The demand for AI specialists has skyrocketed, growing by 450% since 2013, and it’s projected to increase by another 40% by 2025. Industries like healthcare, finance, and manufacturing are adopting AI technologies, increasing demand. As a result, AI companies are facing a significant talent shortage, with a projected gap of 100,000 AI specialists in the US alone.

To bridge this gap, many businesses must look beyond their local markets and tap into the global talent pool. To ease the administrative hurdles of running an international company, look for global-first solutions that streamline global hiring, compliance, and payroll.

Complex workforce classification

Managing a global workforce requires properly classifying workers as either contractors or employees. Misclassification can lead to severe financial penalties, such as back pay for benefits, taxes, legal fees, and reputational damage. The classification process becomes more complicated globally, where countries have varying definitions and criteria for determining whether someone is an employee or an independent contractor.

Data scientists, machine learning engineers, and other AI specialists frequently work as independent contractors due to the project’s temporary nature. However, the distinction between contractor and employee can be nuanced, especially when the workers are deeply embedded in projects or performing roles that resemble those of full-time staff. Cross-border projects add another layer of complexity, as worker classification rules vary widely by jurisdiction.

Here’s a table summarizing the key differences to consider when classifying workers:

By considering these factors, companies can better determine whether a worker should be classified as a contractor or an employee. Tools like Deel’s misclassification assessment help businesses navigate this complex landscape, ensuring compliance and reducing the risk of penalties.

See also: Employee misclassification penalties: Examples and protections

Hiring challenges in the AI Industry

The AI industry struggles with hiring due to the high demand for specialized talent such as data scientists, machine learning engineers, and AI researchers. As competition for local experts grows, AI companies frequently look beyond their borders to find the skills needed for their projects. However, this global search introduces several obstacles:

• Talent scarcity in local markets: The rapid growth of AI means local talent pools are often insufficient to meet demand, leading companies to seek contractors from international markets.
• Complex compliance requirements: Hiring contractors internationally means navigating varying labor laws, worker classification criteria, and tax obligations. Different countries have distinct definitions for independent contractors vs. employees, which can complicate the hiring process.
• Intellectual property protection: AI projects often involve proprietary data, algorithms, and sensitive technologies. Ensuring that intellectual property is protected when working with contractors across different jurisdictions becomes a critical concern.
• Global payroll management: Managing payroll across borders introduces challenges related to currency conversion, local payment methods, and tax withholdings. Ensuring contractors are paid accurately and on time while remaining compliant with local tax regulations, is essential.
• Cross-border collaboration: Working with contractors in different time zones and regions can complicate project management, communication, and coordination, particularly for AI projects that require close collaboration on sensitive tasks.

To address these challenges, AI companies are increasingly turning to solutions like:

• Contractor management platforms: Automate hiring and managing international contractors, ensuring compliance with local labor laws.
• Employer of record (EOR) services: EOR services handle local employment compliance, tax filings, and payroll management for international hires.
• Global payroll systems: Global payroll platforms streamline multi-currency payments, tax compliance, and legal filings across multiple regions, ensuring smooth operations for global AI teams.

Compliance with employment laws

Navigating employment laws across different countries is a major challenge when managing international contractors. Every country has its own regulations governing worker rights, tax obligations, and legal protections, making it difficult for companies to stay compliant. In the AI industry, this challenge is amplified due to the sensitive nature of AI projects, which often involve proprietary data and intellectual property.

Some of the key compliance challenges include:

• In Europe, the GDPR requires strict measures for handling personal data, which applies to many AI projects involving sensitive information. In the US, companies must comply with laws like the CCPA, which governs how consumer data is collected, stored, and used.
• Intellectual property concerns: Contractors working on AI models, algorithms, or proprietary systems may have access to sensitive information, making IP protection a critical legal issue.
• Tax obligations: Different countries have different tax requirements for contractors, including potential tax withholding responsibilities for companies hiring internationally.
• Labor law variations: While labor laws such as minimum wage, benefits, and termination regulations primarily apply to employees, each country has specific requirements for correctly classifying workers as either contractors or employees. 

See also: Hiring and Managing Contractors: A Global Client's Guide

Managing intellectual property (IP) concerns

Intellectual property (IP) plays a critical role in the AI industry, as contractors often contribute to highly valuable models, algorithms, and confidential data. With clear agreements, companies can avoid serious risks, including IP theft, legal disputes, and the loss of proprietary technology. Ensuring that ownership of the work remains with the company is crucial, especially when contractors operate across different countries with varying IP laws.

To mitigate these risks, companies must develop strong contractual frameworks that define IP ownership and confidentiality. Platforms like Deel can further support this process by providing standardized, legally compliant contracts that adapt to different international IP laws, ensuring companies protect their intellectual property across borders.

See also: Protecting Intellectual Property in Global Teams

Global payroll and payment complexities

Managing payroll for independent contractors is challenging, especially when dealing with contractors from different countries. Companies face various obstacles related to currency conversion, tax compliance, and differing payroll systems across jurisdictions. These complexities make payroll management a time-consuming and often costly process.

Key challenges include:

• Currency conversion and exchange fees: Managing cross-border payments requires converting currencies, leading to additional fees and fluctuating exchange rates. This reduces profitability and can create frustration for contractors relying on consistent payments.
• Tax compliance: Each country has its tax regulations. Ensuring the correct withholding, reporting, and filing of taxes for contractors across multiple countries is critical to avoid fines and legal penalties. 
• Differing payroll practices: Payroll cycles and payment systems vary across regions. Digital wallets are widely accepted in some countries, whereas others are limited to bank transfers.

These challenges become even more pronounced in the AI industry, where workers are often hired for specialized, short-term projects. Freelancers and contractors from various regions may work on the same project, requiring businesses to manage payments efficiently and comply with local laws. Here are a few ways companies in the AI industry can tackle these complexities:

• Automated payroll systems: Implementing systems that manage currency conversion and compliance with local tax regulations ensures contractors are paid accurately and on time.
• Flexible payment options: Offer a range of payment methods, such as digital wallets (PayPal, Payoneer), local bank transfers, or cryptocurrency for regions with banking challenges.
• Leverage platforms like Deel: Deel simplifies the payroll process by automating multi-currency payments, handling tax compliance, and offering multiple payout options. This reduces administrative workload and ensures contractors are paid promptly, boosting retention and satisfaction.

See also: How to Pay Foreign Independent Contractors

Security and data privacy

Maintaining security and data privacy is critical, especially when managing a global workforce. Contractors, who often work remotely, can expose companies to significant cybersecurity risks. The distributed nature of global remote work and the fact that contractors are frequently granted access to sensitive systems and proprietary data can create vulnerabilities that lead to data breaches, IP theft, or unauthorized access to critical information.

In the AI industry, these risks are heightened due to the nature of the work. AI projects typically handle large datasets, including personally identifiable information (PII), proprietary algorithms, and sensitive training data. When these assets are transferred, accessed, or manipulated remotely, the risk of exposure increases significantly. Any breach or mishandling of data can result in financial losses, legal liabilities, and reputational damage, especially when projects involve personal data protected by regulations like the GDPR or CCPA.

To mitigate these risks, companies must implement robust cybersecurity measures that safeguard their systems and data. These include:

• Data encryption: Encrypt sensitive data in transit and at rest to protect it from unauthorized access. This ensures that even if data is intercepted, it remains unusable without the proper decryption key.
• Access control mechanisms: Implement strict access controls that limit the availability of sensitive data only to contractors who need it. Role-based access can help ensure that contractors only have access to the specific systems and data required for their tasks.
• Secure communication channels: Use secure collaboration tools with built-in encryption, such as Slack or Microsoft Teams, to communicate and share files. Avoid using unprotected communication channels that may expose sensitive data.
• Multi-factor authentication (MFA): Ensure that contractors use MFA when accessing company systems. MFA adds an extra layer of security by requiring additional verification beyond just a password.
• Regular security training: Contractors should be trained on the company’s security protocols, ensuring they understand how to handle sensitive data securely and what actions to take in case of a breach or suspicious activity.

Companies should regularly audit their security practices to ensure compliance with data protection regulations and continuously adapt to new cybersecurity threats. 

See also: Data Privacy Compliance: Best Practices for Global Teams

Overcome the challenges in managing and hiring contractors with Deel

Deel provides AI companies with the tools to overcome the unique challenges of managing a global workforce. From automating compliance with local labor laws and ensuring proper worker classification to offering secure, multi-currency payroll systems, Deel simplifies the complexities of hiring and paying contractors across borders. 

While Deel ensures data security and privacy within its platform, it also supports AI companies in maintaining compliance with regulations like GDPR and CCPA. This allows businesses to focus on innovation, knowing that communication, payroll, and legal obligations are handled seamlessly, no matter where their contractors are located.

Schedule a call with our experts today to see Deel in action and take the first step towards efficient and compliant international workforce management.