[jkaplowitz]

Many cases where someone is in practice functioning as a full-time employee are legally employment relationships according to both US and EU law even if the contract and payroll procedures say otherwise, and even if the contractual relationship is directly between a US entity and a worker in the EU. This includes whatever employment rights are supposed to exist, for the number of employees (whether or not misclassified as independent contractors) the company has in that country under its national employment laws.

Lots of US tech companies like to pretend otherwise, but a complaint or two from the misclassified employee can create plenty of pain for the employer for lying to both the US and foreign governments about the genuine nature of the relationship. And these penalties generally go not to the employee but to the employer, since the noncompliance is generally around employer tax, payroll, and reporting obligations as well as laws which are meant to protect employee rights.

[friendzis]

In practice, US tech companies literally buy their way out. They pay such a premium for those independent contractors that there would be no such complaints in the first place.

[jkaplowitz]

No complaints based on the amount of pay, maybe.

But for example, someone who is fired or laid off in a way that wouldn’t comply with local employment protections if the employment relationship were correctly classified might assert their misclassification claim so that they can also get compensation for their wrongful termination.

If that happens, then the company not only has to scramble to catch up on the overdue social contributions for the complaining employee and pay any applicable penalties, but also likely have to undergo an audit of their other workers in that country plus the same consequences for them.

There’s a reason why any US tech company that’s big enough to be a juicy financial target tends to do this correctly, and why companies like Deel, Remote.com, and their less tech-branded competitors (such as Velocity Global) are gaining popularity among people who want to do this correctly at smaller scales than those for which it makes sense to set up foreign subsidiaries.

When smaller companies take this particular shortcut, are risking severe financial consequences for the company if the authorities discover it, and in many cases this also comes with personal liability for some of the executives who are neglecting their legal duties.