employer.
Commercial and financial risk Will take on commercial risks, including any financial risks and responsibility for liabilities, and is legally responsible for their work. Will not face commercial or financial risk over their work, and their employer is generally responsible for the employee’s actions.
Equipment Will supply most, if not all of their own equipment to complete their work.The employer will provide most, if not all, the equipment used by the employee. 

It is important to note that previously, the law emphasised close analysis of the relationship between the employer and the individual to determine the difference between employers and contractors. However, recent changes to Australian employment law now highlight the contract terms as the key element to identifying an individual as a contractor. 

Advantages of Overseas Contractors

Diverse Skills and Lower Costs 

An international hiring pool may allow you to find contractors for diverse, complex or highly-skilled roles. Often, these may be more difficult to fill when you are looking at a limited pool of local talent. For example, hiring individuals domestically in highly specialised fields such as IT or financial services can often be very competitive and expensive. By hiring internationally, you may also bring more diverse experiences from different individuals with varying backgrounds into your business to allow for more varied approaches to problem-solving and service provision. 

Additionally, as an employer, you may be considering hiring overseas because it presents an opportunity to save on labour costs. This is especially so where labour costs may be lower due to different currencies. As such, many Australian companies will hire from a country with an abundance of workers with certain skill sets and lower labour costs. Accordingly, this allows the company to gain higher profits in the long run. 

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Overseas contractors work remotely and may be set up in different time zones. Thus, overseas workers may be able to offer more flexible working times to suit your needs. This is in contrast to local contractors who may not be able to meet certain scheduling demands. Such flexibility can be highly advantageous for employers, such as where a company’s clients may require 24/7 technical support.

Disadvantages of Overseas Contractors

Lack of Control

Because your workers may be located overseas, you may face more difficulty in supervising and managing the work. Particularly where you may experience such difficulties as technical glitches, unstable communication tools or inability to provide certain software or equipment to your workers.

Furthermore, issues may arise from miscommunication between the parties or significant project delays. You should minimise this risk by ensuring that the clauses in your contract clearly define how the parties may resolve workflow issues, delays and incompletion of work. 

Risk and Disputes

Furthermore, if a problem arises with a contractor, resolving any potential disputes with contractors located overseas is generally more complex. Consequently, it is crucial that your contract clearly expresses how you may resolve a dispute and which country’s laws will apply. For example, suppose you are required to bring an action in an unfamiliar country. Alternatively, consider where a dispute needs to be determined by a court outside of Australia. Both situations are likely to result in higher costs and complexity. Additionally, in certain cases, you may not be able to enforce rights that only exist for you in Australian law.   

Other Considerations 

Employment Laws

Employment laws and entitlements will vary from country to country, and the Australian Fair Work Act may also apply to certain overseas workers. Before hiring overseas, it is important to consider whether any federal or state employment laws of each country where an overseas worker resides may apply and whether any legal obligations may restrict you as an employer. For example, industrial laws in certain countries may restrict what you can pay your workers and the working hours you can set. 

Intellectual Property 

As each country may have different intellectual property laws, contracting overseas may also raise issues regarding how to deal with intellectual property. It is crucial that, if you expect to receive the intellectual property rights to the work completed by your contractor, your contract must establish ownership of such intellectual property. 

Payment and Taxes 

It is important to consider how you will pay your contractor. For example, you should determine:

  • what currency you will be making payments in;
  • the methods you will make payments in; and
  • how you will outline payment terms in your contract to avoid confusion.

Further, you must consider the potential tax implications that may apply if you hire an overseas contractor. For example, by hiring a contractor in a foreign country, you may have different pay as you go (PAYG) withholding and superannuation obligations. On the other hand, some foreign earnings may be exempt. Additionally, the amount paid to your overseas contractor may also be affected by numerous costs, such as: 

  • currency exchange rates;
  • fees levied by the currency exchange; or 
  • money transfer providers. 

It is important that you seek tax advice to ensure you understand what taxes or fees you may be liable to pay.

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Key Takeaways 

When deciding whether to employ local or overseas contractors, it is important to weigh up the advantages and disadvantages. For example, although hiring an overseas contractor could allow your business to save on cost or acquire flexibility in hiring a worker who can work at more flexible hours, you may face more complications if you wish to bring legal action against an overseas contractor if something goes wrong. In either case, it is important that you clearly define the rights and obligations of you and your contractor in your contract. 

If you require assistance with hiring a contractor, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft your documents. Call us today on 1800 532 904 or visit our membership page.

Frequently Asked Questions 

What is the difference between a contractor and an employee?

Generally, in Australia, an employee will work in and be part of your business, while a contractor will operate their own business while providing their services to you. Additionally, a contractor may be more likely to have the ability to delegate work, use their own tools or equipment for completing work, have more control over how they complete work and takes on their own commercial risks.

What are the risks that I face from hiring an overseas contractor?

Before hiring an overseas contractor, you should consider several different factors to see if hiring a worker in a foreign country would suit you. This includes: whether any foreign employment laws may apply, how intellectual property will be protected in a foreign country, how disputes will be resolved should they arise, and how payments and taxes will be managed. 

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