Independent contractors or freelancers are self-employed individuals who provide services to companies as a non-employee. This is one of the most common ways companies tend to hire non-local designers, engineers, support reps, etc.
For legal and tax purposes, independent contractors are not classified as employees. They may work for multiple clients, set their own work hours, negotiate their pay rate, and decide how a job gets done.
For example, the IRS says that if an independent contractor or freelancer does work that can be controlled (what will be done and how it will be done) by an employer then they are, in fact, classified as an employee.
As you can imagine, hiring someone as an independent contractor versus an employee is a fine line to tread.
While there are benefits when you choose the contractor route, there are quite a few drawbacks to consider and you’ll need to weigh them carefully to determine the best fit for your company.
A foreign subsidiary is a company that operates overseas as part of a larger company who’s HQ is in another country.
Establishing a foreign entity is great for having an international presence and accessing new markets. Though, setting up a subsidiary in Puerto Rico can be expensive, stressful, and time-consuming. It's not for the faint of heart.
To set up a subsidiary in Puerto Rico, you have to:
If you're lucky, this process can take months. If you're not so lucky, it can take up to a year. And on average, it costs about $50k-$80k, all-in-all, to get setup. And that's just for Puerto Rico.
An employer-of-record (EOR) is a company that hires and pays an employee on behalf of another company.
An EOR is typically used to overcome the financial and regulatory hurdles that often come with employing remote workers.
Each country has its own payroll, employment, and work permit requirements for non-resident companies doing business in their jurisdiction. Meeting those demands can be a huge obstacle when it comes to hiring remotely.
At Panther, we help companies employ and pay people in over 160 countries, without having to set up a foreign subsidiary. Payroll, benefits, taxes, compliance, and more are all handled by us, at a fraction of the cost.
Outside of saving you months and tens of thousands of dollars, other advantages of using Panther are:
Because you no longer have to set up your own subsidiary, you’ll save a ton of time and tens of thousands of dollars using Panther.
Paying employees in Puerto Rico is not the same as paying workers in your own country. Employees have to be paid using Puerto Rico’s employment and payroll standards.
This means that you have to know, understand, and keep up with 1) fluctuating currency changes, and 2) local payroll and tax laws in the countries you’re looking to hire in.
Outside of the laws and regulations around payroll, there may be different conditions surrounding leave, overtime, termination, and more. As you can imagine, maintaining this kind of regulatory knowledge can be challenging. But it is crucial and necessary to follow local legislation.
After, you’ll have to determine the best way to pay your international employees. This can be done in a number of ways, including but not limited to:
One of the most challenging (and expensive) parts of paying international employees is setting up the infrastructure to do so.
Before you start to run payroll, you have to register your company as the local employer in the country the worker resides in. As you can see in the “Set up a subsidiary” section, this is a multi-step process that can take up to a year and put you on your way to bankruptcy.
Outside of EORs acting as the full admin employer, many also provide remote payroll.
For example, at Panther, in just 1-click, you’re able to pay your entire global team, anywhere in the world. We send you an invoice each month, charge you in US Dollars, and pay your employees the same amount in their local currency.
We factor in currency fluctuations and use the mid-market rate plus any applicable fee passed on by our provider at cost at the time of billing.
A standard working week is 40 hours and a workday is 8 hours.
Employees in Puerto Rico are entitled to be paid at least 1.5 times their normal rate for all hours worked over the overtime limit for any hours worked over a total of 40 in a single workweek.
Non-exempt employees under the Fair Labor Standards Act (FLSA) receive 150% for hours worked in excess of 40 hours a week or 8 hours a day.
The payroll frequency is bi-weekly, monthly or semi-monthly. An employer must make the salary payments on the 15th of the month.
13th-month payments are mandatory. Employers with a workforce in excess of 21 employees must by law pay a 13th-month salary in December equating to 2% of the employees’ wages or not more than 600 USD. Employers with less than 21 employees must pay an additional 2% or no more than 300 USD in December.
The annual leave entitlement in Puerto Rico is dependent on the seniority of the employee as follows:
Puerto Rico celebrates 19 holidays; all American national holidays as well as its own holidays.
Following 12 months of consecutive service at a company an employee is entitled to six days of paid leave for severe diseases.
Employees receive 12 days of paid sick leave which is accrued at the rate of one day per month following the commencement of at least 130 hours in that month.
An employee in Puerto Rico is entitled to a maternity leave of eight weeks, four weeks of which is generally taken before the birth and four weeks after. An employee can start maternity leave as late as one week before their predicted due date and can return just two weeks after the child’s birth, providing the employee can present a medical certificate.
Maternity leave can be extended to 20 weeks following a pregnancy-related complication; however, the additional 12 weeks will be unpaid.
Adoptive mothers are entitled to the same maternity benefits as those of a mother who gives birth, providing the adoptive child is below the age of 6.
Private sector employees can choose to take six months of job-protected unpaid leave.
Employers with a workforce of 50 employees or more can provide their employees with 12 weeks of unpaid leave for the birth of a new-born child, the placement of an adoptive/foster child, to care for an immediate family member, or to take medical leave when an employee is unable to work, under the US Federal Family and Medical Leave Act (FMLA).
Special paid leave of up to 6 months for an employee with one of the Serious Diseases of Catastrophic Character listed by the Special Coverage of the Health Insurance Administration of Puerto Rico.
Employers must have “just cause” to terminate an employee based on the employee’s job performance or behavior. If there is no just cause for dismissal, the employee receives severance pay.
There is no notice period.
There is no severance pay if there is “just cause” for termination.
If there is no just cause, the employee receives two months’ pay if the termination occurs within the first five years; three months pay if 5-15 years, and three months pay after 15 years.
The employer must also pay an additional two weeks’ salary for each year of service, with a maximum of 9 months total severance.
The probationary period is 9 months; 12 months for employees classified as “executives”, “administrators” and “professionals”.