Stacy Diachenko

Tech expert

With a Master of Arts in Technology for Translation and Interpreting (yes it’s as cool as it sounds!), I’m 100% a technophile and wordsmith. I love making tech stuff sound human, and I constantly stay on top of the latest trends in technology. My goal is to write fun, insightful articles that are always ahead of the curve.

Outstaffed Employees: How to Get the Legal Part Right

Updated on April 10, 2023

Legal & Payroll, Scaling

👍 Rating — 5 (4 votes)

When you’re outgrowing your in-house software development team and need to bring on engineers to help with a specific task or challenge, outstaffing can be a great solution.

But before you jump headlong into this pursuit, there are a few legal factors you need to consider. In this article, we’ll outline the top outstaffing employees legal compliance to consider when working with an outstaffed software development team.

And since real world examples are always better than theoretical ones, we’ll also explain how TurnKey’s awesome legal department works and give you some examples of outstaff arrangements we’ve helped our clients set up.

Major Legal Factors to Consider When Working with Outstaffed Employees

Outstaffing is becoming increasingly popular for startups and tech companies looking to hire specialized talent without having to expand an in-house software development team. Offshore staff augmentation offers a range of benefits such as cost savings, access to global talent, and more flexibility.

However, it’s important to understand the legal aspects when working with outstaffed employees so that you remain compliant with local laws and regulations of the countries you are operating in. This blog post will discuss some of the main legal factors you should be aware of when hiring outstaffed software developers for your startup or tech company.

To begin, it’s important to understand the laws surrounding labor contracts and service agreements in the country you are targeting. Outstaffed employees can either be hired via direct employment model or via an independent contractor model.

Labor contracts outline the terms of employment in a strict accordance with local labor law, setting out working hours, an exclusive list of responsibilities, mandatory vacation policy, benefits determined by the Government, and payments in local currencies. On the other hand, service agreements for independent contractors propose more freedom to choose how, when, and where the tasks may be performed, the currency of payment, and to agree on different types of benefits.

It’s also important to be aware of any taxes or fees associated with hiring outstaffed software developers, especially if they are from another country. Outstaffers may need to pay certain taxes in their home country depending on their local regulations so it’s important to understand what taxes you may need to pay and who should be responsible for them (and how to stay compliant!).

We are experts in helping your company cope with all the legal hassle of outstaffed software development.

Call turnkey today!

Finally, it’s important to provide outstaffed software developers with the same protections as any other employee. Outstaffers should have access to the same or similiar insurance and benefits that are available to other workers, such as paid vacation days or retirement plans. Outstaffers should also be given the same opportunities as other employees when it comes to career advancement and training.

Overall, understanding the legal aspects of hiring outstaff software developers can help ensure that your startup or tech company remains compliant with local laws and regulations.

Thus, let’s dive into the major legal factors you should consider in detail.

Define the Contract Terms for the Outstaffed Developer

When hiring outstaffed software developers for your startup or tech company, it is important to consider all of the legal aspects involved. You must create clear and legally binding employment conditions that specify the rights and obligations of both the employer and the developer. The following are some key points to consider:

Make sure you clearly define what type of work or services the outstaffed software developer will provide, as well as any exact tasks related to their job description.
Set a start date for when their contract begins, along with an end date for when it will finish (or be up for review).
Establish how much they will be paid, either by hour or by assignment.
Outline any benefits provided to the outstaffed software developer, such as paid leave, health insurance coverage, etc.
Explain any confidentiality requirements or intellectual property rights associated with their role.
Determine who is responsible for providing necessary equipment and/or materials needed to complete the work.
Define termination procedures in case either party needs to terminate the agreement prematurely.

Adhere to All Applicable Country Laws

When hiring offshore software developers, it is essential to ensure compliance with all applicable labor or civil laws in order to avoid any legal consequences. Here are some important steps you should take to adhere to local laws:

Verify that each outstaffed software developer meets the minimum requirements for employment in the country of residence (e.g., at least 18 years of age).
Provide a safe working environment for your team that complies with all health and safety regulations.
Ensure that payment is made on time and in accordance with the terms outlined in the contract.
Respect any special rules or restrictions related to overtime pay or meal breaks.
Keep accurate records of all wages and hours worked by outstaffed software developers to ensure compliance with wage and hour requirements.
Make sure your business does not discriminate against any hire based on their race, gender, religion, ethnicity, etc.
Abide by all restrictions around when and how outstaffed software developers can be terminated from their positions.

Keep Tax Records for Offshore Employees and Contractors

When hiring offshore dedicated development team, it is important to keep accurate tax records in order to comply with the law and ensure your business’s tax obligations are met. Here are some helpful tips for keeping tax records:

Make sure you keep a copy of any executed agreements or other related documents between your business and the outstaffed software developer.
Track all payments made to the offshore employee or contractor, including amounts and dates.
Keep a record of any expenses related to paying offshore employees and contractors, such as materials or equipment purchased for them or reimbursements or benefits provided (e.g., healthcare coverage).
Note any withholdings from the offshore employee or contractor’s paychecks (e.g., income taxes or social security contributions).
Save copies of invoices and receipts issued by the offshore team member.
Maintain up-to-date contact information for each hire (e.g., name, address, phone number).

Safeguard Data Privacy and Confidentiality

Protecting the data privacy and confidentiality of both your company and the offshore staffing or contractor is a key consideration as well. Here are some tips to ensure that your team’s confidential personal data remains secure:

Ensure that access to all confidential information is limited to those with a legitimate need.
Make sure that any data collected from offshore employees and contractors is encrypted and stored securely.
Implement appropriate password protocols for any accounts set up for these employees and contractors.
Require all offshore employees and contractors to sign legally binding non-disclosure agreements drafted in compliance with applicable and local law before beginning work with your company.
Monitor any external services or technologies used by employees and contractors to ensure their basic security requirements are met (e.g., antivirus software).
Prohibit the sharing or misuse of employees and contractor information in accordance with relevant privacy laws or company policies.

Follow Appropriate Health & Safety Guidelines

Adhering to health and safety guidelines is essential when it comes to managing outstaffed employees and contractors. Here are some important steps you can take to ensure that your team members are working in an environment where their health and safety is prioritized:

Provide a safe workplace for offshore employees and contractors that is compliant with local regulations.
Ensure clear communication between employees, contractors, supervisors, and other relevant personnel about any health and safety protocols in place. Make sure any necessary protective equipment (PPE) provided, is up-to-date and properly fitted.
Provide regular training for both supervisors and employees / contractors on health and safety topics.
Encourage open dialogue with offshore teams regarding potential hazards they may observe in the workplace.

Ensure Offshore Developers Have Appropriate Insurance Coverage

Having appropriate insurance coverage for offshore employees and contractors is important in order to protect both their wellbeing and that of your company. Here are some things you should consider when reviewing the insurance policies:

Ensure that all offshore employees and contractors have both workers' compensation and medical insurance coverage.
Check that any disability or unemployment insurance policies meet local requirements.
Investigate the extent of motor vehicle, property, liability, and life insurance provided to the team.
Consider if your company needs additional protection or liability insurance for any special services being provided by an offshore team.
Review the terms and conditions of each employee and contractor’s policy on a regular basis to ensure compliance with relevant regulations.

Intellectual Property Rights Assignment

First, it is important to have a clear understanding of the scope and purpose of the intellectual property right being assigned. It is also important in this step to create an agreement that assigns the IP right to both parties involved.

Second, you have to adhere to all applicable laws related to assigning IP rights. Depending on the jurisdiction in which your offshore employee or contractor resides, there may be different requirements for assigning these rights. Be sure to research any laws or regulations relevant before proceeding.

Third, consider any potential risks associated with assigning the IP right and how best those risks can be mitigated. This could include obtaining waivers from either party or ensuring third-party contracts are in place for additional protection.

Finally, document all actions taken during the assignment process and store them in a secure location. This ensures that should any questions arise pertaining to the IP right assignment, they can easily be answered by referring back to those documents.

Assigning intellectual property rights offshore can be complicated but with proper planning, research and documentation it is possible for an effective result.

Costs of Failing to Comply With Foreign Legal Regulations

If a company fails to comply with the legal regulations that pertain to offshore employees and contractors, there can be a variety of consequences for both the employer and employee or contractor.

#1. Failing to meet legal requirements when it comes to hiring outstaffed employees and contractors could result in civil penalties including back wages, liquidated damages, injunctive relief and/or criminal prosecution. This could lead to irreparable damage to the company’s reputation and further financial losses.

#2. If an employer does not provide legally required benefits such as workers’ compensation insurance or unemployment insurance coverage for offshore employees, they can face hefty fines by the appropriate public authorities. Furthermore, if an injury occurs and there is no workers’ compensation insurance in place, the company can be held liable and must cover any medical costs incurred by the injured employee.

#3. If an employer does not properly classify an outstaffed employee as an independent contractor (where applicable), they may be found liable for unpaid payroll tax contributions such as Social Security and Medicare taxes, in addition to other associated big penalties and interest charges. Without proper classification, employers also risk being held liable for unpaid wages or overtime pay.

#4. Non-compliance with applicable labor laws could lead to expensive litigation costs if any lawsuits are filed against the company. In some cases these types of lawsuits may even have class action status which increases the potential financial exposure for companies who do not follow proper legal requirements when dealing with offshore employees and contractors.

It is important to remember that the legal regulations when it comes to offshore employees and contractors vary depending on the country, state and even city. Therefore, it’s essential for employers to do their research and make sure they are up-to-date on all applicable laws before hiring. This can help protect companies from potential legal risks and ensure a smooth working relationship between both parties involved. It’s better to be safe than sorry!

Let TurnKey Be Your Legal Backstop

At TurnKey, we know how important it is to have legal support when hiring offshore software developers and contractors to ensure that all regulations are followed accurately.

Our legal team provides expert guidance on relevant employment laws and regulations for all the countries we operate in throughout Eastern Europe and Latin America, including those relating to workers’ compensation, remuneration, health & safety management, and the terms and conditions of employment contracts or service agreements.

We also help ensure that your company remains compliant with applicable labor standards and provides adequate protection for your offshore team. Having a legal advisor on board dramatically reduces the risk of costly or damaging disputes arising from non-compliance with local laws.

Luckily for you, we have a professional Legal department to help you cover all these questions. For example, do you want to find great software development talent in Colombia or Poland, but don’t know what the taxation is? Instead of spending money hiring legal advisors in each separate country, TurnKey has already done all the math for you!

Here’s what TurnKey’s awesome legal support entails for all our clients:

We assist the client and their software developers in all legal matters from the beginning to the end.
We identify all risks and opportunities, specifics of the legislation and exceptions, as well as all new changes in the legislation of the country concerned.
You sign one contract with TurnKey based on U.S. law, and all the paperwork with your future team member is conducted by TurnKey. And what is even more important - the possible employment risks are fully born by TurnKey and not by you. We indemnify and hold you harmless against any and all liabilities, losses, damages, costs, and other expenses (including attorneys’ and expert witnesses’ costs and fees) arising from or relating to: (i) any breach, (ii) the employment, engagement, or termination of any of your team member engaged by TurnKey, (iii) TurnKey’s alleged non-compliance with any applicable labor, employment, or tax laws, or (iv) gross negligence or willful misconduct of any team member engaged by TurnKey. We’ve got you covered!
TurnKey’s team prepares and signs all contracts, non-disclosure agreements, and more with offshore employees and contractors so you don’t have to worry about this aspect either. We also ensure the prompt transfer of all Intellectual Property rights to the client. It’s vital to know which countries vary in the extent to which they protect intellectual property and enforce intellectual property regulations. Patents, copyrights, trade secrets, and trademarks: we do deep research on IP rights that may be waived in accordance with applicable law, and then take care of all the paperwork in order for IP rights to be strictly assigned to the client.
TurnKey’s legal department also conducts background checks. Never have fear again about a potential team member’s past!
We provide all information about tax contributions and rates for your outstaffed developers.

And if you still have any questions, the TurnKey legal team conducts additional research for any country you choose.

In short, with TurnKey you can Rest Easy knowing that we’ve got you covered on all things legal!

If outstaffing your software development sounds like too much hassle, give turnkey a call. We specialize in hiring the best and brightest offshore software developers for startups and tech companies.

Call us now!

Final Thoughts

Hiring offshore employees and contractors is great way to save money, but if you don’t do it correctly, it could end up costing you plenty.

That’s why it’s important to have a legal advisor on hand when hiring outstaffed employees and contractors — they can help make sure that everything is done in accordance with the law and that all your paperwork is filed properly. Not only can they save you time and hassle, but they can help you avoid hefty penalties.

Having an experienced legal advisor –like our awesome TurnKey legal team! – ensures that your offshore software development efforts run smoothly and worry-free. Contact us today!

#Custom Hiring #dedicated teams #Offshore Development #outstaff legal aspects

February 16, 2023

TurnKey Staffing provides information for general guidance only and does not offer legal, tax, or accounting advice. We encourage you to consult with professional advisors before making any decision or taking any action that may affect your business or legal rights.

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