Norway stands as a highly advanced nation with a robust economy and an equally adept workforce. While these aspects position it as an ideal country for engaging independent contractors, you must acquaint yourself with Norway's rigorous labor laws before you start hiring.
Before welcoming your first Norwegian contractor aboard, it's crucial to grasp the nuances of properly categorizing, onboarding, and compensating them following Norwegian employment laws. In this step-by-step guide, we'll take you through this entire process, from start to finish.
Step #1: Classify your workers in Norway
The Working Environment Act in Norway defines an "employee" as someone who works for another person. Moreover, the Supreme Court has given guidelines to determine if someone is an employee or not. Here's a high-level overview:
- Employees do the work themselves and don't get help from others.
- Employees follow the employer's instructions, and the boss controls how the work is done.
- The employer determines the workplace and provides the tools and anything else needed for the job.
- The employer is responsible if something goes wrong.
- Employees get paid a salary.
- The relationship between the worker and the employer is steady and doesn't depend on short timeframes.
Norway takes misclassification seriously. If a worker is wrongly classified, employers can face legal and financial consequences. This includes:
- Back payments of salary, overtime, benefits, taxes, and social security
- Up to two years' worth of their salary as compensation if the relationship with the worker is ended
The chart below outlines important distinctions between contractors and employees as stated in Norwegian labor and employment laws.
High level of worker control. Contractors usually enjoy more independence in deciding how and when tasks are completed.
More direction from the employer. The employer provides employees with instructions on how to carry out tasks and might even set specific working hours.
Contractors possess their own equipment and tools required for the job.
Employees typically use tools provided by the company.
Less integrated. Contractors are more independent, often working remotely with personal tools.
Highly integrated. Employees are tightly integrated into the company, often working at its premises.
No entitlement to benefits. Contractors don’t get employee benefits and handle their own taxes.
Entitled to benefits. Employees are entitled to mandatory benefits like minimum wage, overtime pay, and potentially health insurance and retirement benefits.
Time-bound engagement. Contractors are typically engaged for specific projects or periods of time.
Indefinite engagement. Employees are usually hired with no set end date.
Risk of loss. Contractors may shoulder more work-related risk.
No risk of loss. Employees generally have limited liability for work-related matters.
Subcontracting. Contractors can pass on work or delegate tasks to others.
No subcontracting. Employees are expected to complete their tasks personally unless they have explicit permission to assign work to others.
Step #2: Determine the best way to pay your contractors in Norway
When it comes time to pay contractors in Norway, you have to choose a payment method that suits both your organization and your freelancer.
You have several options for sending payments to Norwegian contractors. Here’s an overview:
- Bank wires: You can open a Norwegian bank account and deposit funds directly into your contractors' accounts. Alternatively, you can use your bank for a global wire transfer.
- International money orders: While an option, this method can be inconvenient due to fees and unfavorable exchange rates. As the employer, you're responsible for purchasing the money order, and the contractor needs to personally deposit it once they receive it.
- Digital wallets or payment platforms: Certain platforms enable money transfers, but not all may be accessible in Norway. For instance, Venmo only works within the US. In Norway, you can consider alternatives like Vipps, Xoom, Paypal, Wise, and Apple Pay.
- Global payroll services: Since contractors don't fall under regular payroll due to different tax rules, they typically send invoices that are then processed by accounts payable. However, with Rippling, you can conveniently pay both Norwegian employees and contractors in a single payroll cycle.
Step #3: Use global payroll software to process payments for Norwegian contractors
You can pay Norwegian contractors using global payroll software, which means you no longer have to worry about service fees, unpredictable exchange rates, or sluggish processing times.
Rippling empowers you to pay employees and contractors simultaneously across the globe—each in their own native currency. Here's a brief preview of Rippling's global payroll system in action:
Step #4: Ensure your Norwegian contractor has the right tax information
Independent contractors in Norway handle their own taxes and social contributions. However, as an employer, you can help them understand their financial responsibilities in the country.
In Norway, self-employed people should estimate and pay taxes in advance every quarter (March, June, September, and December). To do this, they'll need a KID number for identification. They should also submit a yearly tax return by May 31 to avoid late fees.
Additionally, Norway follows a dual tax base system consisting of general income tax and personal income tax. The general income tax includes state, municipal, and local taxes and is a flat 22%. The personal income tax rate varies from 1.7% to 17.5% based on how much the contractor earns.
If a contractor earns more than NOK 69,650 (about $6,500), they'll need to pay into national insurance. And, if a contractor earns over NOK 50,000 (around $4,700) annually, they must sign up for value-added tax (VAT) and charge it to clients. They can later reclaim that amount on their own business-related purchases and expenses.
Frequently asked questions about running payroll for contractors in Norway
Do you need to withhold taxes when paying contractors in Norway?
No, foreign companies aren't obligated to deduct payroll taxes when paying contractors in Norway. Norwegian contractors are responsible for their own tax payments.
Does the Norwegian minimum wage apply to independent contractors in Norway?
No, the minimum wage regulations don't extend to independent contractors in Norway. Contractors determine and negotiate their own compensation.
Do Norwegian contractors get benefits?
No, independent contractors in Norway aren't entitled to benefits on par with full-time employees. In fact, offering employee benefits to contractors can even increase the risk of legal misclassification.
Can you pay contractors in Norway in your home currency?
Ideally, you should compensate international contractors in their local currency. The local currency in Norway is the Norwegian Krone (NOK). However, if both parties agree to it in writing, you can pay your contractors in a different currency.
Can you manually pay contractors in Norway?
Small business owners might choose to handle contractor payments manually to cut costs. However, this can become time-consuming, especially as your business expands and you collaborate with multiple contractors in Norway or from other countries. There are also risks linked to manual payroll processing:
- Compliance: Doing payroll manually increases the chances of mistakes and omissions. Using a system like Rippling ensures you follow local laws, no matter where your contractors are located.
- Security: Manual processing, especially with spreadsheets or paper records, can lead to security and privacy problems. Sensitive employee information might be lost, stolen, or used in the wrong way.
Rippling provides an automated payroll solution that syncs your company's HR data with payroll, eliminating the need for manual data input. Pay your contractors and employees promptly and compliantly—in a single pay cycle.
How do you turn a contractor into an employee in Norway?
Here are the steps to convert your Norwegian contractor into a full-time employee:
- Choose an EOR or your own entity: If you don't have other employees in Norway, you'll need to choose between setting up a local entity or using an Employer of Record service (EOR), which can be easier.
- Know the law: Get familiar with Norway's Working Environment Act. This law applies to businesses with employees and covers topics like working hours, safety, health, environment, and job security.
- Establish an employment contract: Create an employment contract that includes an official offer letter. This contract should spell out the job roles, probation period, working hours, termination policies, and other important details.
- Finalize the benefits: Make sure to enroll the employee in benefits. According to Norwegian law, employees are entitled to overtime pay, health insurance, social security, maternity leave, paid sick leave, and more.
- Manage payroll: Set up a payroll system to ensure regular monthly payments. Deduct taxes accurately and contribute to social insurance as required.
Luckily, Rippling streamlines both contractor management and the shift to full-time employment. Rippling handles legal documentation, oversees benefit administration, and ensures payroll compliance, guaranteeing a seamless transition.
Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.