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 Latvia can be expensive, stressful, and time-consuming. It's not for the faint of heart.
To set up a subsidiary in Latvia, 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 Latvia.
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 Latvia is not the same as paying workers in your own country. Employees have to be paid using Latvia’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.
In general, Latvians work 40 hours per week with 5, 8-hour days.
Work exceeding the daily working time of 8 hours is considered to be overtime.
It is interpreted restrictively and, for instance, where the duration of working time is reduced by agreement, overtime is still computed only after 8 hours of work.
The limit of allowed overtime hours is laid down in Section 136 (5) of the labor Law stipulating that overtime work may not exceed 48 hours within a four-week period and 200 hours within a calendar year.
In Latvia, the payroll frequency is generally monthly. However, the employer must make payment no less than twice a month unless the employee and employer have agreed on payment once a month.
There is no statutory requirement to provide a 13th salary.
Every employee is entitled to paid annual leave. This leave may not be shorter than 4 calendar weeks, not including public holidays.
By agreement between the employer and employee, paid annual leave for the current year may be granted in installments, however, one installment of annual leave each year may not be less than 2 uninterrupted calendar weeks.
Cash compensation for annual leave is prohibited, except in cases where an employment relationship is terminated, and an employee has not used up their paid annual leave.
There are 11 public holidays.
The duration of sick leave entitlement provided to workers is dependent on how long they have been employed by their employer:
Female employees are generally entitled to 112 days of maternity leave: 56 before the birth and 56 after, although the employee may use all 112 days regardless of how many she used before the birth.
Social insurance covers the employee’s wages during leave if she is insured.
Fathers are generally entitled to 10 days of paternity leave to be taken with two months of the child’s birth.
There are no provisions in the law regarding paternity leave.
Childcare leave -Every employee has the right to childcare leave for the birth or adoption of a child. Childcare leave lasts 18 months and may be requested at any time until the child reaches the age of 8.
Study leave - An employee who is studying at any form of educational institution while continuing to work may, in accordance with the collective agreement or employment contract, be granted paid or unpaid study leave. Employees sitting state exams, or are writing and defending theses, are granted paid study leave of no less than 20 working days per year.
A contract of employment can be terminated either at the initiative of an employer or an employee.
A contract of employment may also be terminated by expiry of a fixed-term contract, by mutual consent of employer and employee, or pursuant to the request of a third party.
Pursuant to Section 101 of the labor Law, an employer has the right to give a written notice of termination of a contract of employment only on the basis of circumstances related to the conduct of the employee, his or her abilities, or of economic, organizational, technological measures or measures of a similar nature
Prior notice is required to terminate a contract of employment concluded for an indefinite period as well as a fixed-term contract where an employer intends to terminate such contract before the expiry of the term.
An employer, when giving a notice of termination of a contract of employment, shall comply with different time periods, depending on the grounds of dismissal.
The notice of dismissal will take effect either immediately, or 10 days after the notice, or one month after the notice, accordingly to Sections 103 and 101 of the labor Law
In all cases when giving a notice of termination, an employer has a duty to notify an employee in writing those circumstances that serve a basis for the notice of termination of the contract of employment.
The employer has to pay severance pay in accordance with the law.
The notice period in Latvia is:
One month unless the employment contract or collective bargaining agreement provides for a longer period.
Employees are generally eligible for severance payment as follows:
The maximum term of probationary periods is three months.