How to hire and pay independent contractors in Malta

The island country of Malta is a go-to spot for hiring managers who are looking to find top talent, whether they are looking for contractors to work with temporarily or for one-off projects. While hiring remote global contractors provides many opportunities, the process itself can get tricky. 

Businesses must ensure they follow all rules and regulations in Malta regarding employment, taxes, and payroll. They must also make sure they do not misclassify a contractor as an employee, or risk facing financial and legal repercussions. 

But there's no need to stress. This guide will cover all bases of hiring and paying independent contractors in Malta so you can recruit the best talent without worry. 

Unique considerations of managing contractors in Malta

Though Malta is an island nation with its own legislation, it is part of the European Union (EU). This means Malta observes many of the same laws as the EU. So you’ll have to make sure you observe both EU and Maltese laws while hiring remote independent contractors in Malta.

As more workers seek independent contractual employment in Malta, the government is taking measures to make sure self-employed workers enjoy more protection 

Here are some important considerations for hiring independent workers in Malta:

• The country differentiates between employed and self-employed workers.

• Independent contractors have varying tax requirements compared to employees.

• The misclassification of contractors as employees can lead to fines, penalties, and legal issues.

• Both employers and independent contractors must fill out and submit necessary tax forms.

How do I pay an independent contractor in Malta?

There are several ways to pay your contractors in Malta. Some popular methods include:

• Bank transfer

• Money orders

• Direct deposits

• Paper checks

• Online payment services such as Wise, Remitly, and PayPal.

While some of these options, such as digital payment, can be quick, other methods come with service fees and high currency conversion rates. This can turn out to be expensive and complicated to manage, especially if you’re managing multiple contractors across several countries.

Alternatively, Remote's contractor management handles contractor payments and invoicing easily for you. Our Fair Price guarantee means that you pay your contractors in minutes at a low flat-rate and without hidden fees.

Check out contractor payroll in every country using our free Contractor Payroll Explorer tool.

What are the risks of misclassifying Maltese independent contractors as employees? 

Like many other countries, Malta differentiates between an employee and an independent contractor. On a general note, the Maltese government sees independent contractors as individuals "whose principal source of income is derived from work generated on their own account, and not based on any contractual arrangement with an employer." 

Essentially, independent contractors are not bound to any terms laid out by an employer on a contract. By contrast, employees in Malta have a binding contract with an employer and follow stricter work conditions. 

If you are unsure whether your worker is classified as an independent contractor, you can check the criteria for employment as defined by the Maltese government. If the worker meets five or more of these criteria, then they are to be listed as an employee:

1. 75% or more of their income derives from a single entity over one year.

2. They depend on the entity to define the work done and how it is to be completed.

3. They use tools or other equipment provided by the entity to complete their work.

4. The entity decides the worker's schedule.

5. The worker is not able to sub-contract their work to other parties.

6. They are a part of the entity's overall hierarchical structure.

7. They play a large role in the entity's operations.

8. They perform similar tasks to employees.

It's imperative to understand the difference between employees and independent contractors to avoid the risks of misclassification. In Malta, misclassification of independent contractors can lead to hefty fees and serious legal consequences. Workers established as employees receive benefits. By misclassifying independent contractors, companies exclude them from the benefits they have a right to. 

It's also important to note that misclassification can also lead to a loss of intellectual property (IP). The rights of any work produced could be brought to court, leading to lengthy, expensive legal battles. If employers lose these legal battles, they lose all ownership of the work to the independent contractor. 

Remote's expert guide to employee and contractor misclassification further explores the potential issues that arise from misclassification, including a discussion of business bans and regulatory fines. The article also describes how to take proactive measures to avoid possible misclassification in the future. 

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

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What are the labor laws in Malta?

In Malta, labor laws for independent contractors differ from employees. Additionally, Malta recognizes many of the same benefits and rights as other countries in the EU for employees. Below are some of the most important considerations. 

Taxes

Employers aren't required to withhold paycheck funds for social security or taxes on behalf of an independent contractor. As a result, independent contractors must keep track of their taxes themselves. The tax rate for self-employed workers depends on their income level. 

Paid time off 

Employees who work a 40-hour workweek are entitled to 192 working hours, plus an additional eight hours for every public holiday that takes place on the weekend. Employees who work under 40 hours a week have a different calculation. Their working hours are multiplied by 24 instead to give the total number of days off. 

Sick leave pay 

Employees can receive sick leave pay, though the amount varies greatly by sector of industry. The employer is only responsible for the amount of sick leave as defined by law. From there, the Social Security Department of Malta handles any further financial obligations. 

Maternity benefits

Employees who are pregnant or in the postpartum period are entitled to 14 weeks total of leave with a €97.84 per week benefit. Following this, employers withdraw a €179.33 weekly benefit from the government for additional maternity leave.

Being aware of these labor laws ensures you do not undergo potential misclassification practices. Moreover, understanding these labor laws can assist you with deciding whether to convert a contractor to an employee down the line.

Tax and compliance practices for hiring independent contractors from Malta

Ensuring you are compliant with Maltese tax laws and practices is essential in avoiding trouble with the IRS. US-based employers hiring foreign independent contractors must submit several tax forms to the IRS. Remote's article on tax compliance for US companies outlines the main tax forms and tax must-dos you and your hired contractors must complete. 

Firstly, independent contractors working for you in Malta must fill out and submit a W-8-BEN form or W-8BEN-E form. These forms establish that an individual is not a U.S. resident for taxation purposes. The W-8-BEN form is specifically for non-residential individuals, while the W-8BEN-E form is for foreign entities. While independent contractors must fill out these forms themselves, employers must provide the documents. 

As for requirements on your behalf, you may be required to fill out and submit a 1096 form. The 1096 acts as a physical cover sheet containing a company's financial information relating to independent contractors. You must submit a printed copy of a 1096 form with any other tax forms filled out by contractors. 

Each country will have its own rules and regulations regarding these tax forms. Remote’s employment experts can advise and guide you while navigating the complex taxation process in Malta and the US.

How do I convert an independent contractor in Malta to an employee?

There might be times when you may want to convert an independent contractor to an employee. While remote contractors offer flexibility, hiring a remote employee may be better suited to your company's requirements. 

If you are wondering whether to convert an independent contractor to an employee, consider the following benefits of conversion:

• You save money in the long term since independent contractors typically charge more.

• You can build up your overall operations by taking on a talented contractor full-time.

• You can improve overall worker experience and happiness by including an independent contractor in the company culture. 

• You help protect your intellectual property rights.

• You ensure that you are following local employment laws and regulations.

• You won't lose your contractor to the competition. 

At the same time, making the contractor-to-employee conversion comes with many challenges, especially when you must consider both Maltese laws and EU regulations. Remote can easily make the switch for you with its employee and contractor solutions, while making sure you're complying with all local labor laws. 

The fastest, easiest, safest way to hire international contractors 

Once you’ve decided to hire contractors in Malta, you have to make sure you hire, pay, and manage team members compliantly. Apart from a good understanding of Maltese labor laws and tax regulations, you’ll also have to manage the risks of misclassification and pay contractors quickly and accurately in line with local labor and tax practices. 

If you don’t have the local knowledge to handle these processes, your best is to partner with Remote. Our contractor management services make it quick and easy to hire, onboard, and pay your contractors in Malta and beyond, leaving you free to focus on business growth. With Remote, you can: 

• Onboard new contractors in minutes with our customizable contracts

• Automate all invoices and payments

• Processes payroll quickly and compliantly

• Handles taxes and compliance in line with Malta’s laws.

Ready to take your business to the next level with our contractor management services? Get in touch with our employment experts for advice or if you’re ready, sign up and start onboarding contractors in Malta right away.