Convert independent contractors to full-time employees: The EOR view

Hiring independent contractors from across the globe is a great business strategy, especially if a business needs expert skills to complete a big project. However, the decision to hire a contractor or an employee depends on several factors, such as the nature of the work, the level of control and flexibility required, and the needs and objectives of the business. 

Sometimes, it becomes business-critical to convert international independent contractors to full-time employees. But is this transition easy? Do you need a registered company in India for this conversion? Have you explored employer of record (EOR) as a potential option for conversion? Are there any necessary steps you should take? Have you thought of any specific time to do it?  Let’s have a look at the guide we have compiled to examine all these situations.

From a company perspective, you can have various pain points that prompt you to consider converting your international independent contractors to full-time employees. Have you faced any of the following challenges?

• Integration and retention: Contractors are not necessarily integrated into the company culture, which leads to communication gaps and collaboration challenges, as well as a lack of employee engagement. They are more likely to leave the company for other opportunities, leading to a loss of institutional knowledge and a need for ongoing recruitment.
• Inconsistency: They may have different work schedules and may not be available when needed, which can lead to staffing inconsistencies, delivery delays, and a lack of continuity in business operations.
• IP risks: As contractors have the freedom to work with multiple clients at the same time, they expose companies to IP risks.
• Benefits: Generally, independent contractors are not eligible for benefits such as health insurance, paid time off, or retirement plans, which can impact their job satisfaction and retention.

By converting contractors to full-time employees through EOR, you can address some of these pain points. This can lead to a more stable workforce with improved collaboration and communication, as well as reduced legal and financial risks related to employment status. Additionally, providing benefits and training opportunities can enhance job satisfaction and retention for employees.

Why should you convert contractors to employees using EOR?

• Increased control and flexibility: Converting independent contractors to employees through an EOR demonstrates that you’re invested. As an employer, you can have more control and flexibility over the work that is being performed, and the timing and methods used to perform the work, providing the company with greater flexibility in staffing and meeting business needs.
• Reduced PE and other legal risks: If your independent contractors are working solely for you, while you dictate schedules and are making sales, they expose you to the risk of permanent establishment.  Converting independent contractors into employees can reduce the compliance risks related to employment status, worker misclassification, and tax and labor law violations. 
• Enhances company culture and HR policies: It helps you strengthen recruiting efforts and boost corporate culture by creating HR policies that provide the opportunity for independent contractors to become employees. These will help amplify the company’s positive reputation and strengthen talent recruitment and retention strategies.
• Greater loyalty and commitment: Employees often have a greater sense of loyalty and commitment to the company than contractors who may be working for multiple clients simultaneously.   
• Ease of converting with EOR: For testing out the method of working with a remote team in India, it is not necessary to form a subsidiary company. EOR service providers act as legal employers and smoothen the transition for you as well as your employees. 

When is the best time to convert contractors in India to full-time employees? 

In India, the fiscal year starts on the 1st of April and ends on the 31st of March of the following year. Ideally, February-March marks the best month for the seamless conversion of your contractors/freelancers to employees with an EOR. However many overseas companies sometimes prefer the conversion a little earlier than the ideal timeline to streamline the process of team building in India. As the contractor’s status is treated differently from that of full-time employees, the manner of computation of tax and government benefits also differs greatly. To help your current contractors, let’s rightly call them your potential employees, in streamlining their income tax returns and Form 16, you must act on this conversion right away. 

What are the major benefits of converting an independent contractor to a full-time employee?

Converting independent contractors into employees is beneficial for both the worker and the company. If you are in a dilemma about whether to make this switch, consider the following reasons to make the transition:

• Enhanced benefits for your team: As a regular employee, each individual is eligible for various employee benefits such as health insurance, paid time off, and retirement plans, which can enhance their financial stability and overall job satisfaction.
• Creates a competitive advantage: Companies known for allowing contractors to convert to employees have an advantage by mitigating attrition to the competition. You get the benefit of building strong working relationships with contractors by offering them full-time salaried positions to expand the talent on your current team.
• Reduces risk of compliance violations: Converting from contractor to employee can also be a pragmatic decision for companies. It is very commonly seen that the lines between contractor and employee get blurred, exposing the company to potential labor and tax code violations. To prevent this misclassification, transitioning contractors to full-time positions is the best-suited solution.
• Supports the worker’s career goals: Independent contractors sometimes prefer working as full-time employees because it allows them to play a more significant role within the company while having access to compensation, benefits, bonuses, vacation pay, and so on. 

What are the challenges of converting from contractor to employee?

• Change in pay: This is inevitable. If you do decide to convert your independent contractor to a full-time employee, you will have to expect a change in costs from your end. Your company will pay for their benefits as well as their taxes.
• Taxation compliance: Business contractors pay their own taxes. However, once you convert them to full-time employees, your EOR partner is responsible for withholding taxes on behalf of the employee.
• Local work culture: Acquiring comprehensive local knowledge regarding national holidays, laws on vacation and sick leaves, overtime pay, severance pay, etc. is the biggest challenge.

It is a must to ensure the conversion is done correctly, fairly, and compliantly within the legal framework of the target country. The right conversion strategy will definitely help you expand teams, retain top talent, and maintain a competitive advantage in your industry. But these transitions are time-consuming and, at times, high on investment. 

Converting Contractors with an EOR

The best solution to navigate this complex and sensitive process is to work with an employer of record. EOR services act as support systems that ensure the smooth conversion of independent contractors into full-fledged employees with zero complications.

Remunance’s EOR formula

As the most trusted and experienced employer of record, Remunance helps companies manage activities including hiring, onboarding, HR services, IT & infrastructure support, legal and regulatory compliance assistance, etc. Remunance enables the conversion from contractors to employees in India quickly, easily, and cost-effectively.

We have curated the best formula to simplify these tedious transitions

As a partner – 

• We will run salary simulations for your team based on Indian compliance laws and benchmarks to ensure a competitive offer is extended to contractors being converted. Along with competitive salaries and benefits packages, we help you outline perks like paid bonuses and paid time off.
• Our support team will organize introductory consultations to answer any questions you or your contractor may have about the process, giving you peace of mind as you all proceed.
• When we get on agreeing terms, our team of experts helps you draft employment contracts, compliantly onboard, enroll onto payroll and benefits portals, and pay the newly converted employees in India. 
• Here on, you and the employee receive expert support from our team to ensure an excellent employee experience and compliance throughout their employment.

Our expert-led process helps you and your team have a smooth transition into their new permanent role within your organization without having to form a subsidiary company in India.