Offered position at US company - remote based - as independent contractor, pitfalls?

chaotic_j

Hi,

I've been employed just over 2 years working for a local company on a reasonable salary but which is less than what I've previously been paid. I could get paid more but it would involve a much longer commute which isn't what I want, jobs such as mine in the local area are difficult to find. There is a bonus scheme in place but as the company has been affected by the pandemic it's highly unlikely anything will be paid. My role has recently changed, the workload is the highest it's ever been and type of work not necessarily what I want to be doing - but I am grateful to still have a job. I often change positions every couple of years as I reach a glass ceiling and get bored.

Been offered a position at a US company which will be entirely remote based but after getting deep into the application process I found out I would be classed as an independent contractor. There seem to be quite a few disadvantages to this - they say I'll get 3 weeks paid holiday (so over a week - 9 days to be precise less than I get now). There is sick pay (I don't know how this works). Initially it will be a part time trial period for the first month where I'll be paid only for the hours worked.

This new position pays far more but I have roughly worked out as I'll need to pay my own tax, national insurance etc. I probably won't be much better off than I currently am.. I have heard about people forming a company and getting paid that way but I've no idea how this works. Also where I currently am I have a workplace pension building up so I wouldn't get this or the tax relief either. There are potentially bonuses in the new position if it works out but I've always had bad experiences with these in other roles, presumably my employment rights as it is a US company would be few and far between? so if they decided not to go ahead with the full time position or if we went ahead and they didn't pay any bonuses - I'd be pretty much helpless to do anything about it?

Just wondering if anyone has constructive thoughts on this or knows if there are any other pitfalls I haven't thought of? I'm considering whether to accept or not but my gut instinct feels in that in the current climate it could be too risky. My current financial situation is not as good as it once was. Although my current employer has basically advised when I came back off furlough they can't guarantee anyone's job safety (nor would I expect guaranteed job safety in any role).

Thanks in advance!

Dox

chaotic_j said:

Been offered a position at a US company which will be entirely remote based but after getting deep into the application process I found out I would be classed as an independent contractor. There seem to be quite a few disadvantages to this - they say I'll get 3 weeks paid holiday (so over a week - 9 days to be precise less than I get now). There is sick pay (I don't know how this works). Initially it will be a part time trial period for the first month where I'll be paid only for the hours worked.

If you're an independent contractor working on a self employed basis, then you aren't actually entitled to any paid holiday or to any sick pay. Have you checked to see if you are likely to be eligible to be classed as self employed by HMRC (ultimately it's their decision, not yours or the US company's)?

Initially it will be a part time trial period for the first month where I'll be paid only for the hours worked.

I have heard about people forming a company and getting paid that way but I've no idea how this works. Also where I currently am I have a workplace pension building up so I wouldn't get this or the tax relief either. 

Most contractors are paid only for the hours they work. 

All the info you need about forming a company and providing your services through them - but there are pitfalls, so read carefully: https://www.gov.uk/browse/business

You can pay into a pension and get tax relief on your contributions.

, presumably my employment rights as it is a US company would be few and far between? so if they decided not to go ahead with the full time position or if we went ahead and they didn't pay any bonuses - I'd be pretty much helpless to do anything about it?

If you are self employed you don't have any employment rights, regardless of the domicile of the 'employer'. 

I'm sorry this post isn't full of glad tidings, but this doesn't sound like the wonderful opportunity the headline-grabbing pay might at first suggest. If you've already got a job, sticking with it until you find something a bit more promising, or are forced out through redundancy (in which case you've nothing to lose by giving this sort of 'opportunity' a go), might be the best idea.

Savvy_Sue

I think the other thing I'd consider is how much you'd be expected to sync your working hours with your US employer, and what that would mean. 

Marcon

chaotic_j said:

This new position pays far more but I have roughly worked out as I'll need to pay my own tax, national insurance etc. I probably won't be much better off than I currently am.. I have heard about people forming a company and getting paid that way but I've no idea how this works. Also where I currently am I have a workplace pension building up so I wouldn't get this or the tax relief either. There are potentially bonuses in the new position if it works out but I've always had bad experiences with these in other roles, presumably my employment rights as it is a US company would be few and far between? so if they decided not to go ahead with the full time position or if we went ahead and they didn't pay any bonuses - I'd be pretty much helpless to do anything about it?

You have to pay your own tax now, so that won't change, regardless of whether you are an employee or self employed. 

Bonuses are almost always discretionary, not contractual. In either case, they are rarely a feature of those claiming to be self employed. Are you sure HRMC would swallow that line?

You sound as if you are pretty much out of your depth already, so possibly continuing is just going to get you into deeper waters. If you've not yet seen a draft contract, time to ask for one before going any further. 

prowla

As a contractor, you are no longer an employee, but instead a supplier/service provider to a client/customer,

You may be able to work via an umbrella company, will handle all of the business aspects for you and pay you a salary from the earnings.

There isn't typically a mechanism for handling sick pay and paid holidays within such an arrangement; that has to be covered by the income (a daily/hourly rate), along with pension contributions, and no work = no income.

You may also have to take out insurance to indemnify the client against issues.

To offset the above, contractor rates are typically higher than an equivalent salary.

Sandtree

You clearly have run into the first issue already, understanding the international aspects of this.

All of the above comments are certainly true were you to be a contractor in the UK however the USA is substantially different practices for their contractors (and employees) than there is here. More contractors over there are employed by an agency and therefore do receive holiday pay, sick pay etc... note that in a lot of US companies you simply get a relatively small number of "paid absences" and these have to cover both your holidays and your sick days.

You'll need to be clear what days/timezones you are expected to work... have worked US timezone but not bankholidays before and even East Coast time difference becomes a drag after a fairly short time (prefer working a more easterly timezone with an early get up but finish mid afternoon).

If its anything short of a fully fledged contractor then you are likely to have to double check the tax situations. Thankfully there is a recipricol tax agreement with the US and so any taxes taken there can be offset against taxes due here. 

Getting your own insurances, eg Professional Indemnity, will be more costly with a USA based client.

Marcon

Sandtree said:

All of the above comments are certainly true were you to be a contractor in the UK however the USA is substantially different practices for their contractors (and employees) than there is here. 

Surely that's exactly what OP is considering?

Sandtree

Marcon said:

Sandtree said:

All of the above comments are certainly true were you to be a contractor in the UK however the USA is substantially different practices for their contractors (and employees) than there is here. 

Surely that's exactly what OP is considering?

But he is talking to a USA company and they, rather than the OP, are likely to be the ones deciding the engagement model... just as lots of companies in the UK are now saying contractors must be via umbrella due to IR35 coming around the corner (at least in Financial Services).

The point, which you've helped illustrate, however was that a lot more information is required by the OP so that they really know whats being proposed and the risks. The fact that holiday was mentioned would suggest it was the US agency model where, like some umbrellas here, you do get holiday but also their resemblance of sick pay but that would make him an employee and another potential host of challenges.

chaotic_j

Hi,

I decided to turn down the role. It was suggested I could carry out the month long part time trial in tandem with my current employment but I decided that would be too much. Financially it would be unlikely I'd be any better off and there are a lot of pitfalls to this kind of independent contractor arrangement which I don't have enough knowledge about. So for the current moment in time it would be too risky.

Thanks to everyone for the help and advice.. insurance was a great point!
chaotic_j