The most striking development in a globally connected world is the shrinking of traditional boundaries for employment. With rising cross-border events, hiring a contract employee in another country becomes more convenient. Among potential destinations, India emerged as one of the most crucial locations for foreign companies to hire contractual professionals.
In this work arrangement, what bothers overseas businesses is addressing the challenges faced by contractual employees with a longer contract period. These categories of employees commit to full-time hours but are not yet considered full-time employees by the companies. So, the high attrition of Indian professionals becomes a headache for overseas companies.
The employees find themselves in a unique situation that creates numerous challenges for foreign companies dealing with them. The prevailing work arrangement results in creating more challenges for both employees and companies.
In this blog, we’ve shed light on how EORs can effectively address the challenges of working with your contractual employees in India. The blog incorporates the significant insights of our internal human resources (HR) team that have had firsthand experience dealing with remote professionals. Let’s understand the meaning of contract employees before we dive in further.
Who are contract employees?
Contract employees are self-employed professionals who engage in a specific project for a fixed timeframe and fee. They are typically subject-matter experts with the skillset to execute the assigned tasks. Based on the type of work and roles or responsibilities, contract employees are known as freelancers, independent contractors, work-for-hire staff, etc. Foreign companies hire contractual employees when they don’t have a legal entity in the target country. The companies outsource their specific tasks to independent contractors as they don’t have the internal team to execute them.
To hire full-time employees, you need either a physical entity in the target country or an international professional employer organisation (PEO) partner.
Problems of working with contract employees in India
- Payment issues: The payment issue is quite pertinent to a remote work design and a major headache for overseas businesses. Cross-border payments usually attract remittance fees charged by banks and become more expensive every time the number of your employees increases. Also, payment discrepancies or delays can affect the work relationship and create trust issues.
- Confidential risks: Confidential risks and data security problems arise when freelancers or independent contractors work for multiple clients simultaneously. Contractual employees get access remotely to the sensitive information of an organization. The risk of intellectual property violations is quite high in contract jobs, as employees have no loyalty to any employer.
- High attrition rates: A high attrition rate is another crucial problem in dealing with contractors. Unlike full-time employees, freelancers are not considered to be part of a company and are not eligible for employee benefits such as insurance, medical benefits, retirement plans, etc. As a result, they aren’t eligible to apply for loans or other government-related benefits. The lack of job security and commitment drives them to switch jobs whenever they have better options. On top of that, they need to consult external legal experts for their taxation and other legal obligations to stay compliant. However, one advantage of being a contract employee is that they pay less taxes compared to full-time employees. Understanding the cause and solutions for attrition in Indian remote teams can be a major relief for you when dealing with your remote employees.
- Compliance risks: Contract employees are personally responsible for complying with Indian labor laws and regulations. They must pay taxes and comply with other legal obligations related to their contract work. However, employers can face legal penalties and financial consequences if their remote employees fail to comply with the employment regulations. As a result, this mistake can damage your brand image.
How do EORs address the problems of contract employees in India?
The best way to address the problems associated with working with contractual employees is to convert independent contractors to full-time employees. You simply need to find a local guide, which means opting for employer of record (EOR) services to handle the problems. With EOR assistance, you can effectively and efficiently address all challenges affecting you and your employees. Let’s understand how EORs help solve the challenges of your contract employees in India.
- Ease of payment: Once your freelancers or independent contractors convert to EOR employees, they become full-time employees by default. They have a monthly salary, and their payroll arrangement is the sole responsibility of the EOR partner. EORs ensure prompt and accurate payment to all employees so that they receive remuneration at the end of every month. Also, EOR has a fixed service charge per employee every month.
- No scope for security and IP issues: In the EOR model, there is no scope for confidentiality issues or security risks as each employee is working for a single client or project. The chance of misusing sensitive information or IP violations is typically minimal when working with an EOR partner.
- Talent retention: Working with an EOR service, you can certainly mitigate the problem of a high attrition rate in your company. Once they become EOR employees, they are eligible for all employee benefits, like insurance and medical benefits. Also, they can easily develop loyalty toward your company as they’re only working for you. So, EORs help find solutions for the attrition problem of contractual employees in India.
- Stay compliant: EORs normally have a team of legal experts who have extensive knowledge of local employment regulations. Your EOR partner will take all necessary actions regarding taxation and others to comply with the local labor laws and regulations. EORs handle activities like withholding tax and maintaining payment records of your employees to avoid legal penalties.
The most challenging part of handling a team of contractual employees in India is finding the right mechanism to ensure that they remain motivated and engaged. Opting for EOR services as a local guide is the best and most assured path for effective engagement with your team of freelancers or independent contractors.
With EOR assistance, you can encourage, engage, and retain your employees, as your EOR partner is solely responsible for handling their administrative activities. This way, you can address your problems associated with contract employees in India and properly align them with your business values and objectives.