Creating your first contract for a new remote hire
A run-down & free, downloadable check-list of things you MUST take into account when beginning to create a contract for a remote hire.
On the topic of extending a job offer to a remote employee, our friends at Deel have come up with a list of items that should be considered when creating a service agreement between a client and a contractor contract. They also want to remind you to not use template contracts!
Before you create a contract, you should go through a classification process. Are you trying to hire an independent contractor or an employee?
This step is crucial because not everyone is considered a full-time employee. You can read more in this article. Almost all countries have their own regulations and processes, but here are some resources for your convenience:
- USA: Use 20-Factor Test to help you determine the status of your independent contractor
- UK: Use this article to help you prepare for IR35
- Serbia: Use this Independence Test to see if you fall under lump-sum entrepreneur
- Here’s how to set up as a contractor in Australia, Belgium and France
What to do when creating a contract
- Research local labor laws. Every country has their own laws and it’s important to understand and comply with them. Failing to include crucial points may result in disputes, penalties and compliance risks.
- Include the following clauses:
- The termination date will set expectations that the working relationship will be over on a certain date, unless the contract is renewed.
- The notice clause can protect your business from unwanted interruptions should the contractor decide to end the relationship prematurely. Having set a rule that the contractor should give notice in advance should solve the potential issue.
- The Intellectual Property clauses that transfer copyright from a contractor to the hiring company. There are different rules in each country regarding who is the initial owner of the work. Make sure you investigate this and state the agreed transfer of rights if necessary.
- The confidentiality or non-disclosure agreement (NDA) to protect sensitive company information.
- The Indemnity clauses to protect the company from liability for any violation or misconduct.
- The Governing law and dispute resolution processes are especially important when two or more countries are involved.
- Learning about local tax regulations, reporting income and responsibilities. Independent contractors are usually responsible to take care of their own taxes, but there are different types of structures that’s worth looking into (independent contractors, auto-entrepreneurs, agency owners etc.).
- Tax documents for US companies:
- Form W-9 for US citizens and taxpayers
- Form W-8BEN or W-8BENE for foreign citizens and taxpayers
- Form 1099-MISC to report income over $600
- Form 1099-NEC to report non-employee compensation (replacing a part of 1099-MISC)
- Carefully choosing a payment method that suits both parties. Some payment methods, such as bank transfers, might not be a good fit since it goes through intermediary banks which are often costly and take a lot of time (sometimes even weeks).
- Keeping all invoices, receipts, and documents for accounting purposes.
Why should companies avoid doing this by themselves?
You might be compelled to find an online template and use it for all your contractors. Although this seems like a time-saver, it can lead to multiple issues.
First, every country has its own local labor laws. Having a one-size-fits-all contract will not do the trick.
The risks of having a bad contract can include misclassification that leads to penalties, fines and potential court case, or a contractor can sue or attempt dispute for any missing clause(s).
For your convenience, we’ve created a downloadable check-list of the things listed here that you MUST take into account when beginning to create a contract, summarizing all of Deel's pointers. Click below to save this takeaway.
Disclaimer: this list is not the end all be all, nor should it be considered a substitute for legal advice. Depending on where geographically you’re creating the contract for, there will be more factors to take into account of. Our checklist consists of points that aren’t localized. We hope this is a good starting point for you!
Deel is determined to help companies and contractors work together regardless of their location. Their all-in-one solution covers rights of work document collection based on contractors local structure, local labor law compliant contracts samples, easy payment process with multiple payment methods covering 150+ countries & more. Learn more about how Deel works.