Switching from Contractors to Employees with Deel Global Payroll

Employers convert independent contractors to employees for various reasons, such as strengthening compliance, establishing a permanent presence in a specific region with a local entity, or retaining talent.

With Deel, companies can easily transition independent contractors to direct employees and use Deel Global Payroll to manage their payments, tax deductions, and more. Read on to learn more about the process.

Why convert contractors to employees?

By transitioning contractors to employees under owned entities, companies can address various needs such as compliance, control, scalability, and cost efficiency, ultimately supporting their global expansion:

• Enhanced control: Establishing legal subsidiaries allows companies to fully own and control global operations, their workforce, and their intellectual property.
• Tailored global employment practices: Direct subsidiaries create and manage their own HR policies that reflect the company’s culture, ensuring consistency across all locations.
• Strategic expansion: A physical presence in foreign markets can strengthen relationships with local stakeholders and introduces new business opportunities.
• Compliance and risk management: Direct management of legal entities improves understanding of local regulations, reducing legal risks and ensuring compliance.
• Talent retention: Converting contractors to employees makes their skills exclusive to your company and provides benefits like health insurance and PTO, increasing satisfaction and retention.

Register your business entity

Before converting contractors to employees, you need to register your business entity with local authorities. The foreign entity (or foreign subsidiary) registration process differs between countries and jurisdictions. To register compliantly, you must follow proper protocol and provide complete documentation as required by the jurisdiction in which you are registering. 

For more information, read our Guide to Setting up a Local Entity.

See also: How to Register a Foreign Entity With Deel.

Setting up your Global Payroll entity on Deel

Once you’ve registered your entity, you can add it to your Deel Global Payroll dashboard.

1. Under Organization Settings, click on View Entities and then click Create Entity.

2. Fill in the required entity details and complete the onboarding tasks. Your entity will then be visible on the Entities page.

3. You can continue by adding a new Global Payroll group to organize all of your payroll employees for that entity. Simply click on the Group Menu and select Add a New Group.

Confirm worker classification and plan their integration

Converting an independent contractor to an employee status involves several key considerations that employers should carefully evaluate to ensure compliance with labor laws and effective integration into the company. Here are some essential factors to consider:

• Legal and tax implications: Understand the local legal distinctions between an independent contractor and an employee and confirm their classification. This change affects obligations such as income tax withholding and contributions, minimum wage, overtime, unemployment insurance, and more.
• Employment benefits: Determine which benefits will extend to the new employee, including health insurance, retirement plans, paid leave, and other perks that may not have been available as a contractor. Align these benefits with existing employee packages while considering the cost implications for the organization.
  Tip: Use Deel’s Benefits Tool to identify the statutory, common, and competitive benefits for an employee.
• Workplace integration: Plan the integration process for transitioning the contractor into a full-time employee role. This includes orientation, training, and adjustments in team dynamics and workflows.
• Cultural and operational adjustment: Help the new employee adjust to the cultural and operational norms of the company. This might involve different expectations regarding work hours, reporting, and collaboration.
• Communication: Clearly communicate the status change to the contractor, explaining the reasons for the shift, expectations, and any new roles or responsibilities. It's also important to communicate this change to the current team to ensure smooth transitions and clear understanding of new dynamics.
• Compliance with non-discrimination laws: Ensure that the decision to convert a contractor to an employee is consistent with fair employment practices and complies with all relevant anti-discrimination laws to prevent any bias in hiring processes.

See also: Onboarding Remote Employees: 10 Best Tips for Managers

End the independent contractor agreement

Before onboarding the worker as an employee under Global Payroll, you’ll need to terminate their existing independent contractor agreement. 

1. Go to the People tab on your Deel homepage and select the contractor. Next, click View Contract to open their agreement.

2. Select Set End Date to initiate the contract termination. Then, set the Ending Type, End Date, and Reason for Ending Contract.

3. Adjust the final payment required to fulfill the contract. If the employee has been provided with Company Owned or Deel Leased Equipment, an additional Manage Equipment step will be added to assist you in initiating equipment return. 

4. Review the end-of-contract date and payment details and submit the update. An email with updates will be shared with the contractor.

Learn more: How To Terminate A Contract For A Contractor

Set up the Global Payroll employee contract on Deel

Once the independent contractor agreement is terminated, your onboarding manager will help you set up the worker as an employee under Global Payroll. Here's a look at the process:

Note: This process will look different if you're migrating existing worker data from a platform like Workday, BambooHR, HiBob, or UKG.

1. On the Deel homepage, click Add People and select Employee as the type of worker.

2. Next, select Deel as the payroll provider.

3. Enter the employee details, including their team information, personal details, contract location, job details, compensation, and start date.

4. Set up the employment agreement. You can choose from custom templates, upload your own agreement, or add an agreement later. You will also have the option to add optional elements to your contract including benefits, leased equipment, equity grants, and more.

5. Review and sign the contract to create the document. Once created, the agreement will be sent to the employee via email for review and signature.

Learn more: How To Create a Global Payroll Contract On Deel

Track employees’ progress with ease

With the Global Onboarding Tracker, Deel makes it easy to stay updated on the onboarding status of your employees and contractors. 

When you select the Tracker tab on your home page, you will be able to see an overview of their onboarding progress and identify missing tasks from their checklists. You can also export onboarding tracker reports to get a full view of your workforce’s progress.

Getting payroll ready

Once the employee profiles have been completed for the converted contractors, your onboarding manager will work with you to collect additional payroll documentation, customize your reporting settings, and get your team payroll-ready. 

Get started with Deel Global Payroll

With Deel Global Payroll, you get a holistic view of your international payroll from a single dashboard. We’ll handle compliance, tax deductions, and filings wherever you have entities—all supported by our team of in-house payroll experts:

• Employee benefits and deductions
• Local filing with authorities
• Salary and tax payments
• Payslip creation and delivery
• Localized contracts and documents
• Compliant onboarding and offboarding

Since Deel is customizable to your workforce and business needs, you can convert some or all of your contactors, use Deel EOR to hire employees without entity setup, or a mix. You can also transition employees between different entities as needed, enabling you to evolve and scale your workforce as needed.

Ready to get started? Reach out to your customer success manager today or book a 30-minute platform demo with a specialist.