As your business expands its global footprint and begins to hire workers based in different countries, the question of how to pay international contractors may become a more pressing one. This is especially true in the post-pandemic world, where the growing prevalence of remote work has made many companies more comfortable with looking abroad for talent.
But getting comfortable with hiring foreign contractors is one thing—paying them is another thing entirely. The good news is that paying foreign independent contractors is generally easier than hiring and paying full-time employees based abroad. Still, there are some complexities you may need to navigate in terms of compliance and tax obligations.
In this article, we’ll review the best ways to pay international contractors so that they get their money quickly and you don’t get bogged down in the details. We’ll also review some things you’ll want to consider before onboarding international contractors, including how to set up payments and invoicing so it works smoothly for all parties involved.
The first step to understanding how to pay an international contractor is knowing what defines an international contractor.
In general, independent contractors are self-employed workers who offer professional services on an independent basis. These “professional services” may entail the completion of a specific project or a defined period of work, but an important distinction between an independent contractor and an employee is that the former typically has more freedom to stipulate how and when they work. Another important distinction is that independent contractors are generally responsible for paying self-employment taxes and typically don’t receive company benefits, such as paid time off, subsidized healthcare, and training.
An international contractor, as you may have guessed, is an independent contractor who’s based in a different country than the business for which he or she completes work. Every country has its own employment laws and regulations, so the exact definition of a contractor may vary depending on the country.
In general, it’s a good idea to understand not only the labor laws that define a contractor in your country, but also the laws that define a contractor in the country where your contractor is based. Sometimes these laws can be a bit hazy. In the U.S., the IRS stipulates that a person is generally an independent contractor “if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.” But exceptions may be possible.
Before onboarding an international contractor, you probably want to know what paying them will look like. This is fair!
Understanding your options doesn’t just provide more clarity for your business—it also ensures that your contractors are paid on time and stay happy.
On this front, we have some good news: payments for foreign contractors don’t need to be super-complicated. If you choose the right method for your business, they can even be a breeze. Let’s review five methods you may want to consider.
The Society for Worldwide Interbank Financial Telecommunication, also known as SWIFT, is a financial messaging network that’s widely used for international payments. You can use the SWIFT network to send an international wire transfer to the bank account of a contractor who’s based in a different country. You’ll need to provide the SWIFT code / BIC of the contractor’s bank or financial institution, along with other details about the contractor and receiving bank—such as the bank’s name, address, and the specific account number.
Using SWIFT to send an international wire transfer has some potential advantages and disadvantages. Let’s break down a few:
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Online and app-based payment solutions, such as PayPal, Wise, and Xoom, are popular ways to pay foreign contractors. These services can have some benefits over international wire transfers and other payment methods, and companies such as PayPal have a wide global reach.
Speed and ease of use are the primary points of attraction here, though these online payment and money transfer services may not be the best choice for every business. Let’s look at some pros and cons:
Aside from the more “traditional” online payment options such as PayPal and Wise, you may want to consider using a dedicated global hiring and payment tool. Some such tools, which include the likes of Deel and Gusto, are set up for a lot more than simply paying international contractors. These tools can also help with local compliance, contract management, invoice tracking, and more.
Nothing says old-school quite like an international money order. And these things are old-school for a reason—in general, there are better, faster, and more modern solutions available to global businesses. With that said, it is an option.
You can purchase an international money order in a post office (USPS) location in values up to $700. These are printed out with only the dollar amount filled in; you’ll need to fill in the recipient at the counter. On top of the dollar value of the money order, you will need to pay an issuing fee and processing fee based on the country of destination.
The rise of cryptocurrency has led to some contractors being willing to accept payment in Bitcoin, Ethereum, or popular stablecoins such as USDC and Tether.
This isn’t always technically a different method of paying than some of the methods we listed above, because some of those options already (or may in the future) offer the ability to pay in cryptocurrency. Deel, for example, supports payments in some cryptocurrencies, and other hiring and payment services may expand their crypto payment offerings in the near future as well.
In any case, crypto is quickly becoming a more attractive payment option for foreign and domestic contractors alike. This means you’ll want to weigh some of its potential pros against its potential cons:
Crypto is still speculative and can be extremely volatile. Whereas some contractors may appreciate the option of getting paid out in crypto, others may balk. It’s still a relatively speculative area of finance, and some contractors may prefer more predictability.
Working with foreign contractors can be a rewarding experience—both for your business as well as for you personally. Contractors from abroad can offer differing cultural perspectives that ultimately strengthen your business and help you better understand markets outside your home country. With that said, you’ll want to carefully consider a few things before onboarding an international contractor.
First, be sure that you (or, just as likely, your legal team) has a solid framework in place for what constitutes a contractor versus a full-time employee. Knowing the boundaries that separate these two very different roles can save you from legal and compliance headaches down the line.
Secondly, take the time to understand the compliance and tax obligations of hiring and paying freelancers who live abroad. For example, if you are a company based in the U.S., you will need to use IRS Form 1042 and Form 1042-S to report the income and tax withheld for foreign contractors. Other countries may have similar or different requirements; it pays to take the time to know them all.
If you’re looking to simplify your global business with a multi-currency account designed for international companies, consider giving Levro a try.
We offer a fast and affordable way to send payments to contractors and other vendors internationally—with same-day payments and 0.25% FX fees when you send your money. And with Levro’s SWIFT tracking, you can get up-to-date alerts and notifications for all your international payments.