When (and Why) You Might Need to Convert Contractors to Employees

Admin Team September 10, 2024

Protect your business, stay compliant, and retain your best global talent. As U.S. companies increasingly hire remote international talent — especially in affordable markets like Vietnam — many start with a simple solution: “Let’s bring them on as a contractor.”

It’s fast. It’s flexible. It avoids paperwork. But here’s the truth: contractor arrangements don’t always stay compliant — or competitive.

At a certain point, converting a contractor to an employee becomes not only the right thing to do, but the smartest move for your business. Let’s unpack when and why that moment arrives — and how to do it legally (without setting up a foreign entity).

💡 The Contractor-to-Employee Shift: Why It Happens

You might start with a short-term freelance project. But as your business grows, so does your reliance on certain individuals — and the nature of the working relationship starts to change. Here are some common signs it’s time to consider converting:

✅ 1. They’re Working Full-Time Hours

If your contractor works a 30–40 hour week, every week, they’re no longer “independent.” They’ve essentially become a full-time team member — without the title, benefits, or legal protections.

Risk: You may be misclassifying them, opening yourself to penalties or audits.

✅ 2. You Control How and When They Work

If you're dictating their hours, tools, processes, or giving them performance reviews, that’s called “control.” And labor laws across most countries (including Vietnam) recognize that as an employer-employee relationship.

Test: Ask yourself — could they realistically say “no” to a meeting you schedule?

✅ 3. You’re Their Only or Primary Client

If your contractor earns the majority (or all) of their income from your company, it weakens their legal claim as an “independent business.” U.S. IRS & global labor rules look for economic independence — not dependency.

✅ 4. They’re Integral to Your Core Business

Are they leading product strategy? Managing internal tools? Owning customer service? If they perform work central to your value delivery, they’re more than a freelancer — they’re part of your business.

✅ 5. You Want to Offer Benefits and Long-Term Growth

Contractor status limits what you can offer in terms of:

Paid time off
Professional development
Stock options
Promotion paths
Culture-building

Conversion shows commitment. It helps you retain top talent before someone else makes them a better offer.

🚩 Why Misclassification Is Risky

Too many founders treat contractor status as a casual choice. But governments don’t. Misclassification can lead to:

Back taxes and penalties
Fines from labor authorities
Legal disputes or wrongful termination claims
Blocked expansion into new markets

And with countries like Vietnam stepping up labor enforcement in 2025, it’s smarter to be proactive than reactive.

💼 What to Do Instead: Use an Employer of Record (EOR)

If you’re not ready to open a local entity in Vietnam, but want to convert a contractor to an employee legally, there’s a solution: Use an Employer of Record (EOR).

An EOR like VietAssist acts as the legal employer of your Vietnamese team member on paper — handling contracts, payroll, tax withholding, social insurance, and compliance, while you retain full control over their day-to-day work.

🧮 Is It More Expensive? Not Necessarily.

Many U.S. employers worry that switching from contractor to employee adds cost. But in reality:

You lower your legal risk
You reduce turnover by offering real job security
You improve productivity and loyalty
You protect your brand reputation

➡️ It’s not a cost — it’s an investment in stability.

📋 How to Know When It's Time: A Quick Checklist

Ask yourself:

Is this person working 30+ hours/week for us?
Do we set their schedule, tools, or process?
Are they core to our business operations?
Do we want them around long-term?
Would we lose momentum if they left tomorrow?

If you answered “yes” to most, it’s time to seriously consider converting.

🤝 How VietAssist Helps U.S. Companies Hire in Vietnam

At VietAssist, we:

Identify misclassification risk before it becomes a liability
Seamlessly convert contractors into compliant employees in Vietnam
Handle local payroll, benefits, and employment law
Give U.S. startups peace of mind — without needing to set up a legal entity

🧭 Final Thought: People Want Clarity, Not Contracts

High-performing global talent — especially in emerging hubs like Vietnam — wants to grow with your company. By offering legitimate employment status, you’re not just avoiding legal risk — you’re building trust, loyalty, and long-term value.

👉 Ready to convert your contractor to a compliant employee in Vietnam? Book a free consultation with VietAssist and let’s future-proof your remote hiring strategy.