Profitable today, costly tomorrow: why contractor non-compliance destroys value

In today’s world, talent knows no borders. More companies are hiring contractors globally, often placed by recruitment agencies. But while flexible workforces are booming, so is global enforcement.

Misclassifying a contractor as self-employed when they should be an employee can lead to serious financial and legal trouble and it's only getting riskier in certain countries.

If you're placing or engaging contractors in the USA, France, or the Netherlands, this is your early warning: these countries are among the highest-risk locations for worker misclassification.

USA: A Legal Minefield

The U.S. has no single test for classifying workers. Instead, you face a patchwork of regulations from the IRS, Department of Labor, and individual states.

Some states, like California, use an ‘ABC test’ that presumes every worker is an employee unless very specific conditions are met.

• Agencies and hirers may both be liable for unpaid taxes, benefits, and penalties

• Even strong contracts may not protect you

• In some cases, class action lawsuits have followed mass misclassification

France: Contracts Aren’t Enough

France takes a strict stance on worker protections. Even if you label someone a contractor, courts will look at the reality of the relationship.

Reclassification can trigger back pay for sick leave, holidays, pensions and even criminal liability in severe cases.

Key risk indicators:

• Ongoing supervision or economic dependency

• Control over how and when work is done

• Using a contractor long-term in a role resembling employment

Netherlands: The Dependence Trap

Dutch authorities closely inspect whether a contractor is genuinely independent—not just what the contract says.

Even model agreements won’t shield you if the contractor is economically dependent or under direction and control.

Risks include:

• Liability for unpaid taxes and social charges

• Reputational damage

• Audit issues that make future hiring more difficult

It’s Not Just Legal Risk -It’s Commercial Risk

Misclassification isn’t only a compliance problem. It can directly impact your revenue, valuation, and client retention.

Private equity buyers scrutinise contractor compliance. Non-compliance can reduce exit valuations or kill deals altogether.

And large clients? They’re watching too. If your model poses a risk to them, they may walk away.

What Can You Do?

Agencies and hirers should act before the risk hits.

Start with these steps:

• Use compliant engagement models (like Employer of Record or local payroll)

• Audit your existing contractor base in high-risk countries
• Train internal teams and clients on local classification rules
• Partner with providers that offer pay, screening, and compliance in one

Compliance isn’t just a legal issue. It’s a commercial one.

Final Thought

If you get this wrong, you could lose more than money - you could lose the client.

Want Support?

Need a checklist on how to classify contractors in high-risk countries? Or a contractor risk audit template for your agency or end clients?

Get in touch and we’ll send you a free pack to help you stay compliant and protect your business.