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Should I Be a Contractor or Employee? A Guide for Remote Workers

As a remote worker, you may want to know the differences between being an independent contractor or an employee for the company that hired you.  Even if you start out as one or the other, there are always ways to change your work status without compromising your relationship with the company.

The key is understanding how the two types of work status differ, and what the effect is on both you as the worker and the hiring company.  Eventually, you will have to come to an agreement on which status you use, so it’s good to be prepared and understand the differences.

Which employment status is better for remote workers?

As a remote worker, the answer to this question will initially revolve around personal preferences and the market for your skills.  Contractor gigs are relatively easy to find on various platforms while securing an employee role requires more time and effort.  A company may want to try out a candidate as a contractor and then transition them into an employee role.

Some remote workers may value the independence of a contractor role, while others need more stability with work status as an employee.  The question is whether one is better than the other for your circumstances, and what the pros and cons are of each.

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What is a contractor?

A contractor is essentially self-employed and enjoys a certain amount of autonomy as long as they complete assigned projects or hours.  Sometimes a worker can be hired more easily and quickly as a contractor, as the hiring company does not have to make any long-term commitment or meet employment requirements.  Here are the pros and cons for you as the worker:

Pros

  • Full autonomy on selecting project parameters and even working with multiple companies at one time.
  • Sets own schedule and work methods to complete projects and meet deadlines
  • More control over payment amount and contract terms
  • Access to more tax deductions for business expenses

Cons

  • Contracts and income can change at any time
  • No benefits/allowances or expenses paid by the company
  • Must withhold and pay your own taxes at regular intervals
  • Less integration with company culture

What is an employee?

An employee on the other hand will be working within a much more structured environment, even as a remote employee.  For some remote workers this has a certain appeal, especially if they have been operating under the uncertainty of contractor status for a while.

Pros

  • Constant monthly salary and benefit amounts in payroll
  • Defined role and work responsibility
  • Access to employee entitlements and labor rights
  • Feeling of greater integration in the company’s culture

Cons

  • Must follow work parameters, schedule and assigned role
  • As a remote worker, may need to be available at unusual hours
  • Not possible to work with multiple companies/clients

What are the main differences?

What happens if I am misclassified by my employer?

Work status as a contractor or employee is controlled by government regulations, and not just the preference of the worker or company.  When it comes to contracting, there is the possibility of being misclassified if the company actually treats you like an employee, such as paying set amounts at regular intervals and controlling work methods.

What this means is that you could be reclassified as an employee, regardless of any contracting agreement you have with the company that hired you.  This is more of a burden for the new employer who may be liable for back taxes and benefits that went unpaid while you were working as a contractor.  On the other hand, you will now have to meet your employer’s expectations for employees if you choose to continue working.

If you want to retain your contractor status, it is important to be set up as a true self-employed and registered business in your own country.  This includes billing, invoicing and payment methods that establish your independence and preserve your independent work methods.  You cant accept any benefits or paid expense amounts as an employee would.

How can remote workers negotiate employment instead of a contractor agreement?

If the relationship is new and the company wants to hire you as a contractor, you might still have a chance to negotiate an employment agreement prior to hiring.  You can do this by demonstrating your commitment to the company, and even agree to a probationary period that would allow the employer to let you go if it didn’t work out.

Also, many contractors do manage to negotiate an employment agreement even after spending some time with one company.  This may actually be easier since the employer will have more background experience working with you and will know your strengths and skills.  In most cases, it will be up to you to initiate the dialogue and show the company the advantages of shifting you to an employee role.

What solutions are available if I want to be a remote employee in a foreign country?

A remote worker located abroad will have to be placed on a local payroll in the foreign country if they want to be a formal employee instead of a contractor.  This is just like being employed by a domestic company.

Local payroll is something the employer will have to set up, and the simplest method is using a GEO service with a local employer of record in your country.  Although this is an extra step for the company to take, they do get the assurance of being in full compliance with foreign employment laws and eliminate the risk of misclassification.

If you’re looking for more resources on working remotely, check out our Remote Work page.

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