7 Challenges Facing Global Companies When Hiring Independent Contractors

Hiring independent contractors can unlock a global pool of talent and expertise. However, managing this international workforce comes with its own set of challenges. 

This guide dives deep into the complexities of legal and regulatory hurdles, overcoming cultural and communication barriers, and ensuring quality control. We’ll explore the challenges of international payments, onboarding and training contractors, and keeping your data secure. Finally, we’ll tackle the often-overlooked issue of contractor retention and loyalty, providing insights into building a solid network of reliable, independent workers.

Read on to discover how Deel can help you overcome these challenges!

1. Legal and regulatory compliance

Legal and regulatory compliance is a significant challenge for global companies hiring independent contractors. Each country has distinct employment laws, tax regulations, and compliance requirements that govern the classification and management of contractors. 

Misclassifying workers can lead to severe penalties, including backpayment of taxes, benefits, and fines. This topic remains relevant, as just recently, in May 2023, Nike faced substantial scrutiny and potential penalties exceeding $530 million due to the alleged misclassification of thousands of temporary office workers globally.

To overcome these challenges, multinational companies should consider:

• Understand local laws:  Understand and comply with each country's specific employment and tax laws where contractors are hired. Update this knowledge regularly to stay compliant with any changes.
• Audit classification practices: Conduct periodic audits to verify that worker classifications are accurate and comply with local laws. Promptly address any discrepancies to avoid potential penalties and ensure continuous compliance​.
• Implement clear worker classification criteria: Use established tests and criteria to accurately classify workers as employees or contractors based on control, independence, and the nature of the work performed.
• Draft precise contracts: Ensure contracts clearly define the nature of the relationship, the scope of work, payment terms, confidentiality obligations, and intellectual property rights. Incorporate arbitration clauses or other dispute resolution mechanisms in contracts to handle conflicts efficiently and minimize legal risks.
• Establish tax compliance processes: Determine and fulfill tax obligations, including withholding and reporting requirements in each contractor’s country. Utilize tools and resources to manage cross-border tax compliance effectively.

2. Cultural and communication barriers

Cultural and communication barriers pose major challenges for global companies hiring independent contractors. These barriers can easily lead to misunderstandings, reduced productivity, and conflicts, negatively affecting project outcomes.

• Language differences: Communication is crucial in managing international teams. Language barriers can lead to misinterpretations of instructions and feedback. Companies should consider using translation services and encourage clear, simple language to minimize confusion.
• Time zone variations: Coordinating work across different time zones is a challenging task. Misaligned working hours can cause delays in communication and project progress. To address this, set overlapping working hours and use scheduling tools for meetings and deadlines.
• Cultural norms: Different cultures have varying standards and business practices, impacting teamwork and communication. Understanding and respecting these cultural variations can improve collaboration. Providing cultural sensitivity training for managers and contractors is a good starting point for overcoming these challenges.

3. Quality control and performance monitoring

Managing a team of independent contractors presents a unique set of challenges regarding ensuring quality work and consistent performance. Here's why maintaining control can feel like wrangling smoke:

• Geographical distance: Unlike in-house employees, contractors are often spread across different locations. This physical separation makes it difficult to observe their work environment or workflow directly, potentially leading to missed red flags that could impact quality.
• Varying standards: Independent contractors come from diverse backgrounds and may have different work styles or quality benchmarks. With clear and consistent communication of expectations, the delivered work might meet your standards, leading to rework and delays.
• Limited supervision: The level of supervision you can exert over a contractor is inherently less than with a direct employee. This can make it challenging to identify and address performance issues early on, potentially impacting the project timeline and budget.
• Assessment hurdles: Measuring contractors' performance can be trickier than in-house teams. Traditional performance review metrics might translate poorly to freelance work. Developing a system for tracking relevant metrics, like error rates or milestone completion, is a good idea but requires careful planning and adaptation.

4. Managing international payments

Handling international payments is a complex task for global companies working with independent contractors. These challenges include currency exchange, transfer fees, and compliance with tax regulations.

• Currency fluctuations: Exchange rates can be unpredictable, impacting your budget and the contractor’s income. Locking in a rate or using the mid-market rate on the payment date helps manage this uncertainty.
• Transfer fees: International transfers often incur fees. Being transparent about who covers these costs (usually the company) upfront avoids misunderstandings later.
• Taxing complexities: International payments can trigger complex tax issues. You need to understand withholding taxes in the contractor’s country and potential reporting requirements for both your location and theirs. A slight mistake can result in substantial fines. For instance, in 2023, JPMorgan Chase faced a $98.2 million penalty for inadequate monitoring of firm and client trading activities, including failure to adhere to international payment and tax regulations​​.
• Payment methods: Choosing how to pay contractors can be tricky. Many options include bank transfers, online platforms, and credit cards. While offering choices is good for contractors (they get paid how they prefer), each option may have downsides - slow processing times, hidden fees, currency exchange hassles, or limited availability, depending on the contractor’s location.
• Invoicing procedures: Establishing an invoicing process is fundamental but often needs to be noticed, leading to delays and confusion in payment cycles. The challenge here involves creating and maintaining standardized invoice formats and specified submission guidelines. These are necessary for both parties to avoid uncertainty over payment amounts and deadlines, potentially causing disputes and administrative burdens.
• Payment terms: For long-term projects, not having a precise payment plan can be a recipe for disaster. Contractors risk cash flow issues, stalling the project. This creates frustration for both sides, as you worry about completion while they struggle to pay bills. A structured payment schedule keeps everyone happy by ensuring predictable payments and clear expectations.

5. Onboarding and training

While independent contractors bring a wealth of skills and flexibility, effectively integrating them into your team requires overcoming unique challenges. Contractors aren't constantly immersed in your company culture and workflow compared to full-time employees. Here are some of the hurdles companies face when onboarding and training independent contractors:

• Friction of remote integration: Independent contractors typically aren’t physically present in the office. This can make it difficult to effectively communicate company culture, workflows, and expectations during onboarding. 
• Knowledge gaps and skill mismatches: Contractors have their own skill sets and may need to be more familiar with your company’s specific tools or processes. Ensuring they have the necessary training to efficiently complete tasks can be challenging.
• Time constraints and cost considerations: Developing and delivering comprehensive training programs can be time-consuming and expensive. Balancing this investment with the often project-based nature of contractor work requires careful planning.
• Maintaining consistency across projects: With a revolving door of contractors, it can take time to ensure consistent onboarding and training experiences. This can lead to knowledge gaps and uneven performance across different projects.
• Motivation and engagement: Independent contractors often work on multiple projects simultaneously. Keeping them motivated and engaged in your company's specific training and goals can be challenging.

6. Maintaining data security

Maintaining data security when working with contractors can feel like walking a tightrope. While you prioritize protecting sensitive information, collaborating with external parties introduces additional risks. Here's why keeping your data safe becomes a complex challenge:

• Limited control: Unlike your own employees, you have less direct control over a contractor's security practices. Their systems and protocols might not align with yours, increasing potential vulnerabilities.
• Data sharing issue: Projects often require sharing confidential information with contractors. While necessary, this creates a delicate balance – ensuring the contractor has the data they need to complete the work while minimizing the amount of sensitive information they access.
• The human factor: Accidental data leaks are a constant threat. A contractor's employee might unintentionally send sensitive information to the wrong recipient, or a lost laptop containing project details could lead to a major breach.
• Evolving threats: The cybersecurity industry is constantly changing, with new hacking tactics emerging all the time. Keeping up with these threats requires ongoing vigilance, which can be a challenge, and may require a dedicated cybersecurity and compliance team.

7. Contractor retention and loyalty

Building a strong network of reliable contractors is the best business move for any company that works a lot with independent contractors. This enables continuous, high-quality output of work. However, global companies often overlook the question of retaining these valuable workers. Let's take a look at the challenges of contractor retention:

• The gig economy: The rise of the gig economy means contractors have more options than ever before. They can easily switch between projects or clients, making it difficult to build long-term loyalty and raising the bar on what companies should offer to keep them.
• Price vs. value: Finding the right balance between cost-effectiveness and quality work. While focusing solely on price might attract the cheapest contractors, it can lead to a revolving door of unreliable partners.
• Communication gaps: Clear and consistent communication is essential for building trust and loyalty. Misunderstandings or a lack of responsiveness can lead to frustration and, ultimately, lost contractors.
• Lack of recognition: Feeling valued is important for everyone. Failing to acknowledge a contractor’s contributions or neglecting to provide positive feedback can make them feel like just another cog in the machine, leading them to seek clients who appreciate their work.

Overcome contractor management challenges with Deel.

Tired of the complexities of managing an international contractor team? Deel will transform your contractor management experience, streamlining everything from hiring to payments.

Here’s how Deel makes global contractor management a breeze:

• Flexible contracts: Choose from a range of payment terms, from fixed-rate, pay-as-you-go, or milestone contracts to fit your project needs.
• Automated compliance & payments: Reduce risk and workload with Deel’s automated system that handles local tax laws and ensures timely global payments.
• Seamless onboarding & management: Streamline your onboarding process and get legally sound, digital contracts and an easy-to-use interface for managing multiple contractors.
• Streamlined HR & payroll: Integrate Deel with your existing HR and payroll systems for effortless contractor management.
• Misclassification protection: Deel’s Employer of Record safeguards your business from legal issues caused by worker misclassification.

And for your contractors, Deel offers:

• Effortless invoicing & tax management: Automated tools make billing and tax handling a breeze.
• Fast, flexible payments: Get paid quickly with various payment options and schedules.
• Deel card & health insurance: Enjoy immediate access to earnings and healthcare options.
• Community connection: Network with other remote service providers.

Want to know more? Check out the complete list of Deel’s contractor benefits and perks.

Schedule a call with Deel experts to see the platform in action and unlock the power of a compliant and efficient international workforce. Request a demo today.