Payments to Overseas Contractors: Guide by EasyStaff

As markets grow and labor relationships transcend national boundaries, payment to international contractors becomes both simpler and more complex at the same time. On the one hand, there are so many requirements to meet, now that virtually any business can venture into foreign talent markets and governments are eager to monitor money sent to local workers. On the other hand, as demand increases, more services appear that facilitate overseas contractor payments even for SMEs. In this new article by EasyStaff, let’s see how to pay international contractors and consider tools and services to navigate foreign payments.

An independent contractor is a physical person that by law is allowed to run a business. Essentially, they are a business in themselves and they operate like one. They are hired by their clients and perform tasks independently. That is, the process of work is entirely up to them. To their client, all that matters is the end result. Unlike employees, contractors may work for multiple clients at the same time. This means they must have all necessary licenses. Lastly, independent contractors are not provided for like employees are — in other words, they are not entitled to any employee benefits.

Why are employees mentioned along with independent contractors? The reason is that employment and contractual relationships are often confused, especially when it comes to hiring foreign labor. And this is a soft spot for unwanted legal risks as worker misclassification is a compliance issue that may lead to expensive fees and even permanent ban. In a nutshell, an employee works for a company and is dependent on it. They are hired by the business and therefore protected by law. Their employers are subject to paying taxes in their favor to the government to protect their workers from unemployment. Employers are also exercising control over their employees, meaning that how work is done, what results are achieved and with what means is all under the employer’s control.

Speaking about legal standing, independent contractors need to initiate the process of business registration. Normally, every country requires its businesses — even small home-based enterprises — to register with tax authorities to receive a tax registration certificate. If a business is registered, it means it is required to pay tax and is controlled by tax officers. The rule of thumb is, there is no minimum limit for the income to qualify for a business. Once a person starts earning money with a service they perform, they are required to pay tax off of it.

Some businesses may shy away from working with foreign professionals, although talents with different backgrounds may be a promising endeavor when it comes to business development. Let’s look at some specific reasons why even SMEs can find value in collaborating with specialists from abroad.

Labor cost. This is a very common reason why businesses gravitate towards foreign independent contractors. For example, the maximum hourly wage for software developers in the US is $ 80, whereas in Eastern Europe it is $ 27 and in Central Asia it even goes as low as $ 20. This disparity allows businesses to save money on wages while still getting quality work done.

Reduced tax burden. Managing payroll for a team of employees involves complex tax calculations, reporting requirements, and compliance with labor laws. When working with freelancers, businesses typically have less administrative overhead, as the tax responsibilities often fall on the freelancers themselves. This translates to fewer resources spent on tax compliance and payroll processing. On top of that, businesses are typically responsible for paying a share of employment-related taxes such as Social Security, Medicare, and unemployment taxes for their employees. By engaging freelancers, businesses can often avoid these additional tax liabilities, contributing to a lower tax burden.

Work flexibility. Although it may seem that remote teams are anything but flexible, it is only a myth. As businesses launch remote international teams, they get to leverage important factors — namely. scalability, time zone advantage and competitive pricing. Indeed, remote teams are able to take up part of your onshore team’s work thus freeing resources for increasing production or extending service coverage. Likewise, time zone advantage means that your service or product is being supported and/or developed 24/7, which in itself is an important competitive edge. Lastly, competitive pricing comes from cheaper labor behind services. Offering a better price may well be a deciding factor for your business.

Easy contract termination. Unlike employers, who are responsible for their employees, businesses that hire freelancers or entire teams overseas and their international contractors are independent parties. Work relationships between them are formalized through a single contract that can be terminated any time. Naturally, there are some penalties for unexpected termination, but they are incomparably less severe than responsibilities for firing an employee.

Global talent pool. Access to a global talent pool allows businesses to choose from a diverse range of professionals with varied skill sets and experiences. This can lead to innovation, creativity, and fresh perspectives in project execution. Some countries have a pool of highly skilled professionals who offer their services at a lower cost than their counterparts in developed countries. This allows businesses to access specialized skills and expertise at a fraction of the cost.

Below, you’ll find an overview of some of the most common ways to pay international contractors, along with some of the pros and cons for each option.

Bank transfers. Sending money directly from bank to bank is perceived as the safest method of paying international contractors. Yet it is also the most expensive contractor payment option. A single payment sent to a contractor’s bank is likely to be subject to multiple hidden fees and inconvenient exchange rates, also known as receiving bank fees. As a result, money that reaches the contractor is less than originally invoiced, which may make you look like an unreliable client.

Paper checks. This payment method, overall believed to be rather outdated, is widely used across some regions in the world. It may seem manageable locally, but for international contractor payments sending paper checks will prove too long and inconvenient, potentially taking up to 6 weeks to arrive at your contractor’s mailbox.

International money orders or wire transfers
Once a quick and safe way to send money, wire transfers through companies like Western Union are now almost as outdated as paper checks. Both they and money orders attract large deposit fees and require foreign independent contractors to deposit the payments physically. In countries where digital payments aren’t accepted, this might be the only choice, but these situations are rare today.

International money orders. This method requires money to be physically deposited at a place from where it will be sent. Today this payment method is extinct in some areas of the world and actively used in others, like the CIS region and Eastern Europe, for instance. The option is viable in countries where foreign bank relations are not too developed yet or have been restricted.

International money transferring systems (Wise, PayPal)
The principle behind these platforms is that it receives money from one person and sends it to another one. Normally, the tool verifies the transaction, deducts any applicable fees, converts currencies if necessary, and securely transfers the funds to the recipient. An important function in these platforms is that they support mass payments (multiple transfers set off at the same time). Additionally, users may have several currency accounts, which makes receiving money from abroad easier. However, this solution collectively has a significant drawback. Wise, PayPal and the likes don’t support world coverage, which is essential when paying international contractors On top of that, such payment options don’t provide closing documents necessary for businesses to formalize these spendings.

How to pay international contractors for services securely, then?

A contractor payment tool is a software solution designed to streamline and facilitate the process of paying international contractors, freelancers, or vendors for their services. Here’s what it typically does:

• Automated Payments: Contractor payment tools automate the payment process, allowing businesses to schedule and make payments to contractors on a recurring or one-time basis. This automation saves time and effort in manual payment processing.
• Payment Tracking: These tools often provide features to track payment status, history, and details. Businesses can monitor payment timelines, amounts, and recipient information easily.
• Tax Compliance: Contractor payment tools may assist in tax compliance by generating tax forms, such as 1099s, for contractors who have earned a certain amount. This helps businesses stay compliant with tax regulations.
• Integration Capabilities: Many contractor payment tools integrate with accounting software or tools like QuickBooks, Xero, or other financial systems. This integration ensures seamless transfer of payment data and simplifies reconciliations.
• Multiple Payment Options: Contractor payment tools offer various payment methods such as direct deposit, ACH transfers, wire transfers, or even payment via online platforms like PayPal or Wise, giving flexibility to both businesses and contractors.
• Customization: Businesses can often customize payment schedules, notification preferences, and payment methods based on their specific needs and the preferences of their contractors.
• Security Features: Contractor payment tools prioritize data security and often include encryption and secure authentication methods to protect sensitive payment information during transactions.
• Invoice Management: Some contractor payment tools also provide features for invoice generation, approval workflows, and seamless integration with the payment process, creating a streamlined end-to-end payment experience.
• In essence, a contractor payment solution simplifies and streamlines the process of paying contractors, ensuring timely and secure payments, compliance with tax regulations, and efficient management of contractor payments for businesses.

EasyStaff is one of the best freelance management platforms that caters worldwide. Thanks to its wide system of partner banks, EasyStaff is able to send money anywhere. Payments in euro and US dollars are accepted, and exchange rates are mid-market, which is less expensive than regular bank exchange rates.

Unlike payment systems considered above, EasyStaff provides closing documents necessary for businesses and freelancers to declare to tax authorities. This is possible due to how EasyStaff signs contracts with companies and freelancers. For B2B clients, EasyStaff is a B2B partner managed through a single contract. For contractors, EasyStaff acts as a business that hired them. Thus, it bridges the gap between the two parties. Businesses receive closing documents from a B2B contractor, thus avoiding VAT. In turn, contractors receive closing documents for a B2B client to legally declare their income.

Global contractor payments are now accessible to any business. It is crucial to remain compliant across labor laws. So choosing a reliable contractor payment tool is crucial to protect businesses from risks and losses. EasyStaff is one of the safest tools to navigate global payments to remote teams.