Engaging Offshore Workers: 5 Best Practices for International Compliance

1. Consider Misclassification Risks

Fiction: If a worker is classified as an independent contractor in the U.S., this classification will be accepted and interpreted the same everywhere.

Fact: Never assume that an independent contractor status applies across all jurisdictions. Just because a worker has been properly classified as an independent contractor in the U.S. doesn’t mean the classification will be valid in an offshore location. Laws and interpretations of the facts and circumstances vary based on location and country.

While each country has its own rules and getting advice from local counsel is key, there are general themes across most countries when considering whether a worker is an employee or independent contractor.

 

You are more likely to be an employee if	You are more likely to be an independent contractor if
The client sets the hours that you work	You work when you want
The work must be done at the client’s location	You work remotely
The client closely supervises your work	You work with little or no supervision
You only work for one client	You have many clients
You work for client for an indefinite period	You work on specific projects of limited duration
You must do the work yourself	You can substitute another worker to do the work
The client provides the tools, software, and equipment	You bring and use your own tools, software, or equipment
The client pays you an hourly rate	You are paid by the project

 

 

Each country has its own rules and areas of emphasis. For example, in the UK, there are three categories of workers: employee, worker, and self-employed (independent contractor). In the UK, the right of substitution – the ability to supply substitutes to perform the work — is a critical factor to demonstrate that a worker is an independent contractor. A recent case said that if a worker has the right to substitute workers, then the worker is not an employee.

In addition, the European Union (EU) has been considering legislation to control digital labor platforms and their relationships with workers making it more difficult to categorize individuals working through the platform as independent contractors.

Some consequences of misclassification when balancing multiple laws and jurisdictions include:

1. Owing back taxes in multiple jurisdictions.
2. Being subjected to fines and penalties in multiple jurisdictions.
3. Violating multiple wage laws.
4. Owing employee benefits including holiday pay or vacation pay; and
5. Owing back payments to re-classified workers.

2. Vet for Proper Work Authorizations and Visas

Fiction: Engaging offshore remote workers eliminates any need for work visas or other work authorization documents.

Fact: Even when work is performed remotely by an individual located outside the U.S., a worker must have
proper documentation to demonstrate they are authorized to perform work in the U.S. Furthermore, employers
or agencies hiring or engaging such workers will need to vet each worker’s authorization to be able to legally
offer them work.
All workers will need to prove they are legally eligible to accept and perform work in the U.S. The type of documentation needed will depend on an individual worker’s specific citizenship or immigration status.

Generally, documents commonly accepted and used for work authorization purposes include but are
not limited to:

1. A Permanent Resident Card (PRC) or Green Card.
2. A machine-readable immigrant visa (MRIV)
3. A U.S. Citizenship and Immigration Services (USCIS)-issued Employment Authorization card; and
4. An EAD (Employment Authorization Document).

3. Determine Data Privacy Considerations & Obligations

Fiction: Complying with legal requirements for data privacy is enough because laws and regulations supersede
all contract terms and conditions.

Fact: Employers and agencies hiring or engaging offshore workers need to consider both contractual and legal obligations and risks related to data privacy. It is helpful to ponder the questions below related to both contracts
and applicable laws.

Contracts

1. What happens in the event of a personal data breach?

2. Do my contracts with clients restrict me from storing, accessing, or processing data from locations outside the U.S.?
   If so, what locations are forbidden, and which are allowable? Also, can I obtain written permission to modify this obligation, or is this obligation strictly enforced with no exceptions? If personal data is accessible by workers performing services offshore, is this allowed as long as the data is stored in the U.S.?
3. Do I have federal contracts with certain non-negotiable data privacy restrictions?
   Examples may include contracts limiting personal data access to the U.S. only or forbidding processing personal data offshore if processing personal data offshore is central to perform services.
4. Do I have the proper data privacy safeguards and security measures in place to enable personal data to be processed by offshore workers in compliance with contractual terms?
   Your contracts may contain additional contractual obligations beyond what is legally required which govern data privacy safeguards, security, and technical standards that should be implemented. Therefore, legal compliance alone may be insufficient.

Laws

1. What are the legal requirements that must be met to enable personal data to be processed by offshore workers?

2. Do I have the proper data privacy safeguards and security measures in place to enable personal
   data to be processed by offshore workers in compliance with applicable laws?
   Employers and agencies hiring and engaging offshore workers and anticipating that personal data will be accessed offshore must have appropriate and legally compliant mechanisms in place to monitor and minimize data privacy risks and offer adequate data protection.It is important to consider not only where workers will be located when performing work, but also where personal data will be collected, stored, and or accessed. In many instances, the data privacy laws of each of these locations may apply and will need to be complied with. If there are multiple applicable laws, there may be approved mechanisms or frameworks available to help manage legal compliance.For example, the European Commission pre-approved Standard Contractual Clauses (SCCS) that should be added to agreements between parties when personal data from the European Union is transferred offshore. As an another and more recent example, several government entities across the U.S, UK, EU, and Switzerland created and approved the Data Privacy Framework (DPF) Program which creates a compliant and secure mechanism for personal data transfers to the U.S. from the EU/European Economic Area, UK, and Switzerland. For organizations who certify compliance with the DPF, the use of SCCs and other previously required mechanisms are no longer required for applicable personal data transfers.

4. Determine Applicable Local Employment Laws to Ensure Compliance

Fiction: As long as I comply with U.S. employment laws when engaging offshore workers, I will be fine.

Fact: There are multiple employment laws that may come into play when engaging offshore workers. This is especially the case when offshore workers are working remotely, providing work and services to U.S. employers
or agencies while located in their home countries.

Below are some examples of laws and regulations that U.S. employers or agencies would need to consider
when engaging offshore workers.

• United Kingdom’s IR35.
  The UK requires that entities engaging workers properly determine if such workers should be classified as employees or independent contractors. The classification will determine if the worker is subject to certain tax payment requirements and the worker’s eligibility for certain rights and employment related benefits. This classification will also dictate what terms and conditions are used in employment or other similar agreements. Those engaging UK workers would need to meet their legal obligation to classify workers properly pursuant to IR35, or they could be subject to tax liabilities, interests, and other penalties. IR35 obligations apply to all entities engaging UK workers, not just those located in the UK.
• Mexico’s Outsourcing Law.
  In 2021, Mexico implemented legislation essentially banning outsourcing of work. This means that with the exception of specialized services, entities in Mexico, the U.S., or elsewhere cannot engage Mexican workers using subcontracting. Further, even when subcontracting is permitted for work considered a specialized service, entities and workers alike are subject to registration, reporting, and other requirements or they could face both civil and criminal penalties. Therefore, generally, those engaging Mexican workers would need to hire directly or would need to register and comply with applicable requirements to subcontract specialized services. Mexican legislation governing outsourcing applies to all entities engaging Mexican workers, not just those located in Mexico.
• Quebec, Canada’s Charter of the French Language.
  With only some exceptions, Quebec requires that employment contracts, job offers, promotions, training,
  and other similar documents are either written in French or translated to French and provided to workers prior to obtaining their signature. Therefore, generally, those engaging Quebec workers would need to comply with these requirements which may require securing and paying for translation services. The obligations outlined in Quebec’s Charter apply to entities located in Quebec and have equally been interpreted to apply to entities outside of Quebec who do business in Quebec.

5. Determine if an Employer of Record Will Be Necessary

Fiction: Directly hiring offshore workers is always the best and least risky option to ensure international compliance.

Fact: An Employer of Records (EOR) acts as intermediary between an entity seeking to secure workers to perform services and the workers performing such services. The EOR takes on the title and role of the workers’ employer for tax and compliance purposes. Because EORs or businesses providing EOR services generally specialize in these services, this often reduces risks and mitigates concerns associated with the unknowns of handling international compliance.

Some benefits of using an EOR when wanting to engage offshore workers are:

• An EOR handles hiring, contracting, and onboarding.
• An EOR handles human resources and administrative services such as payroll, remittance of taxes, and administration of benefits.
• An EOR can minimize legal, regulatory, and financial risks and may even indemnify for misclassification; and
• EORs have the experience and expertise needed to engage offshore workers compliantly.

Did you know that MBO Partners provides EOR and Agent of Record (AOR) services? Contact us to discuss how we can work together to meet your needs.

International Compliance Reduces Risks and Offers Protection for Your Company

Failing to know about and or adhere to international rules, laws, and regulations can lead to serious legal, compliance, and financial  consequences. However, there are ways to protect your company and avoid falling into the pitfalls of international compliance when desiring to utilize the knowledge and skills of offshore workers.

MBO Partners helps enterprises compliantly manage and engage independent contractors. Contact us to discuss how we can work together to meet your needs.

References

• Bill 96 and its impact on the French-language requirements in Québec.
  Bolduc, C. & Roy, F. (2022, October 21) | Read article.

• Diario Official de la Federación (2021, April 23).
  Decree amending, adding to and repealing various provisions of the:
  • Federal Labour Law; the Social Security Law; the Law on the Institute of the National Housing Fund for Workers.
  • the Fiscal Code of the Federation; the Income Tax Law; the Value Added Tax Law; of the Federal Law on Workers
  • in the Service of the State, regulating Section B) of Article 123 of the Constitution; of the Law Regulating Section
  • XIII Bis of Section B, of Article 123 of the Political Constitution of the United Mexican States,
    in the matter of Labor Subcontracting. Read article.
• Modernization of the charter of the French language.
  Gouvernement du Québec (2023, October 4) |  Read article.

• What are the penalties for employee misclassification on the I-9?
  Hardin Thompson RC (2022, December 9). Read article.

• Cross-border remote work FAQs USA.
  L&E Global Alliance of Employers’ Counsel Worldwide (2023, August 25) | Read article.

• How to ensure compliance for non-traditional independent workers.
  MBO Partners (2024, January 11) | Read article.
• Top 5 employee misclassification penalties to avoid
  MBO Partners (2022, October 21) | Read article.

• S. Citizenship and Immigration Services (n.d.)
  Form I-9 acceptable documents.
• USCIS Guide (n.d.). U.S. work visa and remote work.
  Read article.

• Employing overseas workers: Compliance and best practices for US companies.
  Vinitti (2024, January 31) | Read article.

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