A Legislation Guide for Hiring Remote Developers
HR Tips Iolanda Saló
The future of work is forever changed – and many say for the better. According to the recent New World of Work Report, 63% of companies went fully remote by the time COVID-19 hit its peak, and 82% say it will be important for candidates going forward. Not only that, but the option to work remotely is a number one priority for most job-seeking developers.
If your company hasn’t thought about how it’s going to tackle remote work in the future, now is the time; especially in such highly competitive markets. As BeBanjo CTO, Miguel Arroyo, says, “Remote allows you to access great talent since there are no regional boundaries.”
However, one of the main challenges for companies building remote teams is exactly that: having employees all over the world. With it, you must consider that each country has its own legislation to abide by. The process can seem overwhelming, but to remain competitive, it’s a worthy investment. And as Doist says in their Remote Guide to Logistics, you should “look at this process as innovating—you have a hand in architecting the economy of the future.”
The following is a legal guide for the hiring of remote developers, where we’ll look at the type of employment contract used and the legal arrangements a company could decide to undertake.
First, hire for logistics
If you work in a startup and want to hire a team of remote developers, one easy way is to contract offshore talent through a development agency. They would handle all financial, administrative and legal issues, and you’d just need to take over the onboarding process.
If you want to hire individual candidates, we’d suggest you hire an accountant or external lawyer because each country has a different tax treaty.
Best contract types to hire your developers
Remote job contracts can be whatever you want them to be: full-time or part-time, freelance or permanent, and they can have set or flexible schedules.
Employees under a full-time remote contract are usually working 40 hours a week, are paid a salary and are entitled to receive benefits such as Social Security, Health and Life Insurance, and leave.
Both in the US and across Europe, individuals classified with an “employee” status are protected by law under well-defined rules. It’s important that your HR or people operations team are aware of the legal requirements for every case, as country legislation differs.
This will be your best bet when there is ongoing software development work that needs to be done while supervised. If you see this field as a long-term business goal, we recommend you hire full-time developers that understand and are loyal to your company.
If you’re wondering how to draft a remote working contract, Hubstaff details the process in their free guide.
Unlike full-time contracts, many companies tend to hire independent contractors, who are different to freelancers. They are temporary employees who take on larger projects for longer-term customers and are paid hourly, daily, or per-project. In addition, they accept clients through a third-party agency. Freelancers, on the other hand, are hired for projects that don’t need ongoing maintenance.
You might consider hiring an independent contractor when:
You have the option to hire developers for specific projects, periods, or even small tasks and milestones within the projects. They are experts in the specific fields your current projects demand.
Your business needs some extra hands to take on those projects, which would normally be too much for regular staff to handle on top of their own responsibilities. This might be the case for small businesses that might need a bit of a boost.
Hiring your remote developers
If you’re thinking about hiring or planning to outsource your tech team, and it’s not really feasible to set up a new office, you have various alternatives. Below are a couple of the steps you could take:
1. Decide the desired target location for hiring remote developers
There are a few things to keep in mind as you make this decision, the most important being: Will the outsourced developer or team be working alongside the in-house team? If so, the time zone is a critical factor.
- For EU companies, Eastern European developers can easily reschedule their work to meet their demands.
- For the USA, Latin American countries are their best option.
- For Australia, South-East Asia would be ideal.
2. Consider which factors are most important to you
When looking to outsource development, there are a range of things to consider and each factor will be weighted differently for each company:
- the pay rate
- level of expertise
- convenient work schedule
- preferred language proficiency
3. Decide on your hiring avenue
Most companies establish a local entity in the worker’s home country, hire through a business partner or, most commonly, hire through independent contractors. Here’s what each option would look like.
This is by far the safest option to avoid compliance issues, and it’s ideal for companies that are planning to hire in pre-designated countries.
If you want to hire many long-term developers or have other business interests in the country, setting up a business entity in the employee’s home country might be worth it. Then, employees will be hired through those entities. But if your business is in its early stages, the complexity and cost of establishing many entities may be too high.
Lucía Etxabe, HR & Office Manager at BeBanjo, explains that they started from a small office to a scaled-up remote international business model. “We are headquartered in Madrid but we have offices and entities in other countries, supporting local employees.” Since a big part of their customer base are Hollywood studios, they have staff in Los Angeles and are planning to grow the team through their US entity.
Entity selection and employee structures go hand-in-hand. In order to select the right entity to support your operations, you’ll need the help of lawyers and tax experts from the very beginning. But before calling them, Doist suggests you set up a vision of what you want to build:
- Where will your employees be located?
- Where are your customers?
- What types of industries and markets do you serve?
- Where are your strategic partners located?
- What access to capital, investment, and/or financial resources will you need?
- In what country(s) are your founders and the bulk of your team citizens?
Although you will need to allocate part of your budget into this model, the advantages outweigh the cost. You’ll have full control over the entire employment process without needing to outsource to a third party, you’ll be able to hire from all over the world, and you’ll definitely avoid any risks of misclassification (the practice of labeling employees as independent contractors).
Hiring through a business partner
If you have existing suppliers, vendors or business contacts located in the same country as your full-time employee, you might want to consider this option.
An example is when a company (parent) acquires a subsidiary (daughter), and the subsidiary hires a small team or individual in one of the regions where the parent company operates. In this case, the parent company puts the worker on their payroll and manages tax withholding and Social Security contributions, while at the same time the daughter company is under control of the employee.
If you hold a level of trust with your business partner, it’s an easy solution.
Hiring independent contractors
Contractors are responsible for their own taxes and benefits, so the company avoids legal difficulties and only needs to pay the developer under the agreed terms and schedule.
Most contractors have their preferred method of receiving their wages. While bank transfers are more costly, there are a few tools to make your life easier:
Don’t underestimate misclassification
When paying a full-time employee or an independent contractor for the same or similar work, don’t forget there are legal differences between the two in regards to tax retention. A company will withhold income tax and Social Security to employees from their wages, but independent contractors will have to pay their own taxes. For more information, it’s best to get in touch with a legal counselor to avoid problems with misclassification.
Even so, when it comes to employee rights, there’s a thin line between misclassifying full-time employees and contractors. In fact, if the contractors have little control over their work and consider that they should be working under the same contract conditions and benefits as a full-time employee, they could sue the company for underpayment of wages, absence of benefits and increased exposure to a variety of risks. In this case, the employer might be obligated to pay a back bill for the benefits that it failed to provide.
Matthew Smith, Recruitment Manager at Amazee Labs, says that many of their developers are employed as “full-time freelancers” rather than contractors, and they enjoy the same benefits as full-time employees, with the same equal standards such as notice period, time-off, onboarding, and so on. “This differs quite a bit from an independent contractor role –” he says, “as freelancers, they’re much more culturally integrated within the company.”
While this is the case for one company, it may not be for another, so it’s worth getting someone on board who can help.
Some of the most common legal arrangements when hiring remote developers are covered above, but bigger corporations or companies in their expansion phase might want to consider more options.
GitLab is one of the first consolidated remote organizations operating on a global scale. They put horizontal integration in the spotlight, and made sure to have a highly structured legal team.
Summarized, they ensure legal compliance with:
- GitLab entity: Developers can be employed directly through their own setup entities.
- PEOs: Where they don’t have an entity, they have companies in select countries that oversee all HR-related functions. They serve as an employer of record to facilitate payments.
- C2C (Contractor): A corporation or LLC invoices GitLab’s entity for GitLab related work.
- IND (Contractor): In countries where they are not present they have hired people as independent contractors.
If you are curious to know more, they shared a public table to guide companies in what is applicable in which location.
We know the process for hiring remote developers is complex, but if you’re looking for opportunities to grow your developer team and remain competitive in this time, going remote is a powerful way to do so.
Before turning to external aid from specialised legal services, explore your options, follow the steps in this guide, and keep in mind that the legal requirements will differ depending on the type of contract. And remember to see this process for what it is: an investment in the future success of your company.