Globalized economy brought the labor force to a new stage where everyone is connected and reachable despite vast physical spaces between each other. One advantage of this connectedness is that businesses can find any type of worker they need to suit their goals and resources. With international talent sourcing comes great responsibility not only before independent contractors and employees but also before local and foreign tax authorities. In this guide, EasyStaff discusses ways you can pay international contractors with as little stress and investment as possible.
How to Pay International Contractors: A Comprehensive Guide
11/06/2024
#ForBusiness
How to Pay International Contractors: A Comprehensive Guide
Understanding the basics of international contractor payment
International Contractor Payment Methods
International Bank Transfers via SWIFT
Banking Transfers In Broad Strokes
Online payment platforms
Online Payment Systems In Broad Strokes
Paying in Cryptocurrency
Cryptocurrency In Broad Strokes
Contractor Management Systems, also known as Freelancer Management Systems
Why is a CMS/FMS the best payment tool for contractor management?
Final Considerations when paying remote contractors
Foreign workers classification
EasyStaff Tip
Payment and Invoicing
EasyStaff Tip
Contracts
EasyStaff Tip
Conclusion
An foreign independent contractor is a physical person or a company that is not present in the same country as their client. Independent contractors provide services for their client, and there is normally a concrete time period where work is performed. Just like regular local contractors, international ones stay separate and uncontrolled by your business. They may even have multiple clients at the same time.
Now, the distinction may seem easy to spot. Yet many businesses find themselves misclassifying contractors as employees and vice versa. Allocating correct names that reflect the actual sort of relationship is key in successful contractor management.
When paying a foreign contractor for their work, you need to make sure you receive closing documents to back up spendings associated with the contractor. If an international contractor is a natural person, then receiving closing documents from them may be problematic.
Why do businesses increasingly turn to international contractors?
Now, the distinction may seem easy to spot. Yet many businesses find themselves misclassifying contractors as employees and vice versa. Allocating correct names that reflect the actual sort of relationship is key in successful contractor management.
When paying a foreign contractor for their work, you need to make sure you receive closing documents to back up spendings associated with the contractor. If an international contractor is a natural person, then receiving closing documents from them may be problematic.
Why do businesses increasingly turn to international contractors?
- Access to new markets. Overseas presence begins with a single person that commits to helping you through a new market. Sometimes it is safer to go with a single person testing the waters for you rather than setting up a full-scale office before the potential is evaluated.
- Expanding perspective. Hiring a foreign contractor definitely helps build awareness and diversify your business’s perspective. Looking at routine operations differently is what makes your business stronger.
- Scaling on demand. Freelance is all about swift transitioning from one project to another. Freelancers tend to stay within a project for a particular set of tasks rather than stick on in hopes of permanent employment. This is why hiring freelancers for some time and letting go of them once there is no more demand is fine. You can upscale when you need additional workforce and cut the amount of people once you decide it is not worth it.
Understanding the basics of international contractor payment
International Bank Transfers via SWIFT
The method has proven its reliability through years, and companies today feel safe when sending money via banks even across the border. One serious argument in favor of good old bank transfers is that you know where your money is. If it doesn’t go through, it comes back.
Still, there are serious cost sacrifices involved. You can expect up to $ 50 in fees per transfer plus flat fees that banks may charge for currency conversion plus significant time lags before the money sent reaches the recipient. High commissions are also a shared burden, and someone will have to pay. Either you send more money than charged, or the freelancer charges more than they could have to make up for banking expenditures. For example, one unexpected thing that banks might charge you for is due diligence fees. They are supposed to cover a bank’s extra work it puts in investigation of certain operations they find suspicious.
On top of that, sending money through an established financial institution means providing a lot of documents, especially if it is your company sending money to a foreign natural person working as a freelancer for you. Not only you, but also your freelancer may have to provide documents to explain the origin of funds.
Banking Transfers In Broad Strokes
Online payment platforms
Another popular payment method in contractor management is online money transferring services. The names are well-known even among the general public — PayPal, Payoneer, Wise, etc. In essence, they are an alternative to bank SWIFT-enabled transfers, except for high and unpredictable commissions and ages of waiting times. Normally, you will punch in your card details so money is taken from you. After that, money is sent to the recipient. Whichever solution you choose, the service works best for smaller amounts of money and is not worldwide. Any online payment service is only supported in a varied, yet limited number of countries. Another unexpected limitation is that not every business can open an online payment system account. For one, businesses registered outside of Europe are faced with serious eligibility requirements that are extremely difficult to overcome.
Though it sounds like a dream come true, online payment platforms are not as flexible when it comes to adding money to your account and withdrawal methods on your recipient’s end. For example, Wise charges quite a hefty fee which makes a bank transfer cheaper than funding your account.
Online Payment Systems In Broad Strokes
Paying in Cryptocurrency
Cryptocurrency is still new, despite being around for some time. One reason it is currently getting a whole new level of traction, is because more and more freelancers as well as companies test it as a full-fledged payment method. And there is no denial it has the potential of being equal to traditional fiat money in that capacity.
By nature, crypto means a whole new level of ownership. In the fiat money world, dollars and euros are, after all, owned by banks. Cash is owned by you and nobody can take it from you, yet it is not as mobile as electronic money. In a nutshell, cryptocurrency offers you cash-like ownership over electronic money. In other words, it makes your online capital omnipotent so it can pay anything anywhere.
The level of freedom comes with its limitations though. One is that cryptocurrency is poorly controlled by governments or any bank-like institutions. So once money is sent, it is instantly credited to the recipient and there is simply no way to get it back or pause an operation.
Additionally, since cryptocurrency is still in the gray zone, its compliance is rather restricted. How do you issue a closing document for a type of money that is sort of uncharted? How do you explain the origin of funds, given it was just sent to you through Blockchain? These are serious questions that may make cryptocurrency seem unattainable or useless when it comes to contractor management.
Cryptocurrency In Broad Strokes
Contractor Management Systems, also known as Freelancer Management Systems
Thankfully, there are multiple providers today that focus on compliance in international contractor management. Their goal is to transfer payments to overseas teams so that the company that pays is free of risks associated with international contractor management. What distinguishes solutions from each other is fee structure and capacity. For example, Deel Contractor Management charges $ 49/month per contract, which means you need to have a monthly subscription to operate Deel. Platforms that require such a level of commitment are likely to request voluminous sets of documents to verify that your business is real and legit.
Other solutions, such as EasyStaff, charge a commission per transfer. For example, EasyStaff sets a 10% tariff for every new user which can be changed based on turnover and funding and withdrawal methods. Joining a CMS like EasyStaff is simple and fast. The documents required to verify a company are the bare minimum, and verification times are no more than 24 hours. So paying international contractors or freelancers is available within a couple of days.
Although the registration process slightly changes, EasyStaff and its alternatives maintain rapid payment transfer times. Your overseas contractor will receive their payment in about 3 working days. But even this deadline is far-fetched, as realistic times are up to only a few hours.
The method has proven its reliability through years, and companies today feel safe when sending money via banks even across the border. One serious argument in favor of good old bank transfers is that you know where your money is. If it doesn’t go through, it comes back.
Still, there are serious cost sacrifices involved. You can expect up to $ 50 in fees per transfer plus flat fees that banks may charge for currency conversion plus significant time lags before the money sent reaches the recipient. High commissions are also a shared burden, and someone will have to pay. Either you send more money than charged, or the freelancer charges more than they could have to make up for banking expenditures. For example, one unexpected thing that banks might charge you for is due diligence fees. They are supposed to cover a bank’s extra work it puts in investigation of certain operations they find suspicious.
On top of that, sending money through an established financial institution means providing a lot of documents, especially if it is your company sending money to a foreign natural person working as a freelancer for you. Not only you, but also your freelancer may have to provide documents to explain the origin of funds.
Banking Transfers In Broad Strokes
- A bank transfer is an electronic movement of funds from senders to recipients.
- There are two types of transfers, bank credit and bank debit transfers. Credit transfers occur when the sender pushes their money to the recipient’s bank. Conversely, a bank debit transfer is when the recipient pulls money out of the sender’s account by feeding their bank the sender’s bank details.
- For international money transfers, banks are likely to request additional documents, such as contracts, so there is grounds for the payment.
- While bank transfers are highly secure, one serious disadvantage is time lags and payment costs that come in the form of flat fees and dynamic commissions charged by banks.
Online payment platforms
Another popular payment method in contractor management is online money transferring services. The names are well-known even among the general public — PayPal, Payoneer, Wise, etc. In essence, they are an alternative to bank SWIFT-enabled transfers, except for high and unpredictable commissions and ages of waiting times. Normally, you will punch in your card details so money is taken from you. After that, money is sent to the recipient. Whichever solution you choose, the service works best for smaller amounts of money and is not worldwide. Any online payment service is only supported in a varied, yet limited number of countries. Another unexpected limitation is that not every business can open an online payment system account. For one, businesses registered outside of Europe are faced with serious eligibility requirements that are extremely difficult to overcome.
Though it sounds like a dream come true, online payment platforms are not as flexible when it comes to adding money to your account and withdrawal methods on your recipient’s end. For example, Wise charges quite a hefty fee which makes a bank transfer cheaper than funding your account.
Online Payment Systems In Broad Strokes
- For small payments abroad, online payment systems may be just the choice.
- Their fees are mostly lower than those in traditional banking, and wait times are shorter.
- However, a serious downside is closing documents and funding fees. After all, any PayPal or Payoneer are only tools, and they won’t be able to provide your business with compliance and documentation to present to tax authorities.
Paying in Cryptocurrency
Cryptocurrency is still new, despite being around for some time. One reason it is currently getting a whole new level of traction, is because more and more freelancers as well as companies test it as a full-fledged payment method. And there is no denial it has the potential of being equal to traditional fiat money in that capacity.
By nature, crypto means a whole new level of ownership. In the fiat money world, dollars and euros are, after all, owned by banks. Cash is owned by you and nobody can take it from you, yet it is not as mobile as electronic money. In a nutshell, cryptocurrency offers you cash-like ownership over electronic money. In other words, it makes your online capital omnipotent so it can pay anything anywhere.
The level of freedom comes with its limitations though. One is that cryptocurrency is poorly controlled by governments or any bank-like institutions. So once money is sent, it is instantly credited to the recipient and there is simply no way to get it back or pause an operation.
Additionally, since cryptocurrency is still in the gray zone, its compliance is rather restricted. How do you issue a closing document for a type of money that is sort of uncharted? How do you explain the origin of funds, given it was just sent to you through Blockchain? These are serious questions that may make cryptocurrency seem unattainable or useless when it comes to contractor management.
Cryptocurrency In Broad Strokes
- The method offers an unseen extent of finance freedom. Cryptocurrency can be sent anywhere to pay for anything which makes it a powerful payment method.
- An important limitation of crypto is that it is poorly controlled. While it makes it difficult to tax cryptocurrency operations, it also entails multiple risks.
- Compliance is almost off limits when it comes to crypto. Since there is no official body issuing and controlling cryptocurrency, creating documents to underpin a cryptocurrency operation is challenging, to say the least.
Contractor Management Systems, also known as Freelancer Management Systems
Thankfully, there are multiple providers today that focus on compliance in international contractor management. Their goal is to transfer payments to overseas teams so that the company that pays is free of risks associated with international contractor management. What distinguishes solutions from each other is fee structure and capacity. For example, Deel Contractor Management charges $ 49/month per contract, which means you need to have a monthly subscription to operate Deel. Platforms that require such a level of commitment are likely to request voluminous sets of documents to verify that your business is real and legit.
Other solutions, such as EasyStaff, charge a commission per transfer. For example, EasyStaff sets a 10% tariff for every new user which can be changed based on turnover and funding and withdrawal methods. Joining a CMS like EasyStaff is simple and fast. The documents required to verify a company are the bare minimum, and verification times are no more than 24 hours. So paying international contractors or freelancers is available within a couple of days.
Although the registration process slightly changes, EasyStaff and its alternatives maintain rapid payment transfer times. Your overseas contractor will receive their payment in about 3 working days. But even this deadline is far-fetched, as realistic times are up to only a few hours.
International Contractor Payment Methods
We’ll talk about this using EasyStaff as an example. What EasyStaff does is, it removes the company out of a direct working relationship with a contractor and takes its place as an intermediary. In essence, EasyStaff acts as a contractor for the client company from the place of a B2B partner. EasyStaff signs a B2B contract with its clients and provides them with 2 types of invoices and a contractor for every payment they make with EasyStaff. As for the freelancer or the contractor and even the employee, they are hired by EasyStaff. So the CMS assumes the role of client for them.
As a European company based in Lithuania, EasyStaff has access to the network of banks across the world, which helps it keep its commissions moderate and transfer money to virtually anywhere in the world. Another benefit is that VAT is not incurred when a company works with EasyStaff.
Lastly, EasyStaff is not a one-day startup that was founded to meet the demand. The service was created by Vitalli Mikhailov, who has more than 10 years of experience under his belt. This is what led more than 2100 businesses to trust their contractor management to EasyStaff. As of now, more than €60 million has been paid with EasyStaff.
As a European company based in Lithuania, EasyStaff has access to the network of banks across the world, which helps it keep its commissions moderate and transfer money to virtually anywhere in the world. Another benefit is that VAT is not incurred when a company works with EasyStaff.
Lastly, EasyStaff is not a one-day startup that was founded to meet the demand. The service was created by Vitalli Mikhailov, who has more than 10 years of experience under his belt. This is what led more than 2100 businesses to trust their contractor management to EasyStaff. As of now, more than €60 million has been paid with EasyStaff.
Why is a CMS/FMS the best payment tool for contractor management?
Foreign workers classification
Misclassification may be a critical mistake in contractor management as it opens the door for serious financial expenditures associated with fees and penalties. What you name your contractors impacts your tax reputation and even the prospect of working in a particular location. It is easy to see why misclassification happens. Each country has its own definitions of employee vs contractor, so relying on expertise or a CMS is critical here.
EasyStaff Tip
Are you considering hiring both contractors and employees abroad? EasyStaff has you covered in both cases. Join EasyStaff now to build teams and work legally across borders.
Payment and Invoicing
The basis of a lasting and effective relationship is timely payments. Contractors will not stick around for long if money comes in wrong sums or past the agreed deadline. This is why you want to be punctual when it comes to paying overseas.
Likewise, it is okay to request necessary details from contractors on time and keep them accountable. Besides simply sending in a sum to be paid, you could also ask them to provide hourly breakdown or a summary of jobs done in your project.
EasyStaff Tip
Time is a top concern for freelancers, contractors and employees, and we understand this very well. This is why we request only necessary documents when registering a new client and send money instantly at favorable rates.
Contracts
A comprehensive contract makes your work relationship official. It enforces discipline into a project, so it is necessary to create a correct document at the onset. Payment terms are a must-have in any contract, as they define how much, how often and for what a contractor is paid.
EasyStaff Tip
Using e-signature can significantly streamline the payment process. All EasyStaff clients get a contract that they sign online, and freelancers receive necessary closing documents to
Misclassification may be a critical mistake in contractor management as it opens the door for serious financial expenditures associated with fees and penalties. What you name your contractors impacts your tax reputation and even the prospect of working in a particular location. It is easy to see why misclassification happens. Each country has its own definitions of employee vs contractor, so relying on expertise or a CMS is critical here.
EasyStaff Tip
Are you considering hiring both contractors and employees abroad? EasyStaff has you covered in both cases. Join EasyStaff now to build teams and work legally across borders.
Payment and Invoicing
The basis of a lasting and effective relationship is timely payments. Contractors will not stick around for long if money comes in wrong sums or past the agreed deadline. This is why you want to be punctual when it comes to paying overseas.
Likewise, it is okay to request necessary details from contractors on time and keep them accountable. Besides simply sending in a sum to be paid, you could also ask them to provide hourly breakdown or a summary of jobs done in your project.
EasyStaff Tip
Time is a top concern for freelancers, contractors and employees, and we understand this very well. This is why we request only necessary documents when registering a new client and send money instantly at favorable rates.
Contracts
A comprehensive contract makes your work relationship official. It enforces discipline into a project, so it is necessary to create a correct document at the onset. Payment terms are a must-have in any contract, as they define how much, how often and for what a contractor is paid.
EasyStaff Tip
Using e-signature can significantly streamline the payment process. All EasyStaff clients get a contract that they sign online, and freelancers receive necessary closing documents to
Final Considerations when paying remote contractors
- Independent international contractors are becoming a powerful leverage in business growth, as they offer expertise and skills on demand.
- Working with international contractors still seems risky, and the major concern is how to pay your overseas workforce.
- There are several major payment methods, such as traditional banking, exotic cryptocurrency and online payment systems.
- A contractor management system, or a freelancer management system, is the ultimate option to pay workers abroad. One solution is EasyStaff. It takes the midway position between a company and its contractor and takes compliance and all things legal upon itself.
- Working with EasyStaff means accessing fast and secure contractor payment backed up by closing documents for both the company and the contractor.
Conclusion
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Vilnius, Labdarių g. 6A-18, LT-01120, Lithuania
