Avoiding Misclassification Risks: How KMC Teams’ Employer of Record (EOR) Model Protects Your Business

In today’s globalized workplace, the need for skilled remote workers has led companies to adopt diverse engagement models. However, this flexibility can create significant risks if worker relationships are not structured correctly. A recent Fair Work Commission case in Australia brought these risks into sharp focus, underscoring the dangers of misclassifying workers as independent contractors. For businesses navigating offshore operations, this case provides critical lessons—and highlights the value of Employer of Record (EOR) services like those offered by KMC Teams.

Misclassifying workers as independent contractors while maintaining employer-like control can expose businesses to severe consequences. The recent case of Pascua vs. Doessel Group Pty Ltd illustrates these pitfalls:

• Legal Liability: The Fair Work Commission ruled that, despite being labeled an independent contractor, Ms. Pascua was effectively an employee due to the degree of control and integration into the business. This meant she could pursue an unfair dismissal claim.

• Compliance Complexity: Misclassification often violates labor laws and leads to back payments of wages, entitlements, and fines.

• Reputational Damage: Cases like these can tarnish a company’s reputation, making it harder to attract talent and clients.

• Administrative Burden: Disputes over worker status consume valuable resources, distracting from core business activities.

For companies hiring offshore talent, these risks are amplified by the complexity of managing compliance across borders. Missteps in classification can derail operations, expose companies to lawsuits, and harm their bottom line.

The Pascua vs. Doessel Group Pty Ltd case offers critical insights into the mistakes companies make when engaging offshore talent without clear structures:

Control Over Work:

• Ms. Pascua’s tasks were assigned daily, and she was supervised in performing them, demonstrating a level of control characteristic of employment rather than independent contracting.

• Avoidance: Businesses must limit their direct control over contractors—or better, engage workers through a compliant employment framework like an EOR.

Integration into Business:

• Ms. Pascua used company-branded tools and identified herself as part of the business (e.g., email signatures and a PBX phone system), which blurred the lines of her independence.

• Avoidance: Clear boundaries are essential; branding and integration should be limited unless the worker is formally employed.

Remuneration Model:

• Her hourly pay structure and capped weekly hours resembled employee arrangements rather than contractor flexibility. This was further compounded by her compensation being below award rates for similar roles.

• Avoidance: Pay structures must reflect the independent nature of contractor relationships, or companies should transition to an EOR model for fair and compliant remuneration.

Contractual Ambiguity:

• Despite labeling the agreement as “Independent Contractor,” the contract contained terms inconsistent with true independent contracting, such as requiring her personal performance and setting fixed KPIs.

• Avoidance: Contracts should align with the nature of the relationship. Misaligned terms increase the risk of misclassification disputes.

Jurisdictional Challenges:

• As Ms. Pascua worked remotely from the Philippines, Doessel’s lack of expertise in managing cross-border compliance further complicated the situation.

• Avoidance: Partnering with an EOR ensures all jurisdictional compliance is handled professionally and comprehensively.

At KMC Teams, we understand the operational and legal challenges businesses face when engaging offshore talent. Our Employer of Record (EOR) model provides a streamlined, compliant solution, enabling companies to scale their teams confidently and without risk. Here’s how:

1. Legal Employer Status

One of the key distinctions of the EOR model is that the offshore staff are legally employed by KMC Teams. This means:

• KMC Teams assumes all employer responsibilities, including compliance with labor laws, tax regulations, and employee benefits.

• The client company retains day-to-day operational control of the worker’s tasks and performance, but without the legal risks associated with direct employment.

This legal structure ensures that worker classification is clear and compliant, protecting your business from claims like unfair dismissal or wage disputes.

2. Ensuring Legal Compliance

Navigating the intricacies of labor laws in multiple jurisdictions can be daunting. KMC Teams acts as the legal employer of record for your offshore staff, ensuring:

• Employment contracts comply with local laws, including minimum wage and benefits.

• Proper registration with government bodies (e.g., SSS, Pag-IBIG, PhilHealth in the Philippines).

• Payroll, taxes, and entitlements are correctly calculated and remitted.

This comprehensive approach eliminates the risk of non-compliance, shielding your business from costly legal disputes and penalties.

3. Reducing Employer Liabilities

Misclassification often stems from attempting to balance control with contractor status. With KMC Teams, companies retain operational oversight while avoiding the liabilities of direct employment. We:

• Handle HR, payroll, and compliance on your behalf.

• Protect your business from claims like unfair dismissal, as we’re the legal employer.

• Provide clarity and security, ensuring all worker relationships are above board.

4. Simplifying Administrative Complexity

Managing offshore workers directly often leads to inefficiencies, such as complex invoicing or inconsistent processes. Our EOR model offers:

• Seamless payroll and benefits administration.

• A centralized platform for managing employee records.

• Consistent compliance with labor laws, freeing your team to focus on growth.

5. Offering Market Expertise

A lack of local knowledge often results in poor hiring decisions and retention challenges. With deep expertise in the Philippine talent market, KMC Teams:

• Sources top-tier talent aligned with your needs.

• Designs competitive benefits packages that attract and retain employees.

• Advises on compliance nuances to avoid pitfalls like those seen in the Doessel case.

6. Providing Cost Efficiency

The Pascua case highlighted the financial risks of non-compliance. KMC Teams’ EOR model ensures predictable costs while providing access to a highly skilled talent pool in the Philippines. This enables companies to:

• Secure equivalent talent at a fraction of the cost of onshore hiring.

• Maintain compliance without overpaying for specialist contractors.

KMC Teams is more than an EOR provider. We offer an end-to-end service model designed to minimize risk, maximize efficiency, and help businesses thrive in the global talent market:

• Recruitment & Onboarding: Access top talent without the hassle of navigating local labor markets.

• Payroll & Benefits Administration: From tax compliance to comprehensive benefits, we handle it all.

• Compliance Assurance: Our expertise ensures adherence to local laws, protecting your business from legal exposure.

• Office Solutions: State-of-the-art office spaces provide flexibility and boost productivity for your offshore teams.

The Pascua case is a cautionary tale for businesses engaging offshore workers. By partnering with KMC Teams, companies can:

• Avoid the legal and financial risks of misclassification.

• Focus on growth and strategy while we manage compliance and administration.

• Gain peace of mind knowing their offshore operations are built on a solid, compliant foundation.

At KMC Teams, we make offshore staffing simple, secure, and successful. Don’t let misclassification risks hold your business back. Contact us today to learn how our EOR services can empower your global growth strategy.

References:

Pascua vs. Doessel Group Pty Ltd