But first, leaders need to understand the many nuances of hiring globally distributed teams. Whether your organization faces employee classification questions because you’re seeking a new remote hire or because you have an existing employee who has had a change in where they live or their visa status, it’s crucial to ensure your worker classification is accurate and you’re in compliance.
According to a study from the National Employment Law Project, between 10% and 30% of employers misclassify workers. Violations can result in serious fines and reputational damage that takes the focus off your mission.
To avoid this dilemma, nonprofits and NGOs should understand when it’s appropriate to hire an employee versus an independent contractor. Here are some tips to help your organization make the right hiring choices.
- Consider three critical factors when planning to hire: If you’re bringing new people on board and are uncertain whether they should be full- or part-time employees or contractors, consider behavioral control, financial control and the relationship of the parties:
- Behavioral control: For full- or part-time employees, employers have the right to specify what work they’ll do, how the work is done and what equipment, supplies and support they’ll need to accomplish their tasks. Employers don’t have this level of control over contractors, who carry out duties both parties agree to in whatever manner the contractor sees fit.
- Financial control: Independent contractors usually provide the equipment and tools they need to perform their jobs and are not reimbursed for supplies. Employees receive regular wages via payroll, and the employer provides the equipment and tools necessary to complete the work. Employees may also receive benefits like health insurance, paid time off, etc., whereas contractors typically don’t.
- Relationship of parties: Contractors usually sign a written contract that outlines the term of the agreement, the scope of work, payment terms and any benefits the employer offers, as applicable. Contracts should also be clear and in compliance with local labor laws to avoid complications.
- Know when to hire an employee versus an independent contractor for specific jobs: There’s often overlap in job descriptions for full- or part-time employees and the work independent contractors perform, but these guidelines can help you determine whether to hire an employee or engage a contractor when you need support:
- Hire an employee when you:
- Are filling a core business role within your nonprofit or NGO
- Plan to copyright intellectual property they’ll produce
- Will provide training to the worker
- Consider the worker’s services exclusive to your organization
- Plan to engage the worker on a long-term basis
- Hire an independent contractor when you:
- Need to bring new skills on board quickly
- Are hiring for a project that will be completed within a specific timeframe
- Plan to bring workers aboard for a busy time for your nonprofit or NGO
- Require specialized skills such as bookkeeping or grant writing
- Need to tap expertise that you can’t afford on a long-term basis
- Seek expert advice on employee classification: Considering what’s at stake and the complexity of labor laws, many nonprofits and NGOs choose to work with an expert to avoid running afoul of local regulations when it comes to job classification and other key issues related to employment. Since many nonprofits and NGOs hire staff in other countries to deliver services and serve communities across multiple jurisdictions, some choose to work with an Employer of Record (EOR) to help them navigate the complexity.
Keep these tips in mind to resolve employee classification dilemmas — and avoid the consequences of misclassification.
Bjorn Reynolds, CEO of Safeguard Global