For many businesses, outsourcing certain functions, such as marketing and lead generation, to foreign contractors has become a savvy and cost-effective choice. This arrangement allows companies to access top-notch talent from anywhere in the world.
That said, hiring international contractors can get complicated fast depending on how you approach it.
Questions about paying international contractors will inevitably arise, including handling local taxes, compliance, currency exchange, and how to get the money in their accounts. You need to know how to navigate these challenges.
Below, we explore how to pay international contractors without incurring too many extra costs.
Paying International Contractors: Top Payment Methods
There are several methods you can use to pay international contractors, and each comes with pros and cons:
1. International Bank Transfers
International bank transfers are a popular choice for their security, but they are not always practical depending on the country your contractor lives in.
When you transfer money from one country to another there may be transaction fees as well as some extra bank fees, plus it can take several days for the money to arrive.
If you need your contractor to be paid immediately or if they don't have access to an international bank account, this option isn't ideal.
2. Cryptocurrency
The use of cryptocurrency for international payments is becoming increasingly popular. The biggest advantage of this payment method is that it eliminates the need for banks and other intermediaries to transfer funds (which translates into faster processing times).
With cryptocurrencies, all transactions are recorded on a public ledger known as a blockchain, which anyone with an internet connection can access.
While this can lead to lower costs and greater transparency for both parties involved in the transaction, it can also be detrimental to the contractor if the value of a cryptocurrency falls.
3. Digital Payment Networks
Digital payment networks allow you to pay someone from anywhere in the world with a bank account or a credit card. Some examples of these payment platforms include PayPal and Payoneer. You send the payment from your account and the recipient gets it in moments.
The main drawback with these services is that they can have high transaction fees and only work in certain countries. They also don't always have the best exchange rates.
4. Employers of Record (EOR)
An Employer of Record serves as a legal entity for workers in other countries. Most companies use EORs to convert independent contractors to employees, but some EORs (like RemoFirst) also provide contractor payment solutions.
If you’ve established a relationship with a highly valued contractor and you are ready to convert them to a full-time employee, working with an EOR makes it very easy to make that transition.
How To Compensate Contractors
In addition to payment methods, you’ll also need to know when you will pay your international contractors. Each country has its own local rules and employment laws covering the payment of independent contractors, but as a general rule, you can expect to pay them in the following ways:
1. Pay upfront
Some independent contractors may ask you to pay them upfront before they start working on your project. This can be risky because there are no guarantees that they will deliver on time. As a result, paying upfront is best for simple tasks that require little oversight and are not very costly for your business.
2. Pay by the hour
An hourly rate may be more expensive than paying upfront, but it's better than not having a guarantee that the work will be done (or done well). The hourly rate should be negotiated before any work begins so both parties know what's expected, and what the responsibilities are in terms of cost and time frame for completion.
3. Pay by project
If you want to hire a contractor for a specific project, you need to give all the instructions and requirements in advance so that they know what exactly needs to be done, and how long it will take them to complete the job.
Once everything is finalized, your contractor can start working (according to your specifications and requirements) and you will pay them per your payment terms or in full when the project is completed successfully.
4. Pay by milestone.
If you have a job that will take a longer timeframe to complete, it might be a better option to pay as each phase is completed. This way, you can ensure that your money is used efficiently and you can stop the work if necessary.
Paying by milestone requires good communication with the contractor and regular updates on progress. Once a milestone is reached, you coordinate payment with the contractor for the work that is complete before they continue the project.
Tips To Consider When Paying International Contractors
Payment method. Check.
Payment frequency. Check.
Now, you need to consider some additional factors to ensure a seamless process for paying international contractors:
- Choose a secure payment method. When paying international contractors, it’s critical to use a secure payment method. This will help to safeguard your company and the contractor against fraud. Some secure payment methods include wire transfer, PayPal, and Wise (formerly TransferWise).
- Determine the currency you will use to pay each contractor. You must confirm the currency in which each contractor is paid before making any international payments, as this will affect things like foreign exchange rates. For example, you can choose to pay all of your independent contractors in one currency (e.g., USD) or their local currency.
- Get the contractor's correct information. To pay an international contractor, you'll need their full name, address, and bank account information. This information should be validated to ensure that the payment is sent to the correct person.
- Keep a record of all payments made to the contractor. It’s essential to keep track of all payments made to overseas contractors to ensure compliance with applicable laws and regulations.
- Pay the contractor on time. When you agree to pay an international contractor, always do so on time to foster trust and a positive working relationship.
- Be aware of the tax implications. When you hire an international contractor, you have to keep tax laws in mind. For example, you may be responsible for tax withholding. The amount of tax you withhold will depend on the contractor's country of residence and the type of work they are doing for you.
- Beware of misclassification risks. Different countries have varying criteria for determining employment status based on contract and payment structures. To avoid misclassification, you'll need to understand the local rules for classifying employees, taking into account factors such as payment structure and duration.
Why Find A Way To Pay International Contractors?
Hiring contractors from a different country may save you time and money.
For example, if your company has a project in another country, you can hire local contractors rather than sending someone from your company to that location, which can get very expensive very fast.
Here are some additional advantages to hiring foreign contractors and finding a way to pay them well:
1. Borderless Hires
One of the top reasons to hire foreign contractors is to expand your talent pool and build a more diverse and global team.
You can access the best talent and expertise in the world, and fill positions with the most qualified person, regardless of their location.
Hiring international contractors can also help you grow your business into new markets — local talent will help you land and expand, rather than having someone new adapt to that country’s languages and cultures.
2. Cost-efficiency
International hiring is cost-efficient, especially since today’s economic conditions make it difficult for startups and small businesses to maintain high-quality service while also staying competitive in pricing.
Due to the war for talent, some markets (like Silicon Valley and NY) have seen unprecedented wage inflation in recent years — especially for highly sought-after roles like software engineers.
Globally expanding your search for talent means you’ll likely find locations where the skill level is equally impressive and wages are still at reasonable levels.
3. Save time
Choosing to hire a foreign contractor that's already an expert in their field will save you a lot of time. Instead of an extensive training period, they can start working immediately. Plus, most overseas contractors are used to working independently and delivering high-quality work on time.
Pay International Contractors Quickly and Compliantly With RemoFirst
Hiring international contractors is a great way to find global talent. When it comes to paying them, there are many ways to go about it, though not all of them make it easy to stay compliant with labor laws and tax obligations.
As such, it’s a good idea to work with an EOR who will handle and streamline your contractors’ onboarding and payments. That way, you can sit back and relax knowing that you are paying international contractors compliantly and on time.
RemoFirst is an EOR provider available in 150+ countries and we offer solutions for both full-time employees and contractors. The best part? The cost of managing and paying international freelancers starts at just $25 per person per month.
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