This sounds really odd to me (UK-based, previously was contracting) — if someone is hired as a contractor, normally your company would be engaging their limited company as some type of consultancy arrangement.

So you wouldn't have any maternity leave or paid time off at all. In fact, from the contractor's point-of-view, you'd want to run a mile from these things as if the revenue believed you were a de facto employee (since you're getting company benefits) your tax liability would balloon.

But see no reason that a European founder couldn't hire freelancers/contractors in the same way that your company does.

This sounds too good to be true. I don't know about other countries in Europe, but in The Netherlands it is definitely illegal to have a contractor work in employment conditions. I.e. you're not allowed to give a contractor set work hours, not allowed to specify how they work, not allowed to prevent them from outsourcing the work, etc. If you do those things, and the tax service finds out, or a "contractor" gets sick and decides to demand you pay them sick leave, you're in deep trouble.

The same in Germany. The people can be easily classified as bogus self-employed (scheinselbststaendig). The company would have to pay social security contributions retroactively up to 4 years. Furthermore, the 'contractors' could sue their way into employment. Also, workarounds mentioned elsewhere, like employment as temp by utilizing intermediate staffing companies, became widely known in time also to government agencies. Most companies will fire/replace such staff after 18 month max for this reason.

In Spain if you hire full-time contractors long term they can be considered full-time employees by law. There are ways around this such as hiring through temp agencies, hiring part-time or rotating them. But trying to do “FTE as contractor” is risky.

That only applies if you hire from a spanish company and for a defined set of circunstances AFAIK.

As contractors, your employees are liable to pay those taxes themselves. Hopefully you’re paying them at least 50% above market rate, so there’s no problem.

If you’re hiring contractors long-term in Spain for over a certain amount of their time (~80%) for the long term you can be liable as a full-time employer and may be obligated to change their contracts to full-time. I know it’s the same in other European markets and I doubt there are any exemptions for non-EU employers whatsoever.

All other conditions you describe are the same for a European or Spanish company hiring contractors, as long as you are not meeting the conditions for full-time employment and therefore disguising FTEs as contractors.

I’m curious as to what countries you are operating in that allow these kind of exemptions compared to local EU entrepreneurs. IANAL but 99% sure these exemptions do not exist in Spain at least.

EDIT: This case study [1] by a Spanish law firm indeed claims that a company based outside the EU (UK post-Brexit) can be tried in Spain for false contractor relationships.

[1] https://likum.es/el-falso-autonomo-tambien-si-la-empresa-y-e...

An European founder could do the same, hire only self-employed contractors.

However, e.g. in Germany, that's only possible if the contractors work independently and have more than one customer long-term. I guess someone will notice eventually?

> and have more than one customer long-term.

This is rather a counter criterion. Government finally found out several years ago, that there is a new non-significant class of well-earning people - IT contractors - that can be legally milked by abusing laws, created ostensibly to 'protect' the weak.

FYI since the laws in Europe are most likely similar to the laws of Canada on this, it can get your "contractors" into big trouble with their tax agency.

I know a lot of people do that (work as contractor but they are employees), but if you bother to read the tax code this is illegal. It takes one audit to be reclassfied and then you have to repay the taxes your employer would have paid. This can be retroactive for many years after employement has ended.

Stay away from those contracts.

If you have "contractors" in Germany, what you are describing is social insurance fraud. I would be surprised if France doesn't have rules like that.

> As an American founder it's pretty easy for my US company to pay my European team as contractors.

if they are spending most of their contracting time at your job / are considered your subordinates, it's very very illegal at least in france (https://bpifrance-creation.fr/encyclopedie/micro-entreprise-...), and I'm very very tempted to report you to the relevant authorities.

> European founders have to comply with European employment law.

There's got to be a better way. By default or by design, the different rules in USA and EU both advantage larger companies, thwart smaller companies.

To encourage small businesses and new business formation, we must synthesize the good parts of USA's (former) entrepreneurial spirit and EU's labor protections.

Universal healthcare and German-style childcare would be huge boons for USA's startups and small businesses. Maybe reverse the decades long decline.

Something like UBI coupled with looser labor laws (easier to fire, layoff) could allow EU startups to be more nimble, more competitive.

While this is somewhat true, most of the European founders I know work around this by hiring freelance senior contractors and employing heavily subsidized juniors.

As a European founder you can do exactly the same. You can hire contractors in Europe and won't have to pay employer taxes, mandatory PTO...

I don't think there is any difference if your company is in the US or Europe. In both cases however you have to be careful that your contractors don't get reclassified as permanent employees if you hire them for too long (more than 2 years in a row and 40 hours a week is risky).

You're cheating the system, though. The system exists in order to support the way of life in these countries, by bringing your American employment attitudes to Europe you're not really building a company in Europe by any measure: you're building an American company. Your company is benefitting from the robust systems in Europe, without contributing. There are people you want to hire in Europe _because of people paying their share of taxes_. If you don't want to pay employment taxes, if you don't want to offer maternity leave... stick to America.

Personally, I think there is a strong argument to make for the value of America-style lax employment rules when it comes to startups, absolutely, but please don't bring those to Europe by gaming the system. Hiring people as contractors to avoid obligations is an age old way to game the system, and eventually you'll be caught and face penalties (unless you're smarter about it, so I guess my advice is actually: be smarter about it (don't announce it on HN for example!)).

I wouldn’t say he’s not contributing, I’d say he doesn’t have employees. Same would be true if he has his “team” on 1099 in the US.

Outside of any moral questions, the risk here is that the government may decide your group of happy startup contractors are in fact employees, and then you’re in for some massively distracting and expensive restructuring (at best) or legal sanctions and maybe losing your team (at worst).

So yeah, it’s easier, but that’s because it’s cheat mode, not because he’s American. You could use any offshore company for the same thing.

There are lots of laws over if your employee is a contractor or full-time. Many, _many_ companies butt heads with local labor boards who decide that a given employee is actually full-time and thus entitled to a bunch of different protections.

Many regulations either don't exist in Europe or are under-enforced. For instance, Germany did not outlaw insider trading until ~2003. There's a strong chance that an American hiring a contractor in, say, Romania will simply not be prosecutable while an American hiring a contractor in America will be. There's some legal term of art for this that I can't recall off-hand.

You have to admit though that maternity leave from day one which often comes with obligations like keeping the position open (so you have to fire someone who has already being doing the job for a year+ if the mother comes back) is a ridiculous requirement. Sure, it makes sense for a huge employer where those things are just cost of doing business and you can afford to hire enough people to cover for that. It absolutely kills small businesses though.

Fortunately people find ways around those laws and governments in developing countries don't care much but it puts you in position to fight the law from day one. The culture in Europe needs to change if we want people trying their hands on small businesses more.

I own a small successful business. I will never hire any employees. That's why I avoid working with anyone in my country and will not open an office. Frankly I would prefer to close shop and enjoy the rest of my life in an unproductive way than to deal with the burden of government regulations when it comes to employing people.

Hiring someone just for them to go on maternity leave after 2 months and then coming back (or not, not allowed to ask when) in 1/1.5/2 years and me being forced to find replacement while keeping the position open? Seriously, for a company which would have at most several employees and where everyone has their distinct role?

The problem (and this extends to many policies in the US as well) is that it’s deceptively easy to offload the cost of welfare benefits to employers. Paid maternity leave is just welfare for new mothers. I’m not saying that’s a bad thing, but it is what it is. But paying someone not to work is welfare.

However the government handing out welfare checks is not very popular. Even taking welfare brings up images of government cheese. Often middle class people won’t avail themselves of these programs even if they qualify.

So from a policy perspective we solve this by making the employer administer the welfare program and call it an “employment benefit”. Now it goes from a source of shame to a marker of status. Benefits are something enjoyed by middle-class professionals.

This all works out fine for large companies, where the law of large numbers makes these costs statistically predictable and easy to hedge. But it’s a huge unmanageable risk for small business. If you’re in a four person startup and one person goes on paid maternity leave for a year, your company is pretty much dead.

Well, in Europe you don't pay the whole salary during the leave (details depend on the country but it's something like you pay for one month and then the government pays from social security fund) you just have obligations like keeping the position open.

This has many problems though anyway as it just offloads most of the financial burden but doesn't offload the organizational one. It also doesn't make any sense to make the employer responsible for maternity leave as it doesn't make sense to make them responsible for healthcare (which Europe gets right). If you're someone who wants to pay above market rates then you're a target as maternity leave depends on your salary. The problem is difficult because we need a system in which having children at young age isn't a career suicide. Maternity leave as implemented in Europe is definitely not it as the incentives are to first get to a decent salary and only then have children.

One idea which I think makes sense is to allow children to have % of their taxes to go to their parents directly. Allow children to opt out to punish especially shitty parents. This I think aligns the incentives pretty well (to have children while young, to take good care of them, to educate them etc.)

Since when is "the system" the thing that is supposed to win? To me, it seems more like the system is cheating the startup.

There's validity in working around or gaming systems so that a company has a chance of growing and thriving. The tactics used (contractors instead of employees, etc.) are perfectly legal. People are getting paid per an agreement, and they spend their income in their country/society, which disperses the benefits. A startup saddled with year (or two) long maternity leave and other such extreme requirements would make the risk too high.

These regulations create a regulatory capture situation where only large, established, or very well financed businesses can survive. Kudos to the agile and clever startups that find ways to make it, regardless. One should be on the side of the people, not the system.

I usually forgive Americans for not knowing this, but 'the system' is something we've built up together to help ourselves and organize ourselves. Unemployment is a statistically calculable fact, so we can plan for it.

That systems tend to start living their own lives is of course the challenge, because indeed the point of this system is not the system, but to help ourselves. Like democracy, it requires indefinite maintenance, upgrades and changes. But that does not mean it's bad, it means people are a hard problem.

As a sweeping generalisation: Europe has chosen to value more stable employment opportunities with lower potential upside over highly volatile employment opportunities with larger potential upside. America has chosen the opposite. You're speaking as if there's an absolute truth in which model is better, but as we're finding in this very thread, American people are coming to Europe to build businesses (and Europeans are going to America to do the reverse).

I won't rehash what brnt has said in their reply, but I will echo their sentiment: The System is me and my friends and my family and my co-workers working together to provide healthcare and education and security to each other. I pay taxes for that reason.

Does cheating the system just mean you disagree with it, or do you maintain that he's breaking the law? Or that regulators aren't aware of this practice? I'm not sure what cheating means here: usually it means breaking the rules, but that's not happening based on what he described.

What he's doing is not legal, and legally tax avoidance, in a lot of European countries.

What he's describing is known as a disguised employee/employment, and they or all their workers (probably their workers if they're operating as 'companies') might suddenly find themselves open for massive tax bills for unpaid employment taxes in their country.

On top of that, this setup is open for the disguised employees being able to sue the company for unpaid holiday + benefits.

Probably never get noticed at that scale though. And can't say for certain as he hasn't listed the country, but if this was happening in the UK, I'm 90% certain it'd be classified as tax avoidance in the UK, and all the 'employees' would be on the hook for something like 14% employer national insurance contributions. The big problem HMRC would have is that no-one's paying the employer NIC, and as his employees are officially the companies, they'd be on the hook for it.

Every country within Europe is different in some capacity so it's difficult to say with absolute certainty that he is breaking the law -- the language in my comment was vague because I'm mostly addressing the spirit of his behaviour, rather than the law. That said, certainly in my European country he would be open to issues with the tax authority if he were to attract their attention.

The United States is very permissive when it comes to employment, the majority of states could be described as "anything goes" (relative to Europe) and so dodging employment taxes is pretty much fair game... whereas in Europe a lot of regulation exist very specifically to address companies organising their business in this way. I'd be very surprised if he didn't face significant fines (I don't know of any examples of this behaviour leading to prison terms, but significant fines are very common and serve as a deterrent).

I strongly disagree with your point, but it is well-articulated and I also felt the need to upvote given the LISP syntax.

How about you build a actual sustainable business that doesn't take part of its profits out of cheating its "employees".

If you can't pay your employees you do not have a sustainable business model in the country you operate.

Which European country are you referring to?

The 1 year parenting leave makes me think Norway? Or anything Scandinavian at least… here in the Netherlands it’s something like 16 weeks for women and 7 days for men? It was 2 days last year but it recently changed.

germany has the same (1 year) but doesnt have a 33 day PTO minimum.