Remote work agreements aren’t rocket science. It’s entirely possible to work with team members from all around the world. Some companies, especially early-stage startups, would agree with this statement immediately. However, the problem is that they’ve most probably got many things wrong. At the same time, SMEs and corporations often decide not to hire remote workers in other countries, claiming that it’s impossible from a legal perspective.

Let me elaborate on the above-mentioned points a bit more. I’ve observed too many times that some companies simply take a random contract and sign it with a remote worker. They almost don’t pay attention to any of the contractual provisions, nor are they aware of any misclassification risks or other risks that they often have to deal with later. Others, on the other hand, are so strict that they consequently limit their talent pool to national or local candidates, claiming that the law doesn’t allow hiring people from elsewhere in a compliant manner.

The challenge of remote work contracts

Almost every contract can be a remote work contract. It just depends on the parties, as people can generally be hired as employees, contractors, or on B2B grounds. It’s important to know that often we can’t choose which type of contract we’d like to sign, as the work relationship may be subject to certain laws in particular countries. For example, in the US, you can practically hire a 1099 contractor without any extra paperwork, but this won’t be equally simple in other countries, such as in Europe, where most freelancers have to register their own business.

In the past few years, freelance contracts have become extremely popular as a quick win for both parties to just start working together. However, due to high competition, many companies have decided to equip freelancers with perks and benefits, offering anything from paid time off and maternity leave to meal allowances. Needless to say – this is a direct path to employment misclassification, which is a situation when a company hires someone as a freelancer but treats this person as an employee. Contractual provisions matter, just like the actual work relationship. Consequently, if employment misclassification is determined, both parties – now being the employer and employee – must pay employment taxes and other penalties retroactively. Sadly, I’ve seen this happening many times over the past few years.

B2B relationships, on the other hand, mean that two separate businesses sign a contract, which is usually as a low-risk situation. Well… This isn’t always the case. In some countries, individuals can take on work other than employment ONLY if they register their own business. In this case, if the contractual provisions, as well as the actual relationship, resemble employment, the misclassification issue may backfire as well.

Compliant remote work agreements

If the previous paragraph alarmed you, it wasn’t my intention. My goal was merely to highlight the seriousness of the situation. Hiring remote workers can indeed be done correctly. Below are some recommendations and solutions to ensure it’s done right:

1. Verify whether you can hire the new team member under an employment contract. Do you have a legal entity in that specific country? Can you act as a ‘foreign employer’ within the EU, for example? Alternatively, might engaging an Employer of Record be necessary?
2. Inquire whether the new team member currently operates their own business. Do they serve other clients, or would you be their sole source of income? This information will help you assess potential risks immediately.
3. Review the contracts you intend to use. Outdated drafts previously downloaded might not suffice and could introduce more risks than anticipated.
4. Consider your expectations for the new team member’s role. This includes aspects such as collaboration, core hours, and management styles. It’s crucial to document these expectations to ensure that both parties clearly understand the details.

All in all, a variety of options are available for remote work agreements. The aim is to understand potential risks, grasp financial implications, and ensure a mutual understanding between all parties. Many team members may not be fully aware of the nuances of different agreements, despite showing interest in them. Aligning expectations upfront can help avoid future challenges.

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