Hiring developers abroad as contractors is fast and inexpensive, which is exactly why it attracts scrutiny. When a “contractor” is really working like an employee, the company can be ordered to pay the employer contributions and benefits it skipped — often for every year of the relationship, with interest and fines on top.
How authorities decide
The tests differ by country, but they ask similar questions. Courts look at the reality of the relationship rather than the contract title. Colombia even has a name for it: the principle of “primacy of reality”.
- Control: do you decide how, when and where the work is done?
- Integration: is the person part of your team, with a company email, title and manager?
- Exclusivity and dependence: do they work only for you and depend on you for most of their income?
- Duration: is the engagement open-ended rather than tied to a project?
- Business risk: do they invoice for results and bear their own costs, or are they paid a fixed monthly amount regardless?
Warning signs in your own setup
- A fixed monthly “invoice” that never changes.
- Required working hours, daily stand-ups and approval for time off.
- Paid holidays or a 13th payment informally added to the invoice.
- Equipment, software licences and a company email provided by you.
- The contractor appears on your org chart and website as a team member.
- The engagement has run for more than a year with no defined deliverables.
Country spotlights
Brazil
Arrangements where an employee is hired through their own company (a “PJ”) are known as pejotização. Labour courts regularly reclassify them, ordering back-payment of FGTS, the 13th salary and vacation bonus. At a mid-level salary of $36,000, employer contributions and mandatory benefits come to about $18,320 a year.
Mexico
The 2021 outsourcing reform bans subcontracting personnel except for registered specialised services (REPSE). Disguised employment can lead to IMSS assessments, mandatory profit sharing (PTU) and constitutional severance. At $38,000, the annual exposure for contributions and benefits is about $11,700.
Colombia
Any subordinated, continuous service can be treated as an employment contract. Reclassification brings back-dated social security and prestaciones sociales — prima, cesantías and interest — plus a daily late-payment penalty. At $32,000, contributions and benefits come to about $10,940 a year.
Philippines
Employees become “regular” after a probation of up to six months and gain strong security of tenure. Long-term contractors doing core work can be found to be regular employees, owed 13th-month pay and government contributions.
Poland and India
Poland has a mature and widely accepted B2B contractor market, so risk is lower, but contracts that mirror employment — fixed hours, subordination, no business risk — can still be challenged. In India, long-term exclusive contractors risk being re-characterised as employees, and a senior person acting for the company can create permanent establishment (PE) tax exposure.
| Country | Mid-level salary | Annual exposure | Risk rating |
|---|---|---|---|
| Brazil | $36,000 | $18,320 | High |
| Mexico | $38,000 | $11,703 | High |
| Colombia | $32,000 | $10,940 | High |
| Poland | $46,000 | $9,421 | Low |
| Ukraine | $36,000 | $7,920 | High |
| Vietnam | $20,000 | $4,700 | Medium |
| Philippines | $16,000 | $2,443 | Medium |
| India | $18,000 | $1,568 | Medium |
These figures exclude fines, interest, legal costs and severance, which can exceed the contributions themselves.
How to reduce the risk
- Use contractors for genuine projects with deliverables, not for permanent roles.
- Let contractors control their own schedule, methods and tools, and allow other clients.
- Move long-term, full-time people to employment through an Employer of Record or your own entity.
- Review every contractor relationship at least once a year — relationships drift towards employment over time.
- Get local legal advice in high-risk countries before you sign.