He Is Just A Contractor….

“What about Bob?” says one of your peers who works in Operations? “What do you
mean?” You reply. “I have a Rob Smith, a Robert Jones, but not Bob. Who is Bob?”
Your friend indicates he is a guy who has been working at the company for the last 8
months and he was complaining he has not been paid. But, you do not have a Bob on
payroll and then you think uh oh, I wonder if he is a contractor?

In payroll, we just do not worry too much about contractors, who are also often referred
to as independent contractors. Frankly most of the time, we do not know (or care) that
they even exist. But sometimes they become a compliance problem that leaks into the
payroll world. So when is Bob just a contractor? And when does Bob start creating
compliance issues?

So you start digging into the Bob story (not the Billy Murray movie from the early ‘90’s)
although there are similarities. Bob questions start popping up everywhere. So why do
we have Bob at our company? Should Bob be an employee? What risks does Bob
pose to our company? Let’s look at the possibilities:

1. Did we hire Bob to perform a short-term and specific project? Is the duration less
than 12 months? Yes, we did. Bob is working on a specific assignment for us at
an international location. Companies often hire contractors in countries where
they do not have a legal presence and they need some defined assistance,
usually regarding market research, business formation activities, initial staff
functions, or project support.

2. Is Bob too much like a real employee? Contractors that are too aligned with the
hiring organization may cause some governments to perceive these people are
more like employees than contract hires. If the company controls the contractor’s
work, he works similar hours to everyone else, and he is on a project for longer
than 6 months, many countries will start scrutinizing the relationship. In some
cases, countries will start to question organizations about why the person is a
contractor versus an employee. They may be inclined to pursue the company to
provide the contractor with the same fringe benefits of his employee counterparts
or force the company to make him an employee. Ok – Bob has been with us 8
months. This might be an issue.

3. Are we handling Bob’s taxes appropriately? Governments are looking to ensure
they receive all taxes. If the contractor neglects to declare his income, than the
government is missing wage and social security taxes. In certain countries, the
government requires reporting on payments to contractors to ensure they collect
their taxes. In others, companies are required to withhold taxes from contractors
and pay them over to the government like payroll taxes. Hmm – It looks like we
are just paying Bob a gross amount based on his hours worked. I need to check
on local requirements to ensure we are in compliance.
4. Is Bob going to stay on after the project is complete? Often as companies are
initially establishing entities in new countries, they hire local employees and pay
them as contractors until the entity is finalized and a proper payroll is set-up. The
company needs to be aware this can creates several issues for the soon to be
employee. In Europe specifically, employees receive their health care, pension
funds, life insurance, etc. through statutory deductions via payroll. If an
employee becomes ill or has a life event, they may not be covered, as they are
in-between employers. Additionally, many countries will not honor credits to prior
periods even if the payroll is back calculated at a future date. This means the
employee has fewer credits in his pension and against other policies. If the time
to establishment is short, only a month or two, this may not be a big concern.
But if the situation continues to stretch out, then utilizing a Professional
Employer’s Organization (PEO) maybe a better option to ensure the employee is
receiving proper benefits and the company is in compliance. This will help with
retaining the employee during this time of high change. Not an issue with Bob –
We just need him for the AACME project!

5. Is Bob legit? Contractors should be screened just like employees, including
background checks, OFAC screening, drug testing, etc. It is important to ensure
a contractor follows the same policies as employees, which will in turn, ensure
the company follows its own protocols. Often contractors are used for specific
client engagements, and the last thing a company wants is to find out a
contractor is violating a contractual obligation at a client site. The company will
often be held liable if the contractor in not in compliance, not just the contractor
himself. Lastly, the company can be substantially fined if the company violates
OFAC, FCPA, UK Bribery, etc. Better check with my friend to ensure BOB is

Conclusion: Bob is a contractor, on a specific project for less than 12 months. We do
not intend for him to be an employee and he should be rolling off the project soon. We
need to ensure he was screened properly and we track his time on the project.
Otherwise, Bob is good to go and the “What About Bob” questions should be put to rest.
This article was originally published by Purely Global

TOPIC: Uncategorized

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