Compliance · 7 min read
Is hiring a VA overseas legal? The contractor question, answered properly
Yes, and it is ordinary. But 'we signed a contractor agreement' is not the protection most owners think it is. Here is what actually decides it.
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Engaging someone in the Philippines to do work for your business is legal in every market we operate in. Thousands of small businesses do it. The question that matters is not whether you can, but what the working relationship is, because that is what tax and employment authorities look at if they ever look at all.
What actually decides contractor vs employee
The wording differs by country, the substance barely does. Authorities look at control, integration and independence:
- Control. Do you direct how and when the work is done, or only what the outcome is? Set hours and step-by-step direction point towards employment.
- Integration. Are they part of your team in practice? Company email, your job title, your org chart, managed alongside your staff.
- Exclusivity. Can they work for others, and do they? Someone whose entire income is you looks less like a business.
- Equipment and risk. Whose tools, whose overheads, who carries the risk of a job going wrong?
- Substitution. Could they send a qualified replacement, or is it personally them?
- Payment shape. Invoices for outcomes, or a regular wage-shaped sum every fortnight?
No single factor decides it. A regulator weighs them together. What it means practically is that the more your VA looks and is managed like a member of staff, the weaker a contractor classification becomes. Regardless of what the contract says.
How this differs where you are
| Market | What to know |
|---|---|
| Australia | Sham contracting provisions in the Fair Work Act carry penalties for misrepresenting employment as contracting. From 2024 the test looks at the real substance of the relationship, not just the contract terms. Also check whether superannuation obligations extend to a contractor working wholly for their labour. |
| United States | The IRS uses common-law control tests; the Department of Labor applies its own economic-reality test, and several states (California's ABC test especially) are stricter than both. A worker located outside the US changes the tax withholding position but does not automatically remove classification risk. |
| United Kingdom | IR35 / off-payroll rules apply mainly where the worker operates through their own intermediary company. Small companies are exempt from the client-side obligations, but 'small' has a statutory definition worth checking against your accounts. |
| Canada & New Zealand | Both apply control-and-integration tests broadly similar to Australia's. NZ courts have shown willingness to look past a contractor label entirely. |
The two ways to structure it
There are only really two clean structures, and the messy middle is where risk lives.
| Direct contractor | Employer of record | |
|---|---|---|
| How it works | You contract the individual directly and they invoice you | We employ them in the Philippines and invoice you monthly |
| Classification risk | Sits with you. Manage the relationship like a contractor relationship | Sits with the employing entity, not with you |
| Best when | You want a clear arm's-length arrangement and are comfortable managing it | You want them integrated into your team like staff without carrying the classification question |
| Cost | Placement fee, then you pay them directly | Placement fee waived, monthly management fee on top of salary |
This is the honest reason our Managed plan exists. If you want someone in your standups, on your systems and working your hours, which is what most owners actually want, that relationship looks a lot like employment. Having them employed properly by an entity in the Philippines resolves that, rather than papering over it.
Practical checklist
Before your first offshore hire
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The part nobody mentions
Philippine law also has a view. Your VA has obligations and entitlements locally. Registration as self-employed if contracting, or statutory benefits and 13th month pay if employed. A structure that is tidy for you and leaves them exposed is not a structure that lasts, because they will eventually take a job where it is handled. On the Managed plan we administer all of it.