"If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker" - http://www.irs.gov/businesses/small/article/0,,id=99921,00.h...
I assume that the US law allows "contracts" that are "signed" or agreed with one click on the "I agree with the terms and conditions" checkbox, and this contract would establish the paid individual as an independent contractor, and then the paying business has no burden of tax payment on behalf of the individual.
Do you have any information about the legal framework for similar issues in UK or Ireland?
PAYE (Pay As You Earn) is the system that HM Revenue & Customs (HMRC) uses to collect Income Tax and National Insurance contributions (NICs) from employees' pay as they earn it. The term 'employee' in this guide includes directors of limited companies.
As an employer, you'll have to deduct tax and NICs from your employees' pay each pay period and pay Employer's Class 1 NICs if they earn above a certain threshold. You pay these amounts to HMRC monthly or quarterly. If you don't send the correct amount, or if you send it in late, you may have to pay interest. After the end of the tax year you must send HMRC an Employer Annual Return (form P35 and forms P14). Almost all employers are required to send this online. http://www.hmrc.gov.uk/paye/intro/basics.htm
Employed or self-employed?
A worker's employment status, that is whether they are employed or self-employed, is not a matter of choice. Whether someone is employed or self-employed depends upon the terms and conditions of the relevant engagement. The tax and National Insurance contributions (NICs) rules do, however, contain some special rules that apply to certain categories of worker in certain circumstances. See section on special cases. http://www.hmrc.gov.uk/employment-status/index.htm http://www.hmrc.gov.uk/leaflets/es-fs2.pdf
And here is the info for Ireland:
Employer's Guide to PAYE http://www.revenue.ie/en/business/paye/guide/index.html
Code of practice for determining employment or self-employment status of Individuals http://www.revenue.ie/en/tax/it/leaflets/code-of-practice-on...
In the case of my country in Eastern Europe these laws are so tight that they require either: - the independent contractor to be officially registered with the governmental authorities and authorized as such, or - to be considered as an employee, which has to sign with the business a paper contract that also has to be registered with the authorities, and for which social security and medical taxes must be paid.
This makes impossible running in my country a business based on the model that you are also interested in.
Could you discuss what the law allows in UK, Ireland, Cyprus or other European country?
There seem to be various service providers for doing the actual payment, i.e. https://www.x.com/community/ppx/mass_pay or http://www.arvatodigitalservices.com/fileadmin/case_studies/... .
However, I would like to know in which countries a business could be legally do something as mass paying thousands of individuals without going into the hassle of signing contracts with each of them.
Are you based in the USA or elsewhere?
If you pay an individual, aren't you supposed to pay to the fiscal authorities any tax for the wage you pay?
Which are the startup-friendly countries where this kind of mass payments are possible without bureaucratic hassles?