Just wow. This is terrible. You don't understand the difference between a statutory employee and independant contractor.
If you are an employee, the company is required by law to withhold taxes and pay you regularly. Every state in the U.S. has an agency that will take and prosecute wage claims. People have gone to jail for messing with witholding taxes.
If you just invoice, you are effectively an independant contract, they might not pay you, and you are on the hook for paying your taxes. A big difference.
For example, in the USA, "You generally must withhold federal income tax from your employees' wages. You withhold part of Social Security and Medicare taxes from your employees' wages and you pay a matching amount yourself." - http://www.irs.gov/businesses/small/article/0,,id=172179,00....
I assume that the US law allows "contracts" that are "signed" or agreed with one click on the "I agree with the terms and conditions" checkbox, and this contract would establish the paid individual as an independent contractor, and then the paying business has no burden of tax payment on behalf of the individual.
Do you have any information about the legal framework for similar issues in UK or Ireland?
Some labor laws are pretty strict, where if you treat them like an employee, they are an employee. This is common in the US and companies have to be really careful, otherwise a contractor can come after them and impose a pretty big financial burden.
Is that actually the case? As far as I'm aware in the UK at least its not that you're outright forbidden to work as a contractor under conditions that would otherwise be considered employment, you just have to pay tax on that basis rather than pretending you're really an independent company.
I don't know how it works in the US. In Canada, if a business hires someone on contract but they are not in an "arms-length" transaction (ie. the 'contractor' is working in their office, using their equipment for more than a 'temporary' period of time), then the Canadian Revenue Agency can force the business to re-classify them as an "employee" causing both the person and company to pay back-taxes and any penalties.
In my country, if you earn 80%+ of your income as a contractor from a single company (with some limitations), you're labeled as dependant contractor, and special rules apply (eg: they can't just break a contract, they must give notice first, etc).
In US we do payroll. For other countries the employees are legally contractors, though still with equity and not treated any differently from anyone else on the team
Because our contractors provide us a 1-6 month, non-full-time, packaged, isolated service by an agreed deadline for a lump sum, they're very far from the definition of an employee in all countries, so it's not a problem with us. However, if your company starts directing tasks, or otherwise starts creeping toward the fine line, then what happens is out of my expertise, sorry. My useless advice is to stay far from the line, but of course some businesses might not be able to easily do this.
Contracts are a matter of contract law, but your relationship with the revenue agency is not bound by that contract.
I am not a lawyer but I do have some experience in this. So, as I understand it if one or both country's agencies decide it is actually an employer/employment relationship they may decide withholding was done/not done in the wrong place, or invalid tax credits etc. were claimed and may assess penalties for that on top of wanting the amounts back. It can also complicate things like VAT collection, etc.
In the UK at least, if you are a contractor you are legally not an employee.
If you took any employee benefits, the tax man could retroactively classify you as an employee and demand a huge tax bill from you.
So many contractors would refuse any such benefits even if they were offered. Some didn't care of course and took them anyway, but they were potentially setting themselves up for a huge legal and tax problem.
"Do US companies typically hire you as a contractor or can you be employed as an employee? I’m asking because contractors usually have no benefits here, including holidays/vacation/sick days, insurance, company-paid parental leave and all other perks so it has a huge impact on effective salary."
In the US, if you're a contractor, they can't treat you as an employee. A few years back, Microsoft contractors complained that they did everything an employee did but didn't receive the same benefits. As a result, law(s) were put in place forbidding employers to treat contractors as employees in everything but name. [1]
Independent contractors are responsible for all their own benefits. If you work for someplace as an employee that in turn hires you out, you can sometimes get benefits through them but you also share a portion of what the client pays them.
If you want vacation and benefits, you might want to consider a remote employee position for a US company.
That kind of clause doesn’t fly in either the UK or US, since it is disguised employment. The definition of a contractor is someone who sets their own rate and hours, and works under their own direction.
Employee or contractor? Employee is always a pain. Contractor, on the other
hand, seems like a home run for all parties. In the US, no tax reporting or
withholding as long as the contractor does all the work remotely.
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