What are the Risks if Directly Contracting Offshore Staff?

Engaging offshore staff directly as contractors has risks. There are a range of risks that are difficult to eliminate or mitigate when a company hires offshore staff directly engaged as contractors, instead of using a staffing provider or an Employer of Record.

1. Cyber security and information control risks
2. Identification and legal enforcement risks
3. Onshore labour court risks
4. Salary related risks
5. Local knowledge risks impacting retention

Cyber Security and Information Control Risks

If engaging overseas contractors directly, the additional risks here revolve around the computer being used by overseas staff. Companies engaging remote staff without local assistance have no way to fully control the supply and configuration of equipment, unless the equipment is pre-configured and shipped from onshore.

There’s also no way to notice or prevent certain types of data exfiltration if directly engaging an overseas worker who is working from home.

The best way to control information and limit cyber risks is to have a reliable offshore staffing partner who controls the supply and configuration of hardware. The hardware should then be configured and controlled using strict security protocols, and devices contained and managed the same way they are onshore.

Having staff work in the facility of an effective offshore staffing partner also allows control over the network and other elements of the work environment.

Identification and Information Control Risks

When engaging overseas staff directly, it is very difficult or impossible to be sure that the identification of the person you are engaging is actually correct. There have been many high profile cases of North Korean agent successfully posing for months or years as onshore-based employees, while they exfiltrate data.

No doubt the cases caught are the tip of the iceberg. With modern AI tools able to fake voices, accents and even live video, this problem is getting worse.

Beyond that extreme example, if/when an offshore employee does something illegal, suddenly stops responding at all, or even refuses to return work-issed equipment, an onshore firm with no local representation cannot effectively pursue the employee for corrective actions, legal actions, or damages. In developing nations, there is no single reliable database of residential addresses.

Local partners know how to address this issue, by collecting a range of employee government IDs and checking multiple recorded addresses.

Local partners know how to use local attorneys, law enforcement, and investigators to prevent problems (by ensuring correct identification in the first place), and to enforce remediation if ever needed.

Onshore Labour Law Risks

Engaging offshore staff directly as contractors has risks relating to onshore labour laws.

In countries like Australia, legal predecents have been set in recent years where certain treatments of offshore staff are governed by onshore labour laws. In recent examples, unfair dismissal claims and minimum wage claims have been lodged and WON in Australian FWA court, by overseas direct contractors who have never set foot in Australia.

FWA made a ruling that foreigners working for Australian companies who have never entered Australia, must be given working rates and protections as though they ARE in Australia.

FWA reports that since then, the workload for Fair Work has gone up by 70% – presumably because of a rush of overseas workers submitting claims. Here are two examples:

This is the case where a Filipino employed entirely remotely for a QLD law firm, sued for unfair dismissal and won damages and backpay. Doessel Group Pty Ltd v Joanna Pascua [2025] FWCFB 43 (21 February 2025)

Here is another unfair dismissal claim.

Jeffrey Asuncion v ConnectOS Pty Ltd and Ors [2026] FWC 3379 (4 September 2026)

Some employers will wax poetic about how loyal their direct contractors are, and that they would never sue in FWA. That misses the point that even the smallest amounts awarded in court are often enough to buy a house in the Philippines, or on other ways make immense improvements to the lives of their family. If a successful fair work outcome delivered life changing money or a HOUSE to an Australian plaintiff, you can bet there would be a LOT more attempts. A pile of cash can ease some guilt very effectively.

Beyond the risks in just Australia, many countries now have severe employer penalties relating to “Modern Slavery” – where an employer pays extremely low wages or provides unsafe or unethical working conditions.

It is conceivable that a business engaging overseas contractors directly, could be breaching modern slavery laws without realising. Even bad publicity suggesting that this MIGHT be happening can be enough for companies to lose contracts and clients who themselves cannot take risks with suppliers who might be engaging in modern slavery.

The best way to prevent all of these risks is to use a local employment partner in the offshore country of choice. Having an Employer of Record protects businesses against onshore labour law breaches by making the overseas entity the reponsible party.

Ensuring no breaches of modern slavery principles requires that the overseas hiring partner provides both assurances, and the opportunity to audit their employee systems or in other ways provide proof.

Salary Related Risks

For companies directly engaging contractors in another country, they will rarely understand the local market well enough to pay an appropriate salary and benefits package. We constantly come across companies who are paying too little for their staff, as well as those who are paying too much.

Technology Elite often helps companies with existing offshore teams to consolidate them under us and establish us as the Employer of Record. The average percentage of incorrectly priced salaries is 70% – meaning on average, employers guess the right amount to pay only about 30% of the time.

Paying too little is obviously a retention risk.

Paying too much only impacts margins and can deliver greater retention, so might be seen as unimportant. However, as the team scales up, it locks the business into paying too much for the entire team, and often results in illogical salaries that don’t reflect skills, seniority, or tenure. This has a negetive impact of team morale and retention.

Local Knowledge Risks Impacting Retention

Aside from poor salary insights and planning, companies engaging offshore talent without local help usually do not understand what that population values most in a benefits package, and how each benefit relates to motivation, loyalty and retention.

For example, in the Philippines, the exact composition of a benefits package matters a lot. And the expected benefits in the Philippines are not the same as onshore expectations.

Staff WILL change jobs sometimes just due to the benefits on offer. For example having medical insurance is a big deal in the Philippines since public healthcare is very limited. Making it more complicated is that the exact inclusions in the HMO policy also impact retention, and are hard for non-Filipinos to assess.

A common attempt at solving that issue is to offer the staff additional salary so that they can buy their own HMO policy. While that sounds like a logical solution, the reality is that the staff will almost always SAY they are buying HMO with that extra money, but the reality is that their extended family’s demands already spent that money before they got a chance to buy the HMO. Even if they do initially buy a HMO policy, it will almost always not be renewed, due to family demands and the nature of the Philippines culture to always serve the family needs.

Another problem that most onshore employers do not understand is that paying staff directly can remove essential services from the Filipino staff. For example, a local (reputable) employer will provide and pay for ongoing Social Security and PAGIBIG memberships. Those government services provide employee loans to help them fix critical family issues, and provide low-rate mortgages to help them buy a house.

In fact if a Filipino can’t prove they have a steady job because they have a LOCAL employment contract, banks generally won’t lend them money, meaning they can never buy a house until they quit their overseas contracting job.

Engaging offshore staff directly as contractors has risks which are not obvious but which have far-reaching consequences.

Contact us today for a no-obligation discussion about moving your Philippines contractors onto our protective and scalable solutions. https://www.technologyelite.com/contact/