Making Work with Independent Contractors Safe. Here’s What You Need to Know

EasyStaff has its eye out for freelancers and the self-employed in the market. Companies are growing more and more favorable and open to outsource workers that join teams on demand. The freelance platform Fiverr has seen a 44% increase YoY up from 2020 to 2024 due to a growing number of businesses spending money on freelance projects. In EasyStaff we often turn to freelancers. In this new article by Gulya Sabirova, Head of SMM at EasyStaff, we’ll explore the basics behind working with an independent contractor to stay compliant and maximize efficiency.

The fundamental and most prominent reason is that freelancers and contractors are independent parties to the business that hires them. Hence the array of taxes associated with full-scale employment is not applicable. Freelancers and contractors are by law required to pay tax themselves.

A second reason is that time from onboarding to work is minimal in case with freelancers. They are independent professionals who need a moderate introduction to the task and the business context to get to actual work.

Last but not least, freelancers and contractors engage in multiple projects with varying levels of difficulty where each project belongs with its unique context. This is to say that freelancers are likely to have a fresh perspective on your task and bring in their rich expertise at convenient fees.

Hiring a freelancer requires a certain type of paperwork which establishes distance between you, who hires them, and the freelancer, who works independently. Failure to provide necessary documentation may cause further problems.

If there is no contract or document to prove that you and the contractor are independent parties and they are only providing services to you, there are different forms of penalty. Generally, the lightest it gets is an official obligation issued by tax authorities to pay the tax for the ‘employee', meaning social security and medicare deductions. The darker alternative is suspension of operations altogether or expensive fines imposed on the employing company.

Documents that you and the freelancer sign establish the rules of your partnership and state the type of business relationship that you and the contractor follow. There are three major documents to create and sign to stay complaint:

• Contract. The contract discusses every aspect of your work with the freelancers. From start and end dates to payment terms and conditions to termination terms, The contract is where you need to clearly state that you and the freelancer are independent of each other and that you do not provide for them like you do for an employee. The rule of thumb is, if you control how and where they work, they are an employee. If you don’t, they are a freelancer. Mentioning the level of control is crucial.

• Invoice. A legal entity can’t just send money to an independent contractor. So the invoice is the reason you pay a contractor. It must contain the amount due and services performed.

• Hand-over statement. The document proves that work has been performed and results have been accepted.

Depending on where you and the freelancer met each other, there are different payment methods.

Via a freelance platform. Today most freelance marketplaces provide built-in secure deal tools that keep the money to be paid after the project is complete. Both freelancers and employers are sure they will get what they need thanks to the tool. Platforms provide some form of closing documentation to back up a spending for declaration.

Via a payment platform. International payment platforms such as PayPal or Wise are a viable option when it comes to paying freelancers. The functionality is simple, and transactions seem secure. One major drawback is high withdrawal commissions and unfavorable exchange rates, and the other is that in some areas of the world PayPal and the likes are not available.

Via a freelancer management platform. Such platforms help pay freelancers worldwide, and their unique feature is that they provide closing documents that suit any business and let it stay compliant with local regulations.

The article above covers both domestic and foreign performers. However, while paying domestic performers doesn’t raise any questions (you can pay in cash or by bank transfer), working with foreign performers is currently incredibly difficult.

EasyStaff can help. EasyStaff is registered in Lithuania. With its European legal entity, the company helps send payments to remote performers worldwide. When making a payment, the correct closing documents are automatically generated, which can be provided to the tax authorities as proof of work with self-employed individuals.

EasyStaff is a solution specifically for companies (legal entities) that need to pay for services from foreign performers. LLCs and EasyStaff enter into a free B2B agreement, under which the company pays the EasyStaff European legal entity. The company creates its own account on the platform and adds funds to it. Before payment, a task is created for the performer, and after its completion, payment is made. The performer does not need to register on the platform, and the money will be sent directly to their card, bank account, or crypto wallet.

• Hiring freelancers helps companies access high quality professionals with their diverse experience to match business goals and objectives.
• When working with a freelancer, the company must provide the necessary documents (a contract, an invoice and a handover statement) to prove that the company and the freelancer are independent parties.
• Paying freelancers is easy with EasyStaff. Regardless of where they are based, you as a business can reach out to them and get to work right away.

Gulya Sabirova
June 08, 2024