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SHRM's knowledge advisors answer common HR questions.
Can a U.S. employer hire someone living in another country as an independent contractor?
Possibly, but misclassification of workers as independent contractors
can be costly, so don’t assume you can pay someone living in another
country to work for you in that country without establishing an
employment relationship. Even if the individual is accurately classified
as self-employed, taxes and fees may be due in other countries. Ask
legal counsel with global experience to review each country’s
While rules vary, there are some common elements. Only a few countries
have income reporting requirements like the U.S. 1099 form. But many
countries charge an income tax or “service fee” to be withheld by the
employer and paid to the country in which the work is being performed.
Some countries won’t allow contractors to work for employers that don’t
have a local presence in that country. If you don’t have such a
presence, local regulators may regard your workers as “employees,” and
your business may be accused of operating without proper filings and
Some countries require self-employed individuals to register as sole
proprietors. If they fail to do so, it could establish an employment
relationship between your company and the contractor. Ask the contractor
for proof of registration.
To determine whether to grant independent contractor status, many countries would consider whether the contractor:
Finally, it’s important to maintain the relationship with the contractor
as required. Contractors who seemed happy with the arrangement at the
time may change their minds when the contract ends and may claim that an
employment relationship existed. If a misclassification occurs, the
penalties can be higher than in the U.S., going beyond back taxes and
Social Security payments and benefits. They also may include back pay
for vacations, severance and more.
—Shari Lau, SPHR-CA, GPHR
What is a compensation philosophy? Why does my company need one?
A compensation philosophy is simply a formal statement documenting the
company’s position about employee compensation. It explains the official
pay strategy and helps ensure consistency.
The objective is to show how the pay program fits into your business strategy.
The philosophy also may establish the factors used to determine employee
base pay, variable pay (such as bonuses) and how adjustments can be
made. In addition, it may lay out how market compensation surveys are
used to set salary ranges.
The compensation philosophy serves as a guideline to a manager who wants
to offer more pay to a job candidate or an employee who believes he or
she should be paid more. And, when followed consistently, a compensation
philosophy may help serve as a safeguard to defend against legal pay
Compensation philosophies are typically developed by HR in collaboration
with the executive team. The philosophy is based on many factors,
including the company’s financial position, the size, the business
objectives, salary survey information and how difficult it is to find
qualified talent in that industry.
Some important questions to discuss with the leadership team are:
The compensation philosophy should be reviewed periodically and modified
as needed. For example, market conditions may make it difficult to find
qualified talent in a particular specialization, and employers may need
to pay a premium for these candidates. If the employer’s current
compensation philosophy doesn’t support this value, the organization may
need to change it.
A written compensation philosophy is most beneficial when it’s followed
diligently, communicated clearly and understood by all employees. Share
it through the company’s intranet, the employee handbook, policy manuals
and bulletin boards as well as at employee orientation sessions and
staff meetings. Coach managers on how to answer questions from
—Lesa Albright, SPHR, GPHR
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