10 Types of Employment Contracts for International Teams

Deciding which employment contract to use is far from straightforward. With so many options available, finding the most suitable type for each worker can be challenging.

Get it wrong and your company could face steep penalties or even legal action. The stakes are high as companies have been known to pay up to $40 million (USD) for misclassifying workers in their employment contracts.

Play it safe, and your company could lose its competitive edge. As the labor market tightens, businesses are increasingly relying on flexible employment models to meet workforce needs while keeping to hiring budgets. Sticking to rigid, outdated strategies could limit your access to top talent.

Our guide breaks down all the different types of employment contracts for the modern, global workforce. Discover the key considerations, best use cases, and potential risks for each type to help you make informed decisions.

1. Full-time

Generally speaking, a full-time employment contract is an agreement offering a permanent position working around 35 hours per week.

However, this definition varies across industries and regions. For example, what counts as full-time can range from as low as 30 hours to as high as 50 hours, depending on where you hire. Some countries don’t even set maximum limits.

If you hire full-time permanent employees, your business must usually meet the following requirements and outline them in the contract:

• Processing payroll
• Withholding and reporting tax
• Administering benefits
• Keeping records
• Giving a notice period
• Maintaining a safe work environment

Businesses may choose to go beyond the legal requirements and add extra benefits to their standard full-time contract to attract talent. For instance, many companies have introduced work-from-home and digital nomad policies to their contracts.

Note that you can’t usually be flexible with these additional policies. You must offer the same benefits to full-time employees in equivalent positions to avoid claims of discrimination. Once you’ve added policies to the contract, you may not be able to backtrack and revoke them either.

While other models have become popular, full-time is still a common type of employment contract. For instance, 70% of the US workforce have permanent positions.

2. Part-time

A part-time employment contract only requires people to work a portion of the standard working week. Again, the meaning of ‘part-time’ can differ according to your location and industry, but many countries set the limit at 30 hours.

Sectors like retail and hospitality often depend on part-time workers. As these businesses experience intense fluctuations, they may need a lot of staff for some shifts and very few for others.

Part-time employees still receive fixed pay, but they usually forgo some benefits. Depending on the number of hours they work, for example, they may be ineligible for health insurance or workers’ compensation.

However, contracts should reflect each employee’s typical working hours. If you frequently put a part-time worker on full-time shifts without adjusting their benefits, your company risks compliance issues.

Consider using a global HR solution when hiring across borders to maintain compliance. Our team of local experts can advise you whether new employees count as full-time vs part-time and generate a contract that includes all the mandatory benefits.

3. Fixed-term

This contract offers workers full or part-time employment for a set period. While they’re considered temporary, they have the same rights and responsibilities as the rest of your employees.

Many businesses use fixed-term contracts to cover employees during extended absences. For example, it’s common practice to hire people for six months to a year during a team member’s maternity leave. Some sectors rely on these contracts for research and project-based work when they’re unlikely to need the worker’s expertise afterward.

Temporary contracts come with an additional compliance risk. If you give employees the false expectation of permanent work — either by repeatedly renewing the contract or discussing future opportunities at your company — they may have grounds to pursue legal action upon termination.

4. Casual

A casual employment contract is similar to a fixed-term one in that it’s temporary. The key difference is that you can renew the contract year after year without giving employees the false expectation of permanent employment and causing compliance issues.

While less common than some types, casual contracts are standard in the following industries:

• Hospitality and tourism
• Events and entertainment
• Agriculture
• Retail
• Education

The main risk comes from underestimating your responsibilities as the employer. Seasonal workers may perform casual work, but they’re usually still entitled to benefits like PTO and sick leave.

Many hire casual workers from abroad. Countries often have lucrative visa schemes to help them source labor and meet their workforce needs during peak seasons.

5. Internship

Internships are another type of temporary employment contract. In this case, a student or recent graduate works for your company for a few weeks or months to gain essential experience. Often, this role is unpaid or below market rate.

Contracts should clarify how interns will benefit from the role. If they perform the same tasks as employees without proper training or educational focus, they may be legally considered employees and entitled to full wages and benefits.

6. Zero-Hour

As the name suggests, a zero-hour contract is for a job with no minimum number of hours. You’re not required to offer employees any shifts. Theoretically, they could go weeks or even months without working for your business while remaining on the books.

The caveat is that zero-hour employees have the right to refuse work. If you’re seen to pressure them in any way to accept shifts, they may have grounds to report your business to the local authorities.

7. Freelance

A freelance contract is the agreement you make with a self-employed worker about their services. As the gig economy has exploded in recent years, it’s become one of the most common types of contract.

Before drafting the contract, you must agree to terms and conditions with the freelancer. They have the power to set rates and dictate the pace and scope of work. If you’re dissatisfied with the arrangement, you can either negotiate or decline to work with them.

Avoid specifying how, when, and where the freelancer works even if they seem happy with the agreement. If you exercise too much control, the local authorities may determine that you have an employer-work relationship. They could charge you for all the worker’s back taxes plus interest.

8. Co-employment

Companies can enter into a co-employer relationship with Professional Employer Organizations (PEOs). Both get named as the legal employer on worker’s contracts. However, the PEO handles all the HR and payroll processes while your company continues to manage daily operations.

This arrangement has become increasingly common among small to medium businesses. Instead of diverting funds into HR and payroll, they can invest more of their resources into expansion.

Employment contracts should clearly define each party’s obligations. For example, the PEO is usually required to administer benefits and make contributions to social security programs like workers’ compensation and unemployment insurance. As new hires may be unfamiliar with co-employment relationships, consider explaining what the PEO arrangement entails too.

A leading global PEO like Deel covers most countries worldwide and individual US states so you can manage employment contracts through them wherever you hire.

9. Agency

Your business might choose to outsource staffing to agencies. In return for a fixed rate, they assign a worker to your company and handle all the HR, payroll, and performance management.

While the agency acts as the legal employer and arranges the contract, you’re still responsible for many aspects of compliance. You can face penalties if you violate any of its terms.

For example, many countries regulate pay and working conditions for agency workers. UK law states they must gain immediate access to the same company services and facilities as full-time employees. They must also receive equal pay and benefits after 12 consecutive weeks on the job.

10. Employer of Record (EOR)

An EOR contract might sound similar to an agency one as both involve naming a third-party organization as the legal employer in the contract. However, they couldn’t be more different.

While the EOR is the legal employer on paper, you still handle all the day-to-day operations. This enables your business to hire employees and contractors abroad and enter new markets without losing control of any aspect of workforce management. You have the power to:

• Select candidates
• Negotiate payment
• Define roles and responsibilities
• Conduct performance reviews
• Promote workers

Additionally, you can keep employees when you leave the EOR’s service. All they have to do is terminate their employment contract with the provider and sign a new one for your company.

As the legal employer, the EOR still assumes responsibility for the employment contract. They create the document, send it to new hires, and ensure your company maintains compliance with all the conditions. If you experience challenges for whatever reason, the EOR is liable.

The main danger comes from using EORs with an aggregator model. Since they rely on in-country partners to handle contracts, there are likely to be inconsistencies in their approach. They may also attempt to pass on responsibility should you encounter issues.

Only partner with wholly-owned providers like Deel EOR to avoid this risk. No matter where you hire, you can be sure the provider is the true legal employer and keep accountability clear.

Get peace of mind over employment contracts with Deel

While we’ve covered the essential details in this article, we’ve barely scratched the surface. Most countries have complex laws pertaining to employment contracts, and they continuously update and replace them.

HR doesn’t have to stay up late at night researching to determine the most suitable option for employers and employees. You can outsource this task to Deel.

All you have to do is input basic details about the role into the Deel platform. You receive a compliant contract based on the worker’s employment status, location, and industry within four minutes. Plus, if you’re facing any unique challenges, Deel has localized experts to help you navigate them and amend the contract terms.

Thinking about outsourcing compliance? Book a 30-minute demo to test out Deel’s contract generator and speak to our experts.