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Converting Independent Contractors to Employees

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Key Takeaways

Employing the services of Independent Contractors for specialized work or designated projects is not uncommon. Learning when and how to convert those contractors into full-time or part-time employees is key to making the most of their particular benefits.

There are many advantages to hiring a contractor over an employee, including saving on insurance, health benefits,  workspace costs, and tools. However, to establish a more stable, long-term working relationship, you may be looking to transition a worker from an independent contractor to a full-time employee. The requirements go beyond a title change, and there are some essential factors to consider and steps necessary to take.

Below, we’ve summarized the fundamental differences between the two roles, the benefits of transitioning a contractor to an employee and the process involved, and tips for making this journey more accessible and efficient.

 

The Differences Between Independent Contractors and Employees

An employee and a contractor may work for the same company or even on the same project. However, their relationship with the employer and what they expect to receive from their work are not the same.

If you wish to transition a contractor to another role, these differences are essential to keep in mind.

 

Contracts

Typically, an employee is bound by a full-time or part-time contract and receives a fixed monthly salary.

On the other hand, a contractor operates under an independent contractor agreement and is paid a specific amount solely for the task they have agreed to complete.

 

Benefits

An employee can expect to receive additional benefits outside of their salaries, like health insurance, overtime compensation, and the handling of tax paperwork which can add to employment costs.

An employer is not required to give any of these additional benefits to a contractor. If an employee does not know how to complete their tasks, an employer is expected to train them. A contractor may not receive any training from the employer or client.

 

Work Environment

A contractor operates under their own schedule instead of set work hours and uses their own work tools in their own chosen work environment.

On the other hand, an employee is generally expected to show up at scheduled work hours and work at a specified location.

An employee carries out their work subject to the direction of their employer, whereas a contractor is free to engage in their work however they choose, provided they complete the job within the deadline.

 

Employment Opportunities

Ultimately the nature of the relationship of an employee and employer is intended to foster longevity; an employee becomes a regular, integral part of the company, working exclusively under contract for one company.

A contractor may take on several different jobs for different employers simultaneously.

For a more detailed dive into the differences between the two, check out our article on the topic here.

 

The Benefits of Transitioning an Independent Contractor to an Employee

While the flexibility and versatility of independent contractors may be advantageous to your company for a time, there may come the point at which it is more beneficial to have the contractor become a full-time employee.

Some of the advantages to converting a contractor to an employee include:

  • Allowing employees to focus their unique skillset towards the projects and goals of your company by securing a skilled worker as part of your team with a long-term contract
  • Avoiding interruptions or delays to projects by having employees agree to regular work hours
  • Bypassing any potential legal pitfalls that can arise by incorrectly classifying workers
  • Improving worker satisfaction and reducing turnover rates with better compensation and standard benefits
  • Eliminating the risk of losing a talented worker to the competition by establishing a committed, exclusive relationship

 

The Five Steps to Transitioning Independent Contractors

Choosing to transition an independent contractor to a full-time employee is not just a matter of agreement between both parties. It involves legal maneuvering and other vital steps followed through accurately and securely.

We’ve narrowed down the process to the five main points below:

  1. Propose an Offer to the Contractor — An independent contractor is free to choose whether or not they remain in their current status or transition to a full-time employee.

The first step is laying out your proposal to the contractor and making sure that it appeals to them. A contractor may enjoy the freedom and variety of their current schedule and need to be convinced that the change is positive.

  1. Communicate with the Contractor — It’s important to be transparent with the contractor as you make the transition from a client-contractor relationship to an employer-employee one.

Tell your contractor why you want them to join your company full time, how you and your company value their talent, and walk them through what the new status will mean for both of you.

  1. Sign the Contract — Once the contract proposal has been thoroughly explained and all aspects have been agreed upon, the contractor will need to sign the contract to become an employer.

The contract must be in the language of the country they are being employed in, and specify the terms, conditions, and benefits the new employee can expect.

  1. Handle Paperwork Changes — Once a contractor has transitioned to an employee, their classification also changes, and with that comes a new set of legalese and tax-related paperwork. Especially if the contractor is an international hire, there will be additional regulations and processes related to the local laws.

A global EOR (Employer of Record) is a third-party organization that can help to handle all of these transition details smoothly.

  1. Add the New Employee to the Payroll — Instead of receiving an invoice as a contractor would, the new employee now needs to be added to the company payroll.

This new procedure includes paying payroll taxes and complying with all domestic and international tax regulations elements.

  1. Finally, its important to welcome your new employee to the team as a valued family member. As independent contractors, they may be accustomed to working alone. Reintroducing them to the company and making sure they are familiar with all the daily processes will help to smooth the transition and increase a feeling of significance.

 

INS Global’s Role in the Transition

It’s not always a simple process to transition from contractor to employee, even if both you and the prospective new employee are in the same country. International hires can also add a further layer of complexity and red tape.

This is where INS Global can step up to create a safe, professional plan that will enable both you and the contractor to make the switch easily.

Our global employer of record (EOR) services are available to assist you in over 80 countries with recruitment, outsourcing payroll, and HR. INS Global’s team of legal advisors will help you with the paperwork involved so that you don’t run afoul of any local laws.

We will eliminate any chance of misunderstanding by clearly laying out all the necessary payroll details, benefits, and compensation so that the contractor feels confident and positive about making the change.

Our priority is guaranteeing that the process is swift, legally compliant, and obstacle-free.

Contact our team of employment specialists today to learn more.

 

 

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