How to Choose The Best Type of Contract for Remote Work
Disclaimer: This information is written in a general manner and is not necessarily compliant with local rules and regulations in your country. We always recommend you to research applicable laws and regulations to discover your actual options. This information is also focused on remote hiring in the EU and does not necessarily count for remote hiring in the US or other nations.
Transitioning into remote working for a company based in the same country as you, is luckily not an arduous process. But what do you do when you want to work remotely for a foreign company that is not in the same country as you?
At Nixa.io, we receive this question frequently and we’ve been lucky to gain a lot of experience with hiring across borders. In this article, we’ll highlight some of the most important things that you as a remote employee need to know before signing a contract with a foreign company.
3 ways of getting hired remotely
Option 1: As an employee. If the company that you are looking to work for has a legal entity or a local branch registered in your country of residence, they will hire you directly as an employee. This employment type is identical to being hired on-site, only that the location of work will not be specified. The company will be responsible for paying taxes and social security in your country of residence and you will receive your paycheck as usual. This option is only available if the company has a legal entity or local branch registered, so check this before you reach a potential offer stage.
If the company does not have a legal entity or local branch registered, there are two valid options. These are:
Option 2: As a contractor (B2B). Companies can hire you as a long-term contractor on a B2B agreement working for them across borders. Since you are in a different country and need to pay taxes to your local government, you need to set up an own business (if you don’t have one already from previous freelancing) that you can pay taxes and social security through. For this type of contract, you normally agree with the company on a lump sum payment each month and then you invoice the company directly. Then you take care of taxes and social benefits yourself. This is by far the easiest way to get employed remotely, but it requires a bit more work on your end related to accounting and reporting (see more details about pros and cons in the section below).
Option 3: As an employee through a third party (EOR). Companies can use a third party to employ you across borders. The third party company (typically a payroll company) will act as an Employer of Record (EOR) and sign a local employment contract with you on behalf of the company. The EOR will then take care of all local tax and social contributions on the company’s behalf. As an employee, you will benefit from local employment laws while working for an international company but there will be a third party directly responsible for your employment contract, acting as a middleman in between. A thing to note here is that these payroll companies will charge the company for their services, so it might influence the final salary package that the company can offer.
Pros and cons of B2B and EOR:
Employment contract and EOR:
- You continue to keep the social benefits that you are used to having working as an onsite employee or as an employee in a local company (insurance, pension etc.).
- You don’t have to care about taxes or reporting to the government.
- More stability, predictability and security of your employment (longer notice periods).
- Paid time off, sick leave and sponsored equipment.
- Less flexibility in terms of working hours and location.
- The EOR might be limited in terms of how long they are allowed to employ you through them (depending on local laws and regulations). This might mean that you would have to make the switch to B2B after for example 12 or 18 months to continue to work for the company.
- More overheads. The third party will “eat” a part of your salary every month to cover their expenses, unless the company has agreed to sponsor this in addition to your salary.
- Being employed through a third party might create some distance between you and the company as all formalities and negotiations go through the EOR and not the company you are working for.
- Usually means higher earning for you. Your employer doesn't have to pay additional costs for your employment. You end up with a bigger piece of the cake compared to an employment contract.
- More flexibility in terms of working time and working place.
- Quicker time to hire as there is no paperwork needed other than signing the actual contract. It could create some extra paperwork on your end related to setting up your own company but this is normally a fully digital and quick process in most countries.
- Shorter notice period (could be both a pro and a con).
- You need to take care of taxes and reporting yourself, or pay an accountant and/or lawyer to help you with this. If you only work for one company, it should be feasible to do this on your own.
- You aren't automatically given paid leave (vacation or sick days) or sponsored equipment. This is, of course, something you can negotiate with the company in the offer stage
Things to consider before making the switch to B2B:
- Consider carefully if a B2B contract suits you or if you prefer to be hired as an employee. Not all companies offer the employee options and B2B is then the only valid route. Don’t waste your own or the company's time if this is not a viable option for you.
- Do the calculations needed BEFORE you reach the offer stage. Switching to a B2B setup will most likely lead to increased gross salary expectations, as you then need to cover taxes and social security yourself. Tax regulations differ from country to country. Make sure that you check the numbers based on your location and that you make the right calculations. We know from experience that the expectations you express in the beginning of the process will differ a lot from the final expectations after some further calculations are done - so be in advance to make sure that you don’t waste time.
- Remember to discuss the additional benefits that are important to you, like paid time off or equipment, during the offer stage. You are not automatically eligible for this when working on a B2B contract, so it’s not safe to trust that the company will offer this without you asking for it. Most terms can (and should) be negotiated to allow you as a remote contractor to get the same benefits that you would normally get on an employment contract.
- Check local laws and regulations to make sure working on a full time B2B contract for a foreign company will comply with tax regulations and employment laws. You should also check if there is any limitation on how long you can work as a contractor for one company, or if you need to take any side gigs to be compliant. If you’re in doubt, consult with a labour or tax lawyer.
- Remember to also check that you are eligible to work as a contractor in the country that you live in. These regulations vary a lot from country to country, but some places you need to have citizenship in order to work as a self-employed contractor. It can be hard for people who reside in a country with only a work visa to stay in the country and work remotely for a foreign company.