"Consider the five factors before converting independent contractors to employees. Assess talent, legal expertise, tax, employee benefits, etc."

1. https://remunance.com/blog/5-things-to-know-before-converting-independent-contractors/
5 things to know before converting
independent contractors into employees
Hiring independent contractors is an ideal option when a company requires
professionals with specific skill sets for certain projects. Among independent
contractors, global businesses mostly prefer to work with full-time
contractors when hired beyond borders. There are two core reasons
businesses choose a full-time independent contractor. Firstly, these
contractors have the required skill set and prior experience handling similar
projects for years. Secondly, businesses have no legal entity to hire
permanent or full-time employees in the target country.
Working with full-time contractors, however, still has some challenges for
overseas businesses. A high attrition rate, work alignment problems, a lack
of control, and confidentiality issues are major challenges associated with
independent contractors. Moreover, as a business owner, you’re likely to
face additional challenges, such as work culture differences and compliance
risks, when hiring independent contractors outside your country.
So, businesses often consider converting their existing professionals into
full-time employees to address such formidable challenges. Before you
finally decide on the conversion, however, you must prepare well to ensure
that your employee transition is smooth and effective.
Through this blog, we’ll guide you on how you can prepare for a seamless
transition from contractors to employees. There are five crucial factors you
need to consider before converting your independent contractors into
full-time employees. Let’s first understand the meaning and differences
between independent contractors and full-time employees to gain a better
perspective on why you need this transition.

2. Full-time independent contractors vs full-time
employees: meanings and differences
Once you have a clear understanding of both terms, you can easily
comprehend the benefits and challenges of converting their existing
professionals into employees.
Who is a full-time independent contractor?
A full-time independent contractor is a type of employment arrangement in
which an individual agrees to work for a company on a full-time basis for a
certain duration. Unlike freelancers or part-time contractors, a full-time
contractor needs to complete the stipulated time mentioned in the terms and
conditions of the contract. For instance, a full-time contractor typically works
for 30–35 hours a week. This type of arrangement is widely applicable in
project-based work, consulting, and temporary staffing. Depending on the
nature of the

3. projects, a full-time contract position can be short-term (which may last for a
few weeks or months) or long-term (which can extend for a year or more).
For instance, companies hire full-time employees for a long period, say four
to five years, as the project demands. However, a contract can be
terminated at any time in the event of non-fulfillment of terms and conditions
signed between employers and individual contractors. Otherwise, once the
project is completed, the contract expires. If agreed upon by both sides, a
contract can be renewed and its time duration can be extended.
How are full-time independent contractors different from
employees?
The key difference between a full-time contractor and a full-time employee
lies in the way the employment arrangement is structured. We can further
distinguish them in terms of tenure, work engagement, job security, and
benefits. Unlike regular employees, independent contractors are hired for a
fixed term per project, and they aren’t considered to be part of their
employers’ organizations. Therefore, contractors miss out on several
benefits and privileges given to full-time employees.
Let’s explore four characteristics that make contract professionals different
from full-time employees.
● No monthly salary: Unlike employees, full-time independent
contractors don’t work in the regular timing of a 9 to 5 job cycle.
However, these contractors are required to complete the stipulated
time, mostly measured in terms of a week. They receive their payment
on an hourly or project-wise basis but don’t receive a monthly salary

4. like a full-time employee does. However, they may receive a higher
hourly or project-based rate to compensate for the lack of several
benefits.
● No employee benefits: In a full-time contract position, the specific
benefits and rights can vary depending on the terms of the contract
and the laws and regulations of the country or jurisdiction. Typically,
professionals in full-time contract positions are not eligible for benefits
such as health insurance, retirement plans, medical benefits, or paid
time off from the employer. On the other hand, a full-time employee
usually gets benefits, including health insurance, medical benefits,
bonuses, paid leaves, retirement funds, gratuity, etc.
● Not eligible to apply for loans: Since independent contractors have
no regular income and are not considered to be regular employees of
an organization, they aren’t eligible for loans. For employees, loans
can be approved and granted easily as their employers act as financial
guarantors of the loans taken.
● No job security or career growth opportunities: Unlike full-time
employees, freelancers don’t have career growth opportunities or job
security. Once a contract expires, the employment relationship
between contractors and employers vanishes. Career promotion is
only possible through regular employee engagement when
professionals are hired for long-term relationships.
These are some major reasons why overseas businesses often face
challenges in handling international contractors. In many cases, several
ongoing projects get hampered due to the frequent switching of jobs by
contractors. Therefore, it’s essential to convert your existing international
contractors into full-time employees. Now, let’s dive into five crucial factors to
ensure a smooth transition for your professionals.

5. Five factors to know before conversion of independent
contractors to employees
Make sure you prepare well to consider all five factors before you convert
your existing contractors into full-fledged employees.
● Assessing talent performance: Retention of highly skilled talent is a
major asset for an organization. You must thoroughly evaluate the
performance of your existing resources to see if they can fill the talent
gap in your organization. If you find the right talents who are reliable
and ensure work quality and alignment, you can persuade them to join
your team as full-time employees. Converting highly skilled contractors
into regular employees will enhance productivity and ensure effective
business operations.
● Requiring legal expertise: Employee conversion requires a clear
understanding of the local employment laws and regulations of the
country where your contractors are based. You must seek advice and
consultation from legal experts to ensure all necessary documents and
policies are prepared that meet regulatory compliance during
conversion. With the right legal assistance, you can easily minimize
compliance risks associated with permanent establishments (PE).
● Evaluating tax implications: Before conversion, you need to
understand the tax implications of the target country for both
businesses and employees. Every country has different tax systems
and mechanisms in place that can affect the overall income of
businesses and employees. Before you initiate your transition process,
you must understand various tax implications, like income tax
withholding, medical and health insurance taxes, state and national
tax, and employee benefits tax.
● Setting employee benefits and salary: Deciding on what types of
benefits and salary compensation you plan to offer to your employees
is a vital aspect to consider before conversion. In general, policies

6. towards employee benefits differ from one country to another. You can
explore the best way to offer employee benefits using the expert
services of the target country. For instance, in India, employees prefer
companies that provide medical and health insurance coverage for
their parents. Also, establishing a fair and competitive salary structure
can attract employees to the conversion.
● Calculating conversion costs: You also need to know the overall
cost of converting contractors into employees. Conducting a proper
cost-benefit analysis of the financial implications will help you decide
rationally and logically. You need to assess the impact of your budget
allocation, as it’s likely to affect the financial conditions of your
company. The budget constraint remains a crucial factor since
employee conversion will be costlier compared with hiring them as
independent contractors.
EOR services: the best solution for a seamless employee
conversion
It’ll be more challenging for businesses to handle a group of contractors
based in another country as compared to handling contractors residing in
your home country. Working with an employer of record (EOR) can be the
best solution. EORs act as a legal entity that allows your full-time contractors
to function without PE risks and continue their productivity with peace of
mind. With employer of record services, you can easily retain highly skilled
contractors and minimize the attrition rate since they will receive the
maximum

7. employee benefits once they convert into EOR employees. Also, with the
help of EOR’s legal expertise and local market knowledge, you can easily
frame the policy guidelines and convert the contractors into employees that
align with the local employment laws and regulations. By accessing the wide
knowledge and expertise of EOR services, you can take advantage of
handling tax obligations, payroll, and benefits administration.
So, the best way to convert contractors into full-time employees is by using
EOR services. One major advantage of using EOR services is that you can
avail yourself of all-in-one solutions for challenges that act as roadblocks to
your employee conversion. In a nutshell, with the help of EOR services, you
can enhance your control, manage, and align with your resources effectively
when converting independent contractors into full-time employees.
Search for...