Ask HN: Remote engineer or contractor? A nuanced hiring situation

[BayezLyfe]

Joanne is a rockstar SW engineer in Canada, working as a contractor for several years bringing in ~$150k annually. The Boston-based startup Foobai want to hire her as one of the first few engineers. They've agreed to the following comp: $90k salary, 2% equity. The salary isn't quite enough to support herself financially, so Joanne wants to pick-up a side gig. Foobai agrees to this, as long as Joanne fulfills her responsibilities. Some questions:

1. Should Foobai hire Joanne as a contractor or an employee [1]?

2. Are health and other insurance benefits given to independent contractors?

3. How are those benefits given to international employees/contractors?

[1] https://gusto.com/blog/hiring/hire-employee-or-independent-contractor

[davismwfl]

I have dealt with remote issues both as a founder (since ~2003) and for the last few years as an employee for a startup. There are differences in expectations depending on the size of the startup and the funding etc. But I'll assume a very early startup with minimal funding.

1. Hire as a Contractor. An international employee adds significant difficulties to your company in terms of tax compliance and wages, even an employee in another state can increase costs, reporting and compliance. You should also pay slightly more to the contractor because the contractor is also accepting tax liability when you do this. However that is easily acceptable because it will still be far cheaper than if you tried to setup an employee relationship, especially in another Country.

2. Benefits for contractors are usually very few if any, but in the case you want/need to provide health care; I would suggest you provide a slightly higher pay and have Joanne source health care locally. Not quite sure for Canada as they also have nationalized healthcare so you'd have to research the expense there some. But IMO, it is always good to provide some small addition to cover local health care. In the U.S. it is not uncommon to have them pick up a local plan and the company pays for it, or at least a portion of it ($200-500/month is fairly common for single people depending on health, age and plan details).

3. As I suggest you hire as a contractor any/all benefits should be spelled out in the contract. Your standard equity agreement can be used likely but I'd check with an attorney real quick to see if you should also put it in the agreement. As a contractor I'd want it in the agreement as well, just so it was clear. Essentially I'd want a basic statement that says XYZ is being offered 2% equity as defined in the "equity contract document title".

4. You should also be very specific in your contracting agreement about the relationship, there are some very specific rules the IRS uses to determine if you are just misclassifying someone to avoid paying taxes. https://www.irs.gov/newsroom/understanding-employee-vs-contr... is a good start to see what they look at. The fact the person is in another Country is in your favor here where you could likely violate some of the guidance and still be on safe grounds for classification as a contractor (an attorney is best to answer in specific).

[BayezLyfe]

This is immensely useful. Thank you for taking the time and for explaining clearly/succinctly!

[planetburgess]

Bear in mind that the US (IRS) requirements for independent contractors are not really relevant here. The Canadian legislation is what counts. Citizens are classified based on the legislation of the country in which they are working.

[planetburgess]

(1) Beware of misclassification if hiring someone full time as a contractor in Canada. In this case the fact that the employee is planning to pick up a side gig is a good indicator they are a genuine contractor instead of a disguised employee. Similarly it helps if the worker provides their own equipment and has responsibility for their own working hours.

(2) Do not offer health and other benefits directly or via an allowance as this is the act of an employer. (3) Instead build them into the total salary e.g. increase salary by 5k.

Lastly if engaging as a contractor make sure it is for a fixed term (e.g. 6-12 months). Towards the end of the contract initial duration both parties can assess whether the setup still works or whether an employed solution might be more appropriate.

This article might be helpful: https://www.hrreporter.com/workplace-law/39422-independent-c...