10 ms·

I am an American founder that accidentally built a company in Europe. I hired my first person there, and through the path of least resistance, most of our 45 p

by _qsgk 5y ago

I am an American founder that accidentally built a company in Europe. I hired my first person there, and through the path of least resistance, most of our 45 person team is based in Europe. I believe I am playing 'business' on easy mode compared to European founders. As an American founder it's pretty easy for my US company to pay my European team as contractors. European founders have to comply with European employment law. In the country a lot of my team resides, here are the rules: 1. ~50% tax on W2 employees (we pay none) 2. Ability to take 1 year of maternity leave, available on day 1 of joining a company. Up to 2 years if there are complications. 3. 32 days of PTO standard for entry level roles Here were my rules as an American founder / company hiring in Europe: 1. No employment tax because everyone is hired as a contractor 2. Today we have a 2 month paid policy after 2 years in our org. We're hoping to improve this as our company becomes more financially secure, but the liability at this stage of our organization is significant. 3. We offer 38 days of PTO today, but for the first year we didn't have an official PTO policy. Building a startup in Europe as a European founder is very, very hard due to the above compliance requirements.

sschueller 5y ago
How about you build a actual sustainable business that doesn't take part of its profits out of cheating its "employees". If you can't pay your employees you do not have a sustainable business model in the country you operate.
ToJans 5y ago
While this is somewhat true, most of the European founders I know work around this by hiring freelance senior contractors and employing heavily subsidized juniors.
ggrrhh_ta 5y ago
Which European country are you referring to?
- deleted 5y ago
  [deleted]
- teekert 5y ago
  The 1 year parenting leave makes me think Norway? Or anything Scandinavian at least… here in the Netherlands it’s something like 16 weeks for women and 7 days for men? It was 2 days last year but it recently changed.
  - fnomnom 5y ago
    germany has the same (1 year) but doesnt have a 33 day PTO minimum.
another-dave 5y ago
This sounds really odd to me (UK-based, previously was contracting) — if someone is hired as a contractor, normally your company would be engaging their limited company as some type of consultancy arrangement. So you wouldn't have any maternity leave or paid time off at all. In fact, from the contractor's point-of-view, you'd want to run a mile from these things as if the revenue believed you were a de facto employee (since you're getting company benefits) your tax liability would balloon. But see no reason that a European founder couldn't hire freelancers/contractors in the same way that your company does.
- arcturus17 5y ago
  In Spain if you hire full-time contractors long term they can be considered full-time employees by law. There are ways around this such as hiring through temp agencies, hiring part-time or rotating them. But trying to do “FTE as contractor” is risky.
  - spaniard89277 5y ago
    That only applies if you hire from a spanish company and for a defined set of circunstances AFAIK.
- tinco 5y ago
  This sounds too good to be true. I don't know about other countries in Europe, but in The Netherlands it is definitely illegal to have a contractor work in employment conditions. I.e. you're not allowed to give a contractor set work hours, not allowed to specify how they work, not allowed to prevent them from outsourcing the work, etc. If you do those things, and the tax service finds out, or a "contractor" gets sick and decides to demand you pay them sick leave, you're in deep trouble.
  - mbeex 5y ago
    The same in Germany. The people can be easily classified as bogus self-employed (scheinselbststaendig). The company would have to pay social security contributions retroactively up to 4 years. Furthermore, the 'contractors' could sue their way into employment. Also, workarounds mentioned elsewhere, like employment as temp by utilizing intermediate staffing companies, became widely known in time also to government agencies. Most companies will fire/replace such staff after 18 month max for this reason.
pavlov 5y ago
As contractors, your employees are liable to pay those taxes themselves. Hopefully you’re paying them at least 50% above market rate, so there’s no problem.
cuillevel3 5y ago
An European founder could do the same, hire only self-employed contractors. However, e.g. in Germany, that's only possible if the contractors work independently and have more than one customer long-term. I guess someone will notice eventually?
- mbeex 5y ago
  > and have more than one customer long-term. This is rather a counter criterion. Government finally found out several years ago, that there is a new non-significant class of well-earning people - IT contractors - that can be legally milked by abusing laws, created ostensibly to 'protect' the weak.
euorme 5y ago
You're cheating the system, though. The system exists in order to support the way of life in these countries, by bringing your American employment attitudes to Europe you're not really building a company in Europe by any measure: you're building an American company. Your company is benefitting from the robust systems in Europe, without contributing. There are people you want to hire in Europe _because of people paying their share of taxes_. If you don't want to pay employment taxes, if you don't want to offer maternity leave... stick to America. Personally, I think there is a strong argument to make for the value of America-style lax employment rules when it comes to startups, absolutely, but please don't bring those to Europe by gaming the system. Hiring people as contractors to avoid obligations is an age old way to game the system, and eventually you'll be caught and face penalties (unless you're smarter about it, so I guess my advice is actually: be smarter about it (don't announce it on HN for example!)).
- biztos 5y ago
  I wouldn’t say he’s not contributing, I’d say he doesn’t have employees. Same would be true if he has his “team” on 1099 in the US. Outside of any moral questions, the risk here is that the government may decide your group of happy startup contractors are in fact employees, and then you’re in for some massively distracting and expensive restructuring (at best) or legal sanctions and maybe losing your team (at worst). So yeah, it’s easier, but that’s because it’s cheat mode, not because he’s American. You could use any offshore company for the same thing.
  - bingohbangoh 5y ago
    There are lots of laws over if your employee is a contractor or full-time. Many, _many_ companies butt heads with local labor boards who decide that a given employee is actually full-time and thus entitled to a bunch of different protections. Many regulations either don't exist in Europe or are under-enforced. For instance, Germany did not outlaw insider trading until ~2003. There's a strong chance that an American hiring a contractor in, say, Romania will simply not be prosecutable while an American hiring a contractor in America will be. There's some legal term of art for this that I can't recall off-hand.
- 5y ago
Sytten 5y ago
FYI since the laws in Europe are most likely similar to the laws of Canada on this, it can get your "contractors" into big trouble with their tax agency. I know a lot of people do that (work as contractor but they are employees), but if you bother to read the tax code this is illegal. It takes one audit to be reclassfied and then you have to repay the taxes your employer would have paid. This can be retroactive for many years after employement has ended. Stay away from those contracts.
arcturus17 5y ago
If you’re hiring contractors long-term in Spain for over a certain amount of their time (~80%) for the long term you can be liable as a full-time employer and may be obligated to change their contracts to full-time. I know it’s the same in other European markets and I doubt there are any exemptions for non-EU employers whatsoever. All other conditions you describe are the same for a European or Spanish company hiring contractors, as long as you are not meeting the conditions for full-time employment and therefore disguising FTEs as contractors. I’m curious as to what countries you are operating in that allow these kind of exemptions compared to local EU entrepreneurs. IANAL but 99% sure these exemptions do not exist in Spain at least. EDIT: This case study [1] by a Spanish law firm indeed claims that a company based outside the EU (UK post-Brexit) can be tried in Spain for false contractor relationships. [1] https://likum.es/el-falso-autonomo-tambien-si-la-empresa-y-el-trabajador-son-extranjeros/ https://likum.es/el-falso-autonomo-tambien-si-la-empresa-y-e...
tsbinz 5y ago
If you have "contractors" in Germany, what you are describing is social insurance fraud. I would be surprised if France doesn't have rules like that.
watoc 5y ago
As a European founder you can do exactly the same. You can hire contractors in Europe and won't have to pay employer taxes, mandatory PTO... I don't think there is any difference if your company is in the US or Europe. In both cases however you have to be careful that your contractors don't get reclassified as permanent employees if you hire them for too long (more than 2 years in a row and 40 hours a week is risky).
specialist 5y ago
> European founders have to comply with European employment law. There's got to be a better way. By default or by design, the different rules in USA and EU both advantage larger companies, thwart smaller companies. To encourage small businesses and new business formation, we must synthesize the good parts of USA's (former) entrepreneurial spirit and EU's labor protections. Universal healthcare and German-style childcare would be huge boons for USA's startups and small businesses. Maybe reverse the decades long decline. Something like UBI coupled with looser labor laws (easier to fire, layoff) could allow EU startups to be more nimble, more competitive.
jcelerier 5y ago
> As an American founder it's pretty easy for my US company to pay my European team as contractors. if they are spending most of their contracting time at your job / are considered your subordinates, it's very very illegal at least in france (https://bpifrance-creation.fr/encyclopedie/micro-entreprise-regime-auto-entrepreneur/lessentiel-ce-regime/independance-juridique https://bpifrance-creation.fr/encyclopedie/micro-entreprise-...), and I'm very very tempted to report you to the relevant authorities.

by _qsgk 5y ago

sschueller 5y ago

How about you build a actual sustainable business that doesn't take part of its profits out of cheating its "employees". If you can't pay your employees you do not have a sustainable business model in the country you operate.

ToJans 5y ago

While this is somewhat true, most of the European founders I know work around this by hiring freelance senior contractors and employing heavily subsidized juniors.

ggrrhh_ta 5y ago

Which European country are you referring to?

deleted 5y ago
[deleted]
teekert 5y ago
The 1 year parenting leave makes me think Norway? Or anything Scandinavian at least… here in the Netherlands it’s something like 16 weeks for women and 7 days for men? It was 2 days last year but it recently changed.
- fnomnom 5y ago
  germany has the same (1 year) but doesnt have a 33 day PTO minimum.

another-dave 5y ago

This sounds really odd to me (UK-based, previously was contracting) — if someone is hired as a contractor, normally your company would be engaging their limited company as some type of consultancy arrangement. So you wouldn't have any maternity leave or paid time off at all. In fact, from the contractor's point-of-view, you'd want to run a mile from these things as if the revenue believed you were a de facto employee (since you're getting company benefits) your tax liability would balloon. But see no reason that a European founder couldn't hire freelancers/contractors in the same way that your company does.

arcturus17 5y ago
In Spain if you hire full-time contractors long term they can be considered full-time employees by law. There are ways around this such as hiring through temp agencies, hiring part-time or rotating them. But trying to do “FTE as contractor” is risky.
- spaniard89277 5y ago
  That only applies if you hire from a spanish company and for a defined set of circunstances AFAIK.
tinco 5y ago
This sounds too good to be true. I don't know about other countries in Europe, but in The Netherlands it is definitely illegal to have a contractor work in employment conditions. I.e. you're not allowed to give a contractor set work hours, not allowed to specify how they work, not allowed to prevent them from outsourcing the work, etc. If you do those things, and the tax service finds out, or a "contractor" gets sick and decides to demand you pay them sick leave, you're in deep trouble.
- mbeex 5y ago
  The same in Germany. The people can be easily classified as bogus self-employed (scheinselbststaendig). The company would have to pay social security contributions retroactively up to 4 years. Furthermore, the 'contractors' could sue their way into employment. Also, workarounds mentioned elsewhere, like employment as temp by utilizing intermediate staffing companies, became widely known in time also to government agencies. Most companies will fire/replace such staff after 18 month max for this reason.

pavlov 5y ago

As contractors, your employees are liable to pay those taxes themselves. Hopefully you’re paying them at least 50% above market rate, so there’s no problem.

cuillevel3 5y ago

An European founder could do the same, hire only self-employed contractors. However, e.g. in Germany, that's only possible if the contractors work independently and have more than one customer long-term. I guess someone will notice eventually?

mbeex 5y ago
> and have more than one customer long-term. This is rather a counter criterion. Government finally found out several years ago, that there is a new non-significant class of well-earning people - IT contractors - that can be legally milked by abusing laws, created ostensibly to 'protect' the weak.

euorme 5y ago

You're cheating the system, though. The system exists in order to support the way of life in these countries, by bringing your American employment attitudes to Europe you're not really building a company in Europe by any measure: you're building an American company. Your company is benefitting from the robust systems in Europe, without contributing. There are people you want to hire in Europe _because of people paying their share of taxes_. If you don't want to pay employment taxes, if you don't want to offer maternity leave... stick to America. Personally, I think there is a strong argument to make for the value of America-style lax employment rules when it comes to startups, absolutely, but please don't bring those to Europe by gaming the system. Hiring people as contractors to avoid obligations is an age old way to game the system, and eventually you'll be caught and face penalties (unless you're smarter about it, so I guess my advice is actually: be smarter about it (don't announce it on HN for example!)).

biztos 5y ago
I wouldn’t say he’s not contributing, I’d say he doesn’t have employees. Same would be true if he has his “team” on 1099 in the US. Outside of any moral questions, the risk here is that the government may decide your group of happy startup contractors are in fact employees, and then you’re in for some massively distracting and expensive restructuring (at best) or legal sanctions and maybe losing your team (at worst). So yeah, it’s easier, but that’s because it’s cheat mode, not because he’s American. You could use any offshore company for the same thing.
- bingohbangoh 5y ago
  There are lots of laws over if your employee is a contractor or full-time. Many, _many_ companies butt heads with local labor boards who decide that a given employee is actually full-time and thus entitled to a bunch of different protections. Many regulations either don't exist in Europe or are under-enforced. For instance, Germany did not outlaw insider trading until ~2003. There's a strong chance that an American hiring a contractor in, say, Romania will simply not be prosecutable while an American hiring a contractor in America will be. There's some legal term of art for this that I can't recall off-hand.
5y ago

Sytten 5y ago

FYI since the laws in Europe are most likely similar to the laws of Canada on this, it can get your "contractors" into big trouble with their tax agency. I know a lot of people do that (work as contractor but they are employees), but if you bother to read the tax code this is illegal. It takes one audit to be reclassfied and then you have to repay the taxes your employer would have paid. This can be retroactive for many years after employement has ended. Stay away from those contracts.

arcturus17 5y ago

If you’re hiring contractors long-term in Spain for over a certain amount of their time (~80%) for the long term you can be liable as a full-time employer and may be obligated to change their contracts to full-time. I know it’s the same in other European markets and I doubt there are any exemptions for non-EU employers whatsoever. All other conditions you describe are the same for a European or Spanish company hiring contractors, as long as you are not meeting the conditions for full-time employment and therefore disguising FTEs as contractors. I’m curious as to what countries you are operating in that allow these kind of exemptions compared to local EU entrepreneurs. IANAL but 99% sure these exemptions do not exist in Spain at least. EDIT: This case study [1] by a Spanish law firm indeed claims that a company based outside the EU (UK post-Brexit) can be tried in Spain for false contractor relationships. [1] https://likum.es/el-falso-autonomo-tambien-si-la-empresa-y-el-trabajador-son-extranjeros/ https://likum.es/el-falso-autonomo-tambien-si-la-empresa-y-e...

tsbinz 5y ago

If you have "contractors" in Germany, what you are describing is social insurance fraud. I would be surprised if France doesn't have rules like that.

watoc 5y ago

As a European founder you can do exactly the same. You can hire contractors in Europe and won't have to pay employer taxes, mandatory PTO... I don't think there is any difference if your company is in the US or Europe. In both cases however you have to be careful that your contractors don't get reclassified as permanent employees if you hire them for too long (more than 2 years in a row and 40 hours a week is risky).

specialist 5y ago

> European founders have to comply with European employment law. There's got to be a better way. By default or by design, the different rules in USA and EU both advantage larger companies, thwart smaller companies. To encourage small businesses and new business formation, we must synthesize the good parts of USA's (former) entrepreneurial spirit and EU's labor protections. Universal healthcare and German-style childcare would be huge boons for USA's startups and small businesses. Maybe reverse the decades long decline. Something like UBI coupled with looser labor laws (easier to fire, layoff) could allow EU startups to be more nimble, more competitive.

jcelerier 5y ago

> As an American founder it's pretty easy for my US company to pay my European team as contractors. if they are spending most of their contracting time at your job / are considered your subordinates, it's very very illegal at least in france (https://bpifrance-creation.fr/encyclopedie/micro-entreprise-regime-auto-entrepreneur/lessentiel-ce-regime/independance-juridique https://bpifrance-creation.fr/encyclopedie/micro-entreprise-...), and I'm very very tempted to report you to the relevant authorities.