united-states, hiring, employees, remote, russiaWhat are legal issues when hiring developer located in Russia? Our company is based in the USA .
Is it better to hire this person as an independent contractor instead of as an employee?
Is having a US based employee easier than a remote foreigner? More expensive from paperwork side at least I think. In this case we will most likely hire the Russian developer temporary while searching for a local developer.
(Our services are based on a software framework well known in ex-USSR states and not in other parts of world).
TL;DR: Hire your offshore developer as a contractor. Companies do this all the time. It will be cheaper and easier than setting up shop in Russia just for that purpose. But:
International employment is a somewhat murky business. At a high level, there are two ways to hire someone in developed countries:
You can hire that person as an employee using any of the one or more available types of contracts (some countries have more than one).
You can hire that person as a contractor, which is to say you outsource some work to a separate company.
Hiring someone as an employee involves administrative paperwork in the employee’s country. This is regardless of the country you’re based in. As the employer, you’ll become responsible for paying part or all of that employee’s social security and retirement benefits, PAYE (Pay As You Earn) if applicable, and so forth. In most cases, you’ll incorporate a subsidiary in said country if you’re not based there already in order to get the requisite tax IDs and what have you, and then hire someone or a company to dot ‘i’s, cross ‘t’s, and take care of the gritty details.
Again, I insist: as a US business, hiring a Russian employee based in Russia would involve you will dealing with the Russian administration.
For completeness I’ll mention the slight twist to the above scenario where you hire a local employee and dispatch the latter to another country. Theoretically, you could see to it that your Russian developer gets a US work permit, hire that person as a US employee, and dispatch them back to Russia. It’s similar to the above with a twist: you’d pay into US social security, retirement benefits, and what have you. They’d be responsible for declaring their net revenue in Russia in addition to their US-based paperwork. And don’t get me started on the inanities related to getting a foreign doctor’s invoice refunded - it usually won’t be except for EU citizens dealing with another EU country’s doctor. ‘nuff said.
Hiring someone as a contractor involves a contract between two businesses. In most developed countries - and I assume Russia is no exception - you’re operating as a de facto (unlimited liability) company when you work as a contractor. Whether formally incorporated or not the contractor is, much like you’d have been had you hired an employee, responsible for the same above mentioned stuff: social security and retirement benefits, PAYE if applicable, yada yada. From your standpoint you’re basically shifting the administrative burden and employer-related costs onto the contractor. (This is assuming the contractor declares the revenue, but that’s another problem altogether.)
Now, if you suddenly found yourself thinking “oh of course, hiring contractors is what I should be doing!”, then think again because there’s an endless stream of buts.
Enter labor laws.
Tax and labor inspectors of developed countries can - and routinely do - re-qualify contractors as employees, because of numerous abuses by local and international employers. Two key criteria they look for are whether:
There’s a bunch of other criteria that depend on the country. A local labor attorney will give you the full list. But the above two are the ones to be really wary of. (And yes, you’re guessing right: nearly all full-time foreign contractors would tick those checkboxes.)
Of course, labor inspectors don’t routinely barge into contractor homes and ask tough questions with an eye on re-qualifying them as employees. What usually happens is they become aware of such cases when the employer and the contractor part ways in unfriendly terms.
Alternatively, a nosy taxman might knock at their door, observe that they’re contractors, and inquire about unpaid employer-related stuff or some other administrative irregularity. Manure can hit the fan really quickly when that happens.
Either way, should that ever happen to you, be wary of the Damocles that’s hanging over your head: after some in-court fighting, which you’ll lose with near certainty, you may end up responsible for paying everything you should have paid as a local employer, plus interest, fines, severance pay if applicable, and so forth. Provision accordingly.
Also noteworthy, for completeness’ sake, is that courts in many if not all developed countries will enthusiastically receive labor-dispute related cases, and some countries are much more protective than others. Take, for instance, a US company hiring a French contractor with a UK-based contract (because they’ve a subsidiary there) and dispatching that person to Africa. Which labor laws apply? If you answered UK you’re incorrect. The correct answer is that, if manure hits the fan and things start going to hell, the contractor can seek remedy in the UK because of the contract itself, in the African country they were dispatched to for being there, in - yes - France for being French, and possibly in the US to boot. In each of those countries, a court may end up re-qualifying the contractor as a local-law based employee.
Most contractors, for better or worse, are blissfully unaware of the peculiarities and subtleties of labor laws. But some won’t be, so be sure to part on friendly terms that make everyone happy. And ideally make sure that your contractors are observing any legal obligations that may be related to being self-employed in their countries. (Tip: have them get a local accountant at your expense.)
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