Insights into global expansion & employee retention

Published: July 29, 2022

How To Pay Foreign Contractors

To maintain that excellent relationship with your international contractors, there is nothing as crucial as paying them right and on time - after all, with all their hard work, they do deserve the punctual compensation you promised them!

However, paying someone in a foreign country comes with a variety of challenges.

It starts with hiring contractors in compliance with employee classification and adhering to local labour laws. Then when it comes to the payroll process, you will need to swot up on tax forms. Also, foreign transfers often come with exchange rates and fees attached to them. This will differ depending on the various payment methods and agreed-upon currency. 

All in all, it is fair to say that paying global contractors isn’t as easy as wiring money over to family and friends.  However, there is no need to be worried about this process, there are various solutions to explore – let’s dive in! 

What Is an International Contractor?

A contractor, also known as a consultant or freelancer, provides services or products as an independent person. International contractors live in a different country than the company or client that provides the service.

Can You Pay an International Contractor in Another Country?

Absolutely! However, other countries have different contractor and payroll regulations. Tax requirements, payment systems, and contractor classification are factors that vary from country to country, and complications can quickly arise if they aren’t followed. 

Five Steps to Take Before Paying Foreign Contractors

1. Establish An Independent Contractor Agreement

First and foremost, companies and international contractors must set and agree to contractual terms and conditions, including a description of the services provided, project terms and duration, payment details, confidentiality, and a dispute resolution clause.

2. Define The Contractor Payment Terms

There are several ways to pay an international contractor. Prepaid the contractor by the time the project is completed, or start with a deposit and pay the rest when the project is completed. Decide which option is most appropriate and define those payment terms in the contractor’s contract.

3. Determine The Contractor Payment Schedule

If you are planning to engage a contractor on a short-term basis or continuously, you will need to establish a payment schedule, such as per project, per month, or per week, so contractors will receive payment consistently and on time.

4. Collect The Necessary Tax Forms

Collecting the correct documentation is an important step in assessing the contractor’s status as a foreign worker and ensuring that all work is done in the country of residence. It also determines appropriate tax reporting and withholding.

5. Ensure Each Contractor Is Correctly Classified

Each country has its own system of determining contractor classification, which serves to safeguard the interests of the contractor.

Partnering with an EOR global solutions platform allows companies to navigate workforce classification across international borders, avoid improper tax reporting, and mitigate the risk of costly legal fines.

How to Pay International Contractors

There are several approaches to paying foreign contractors. The ideal solution for your situation depends on many factors, from timeliness and availability to the local regulations of the international contractor’s country.

International Bank Transfer (SWIFT)

International bank transfers, also known as SWIFT, are one of the most common ways to pay international contractors. This is a transfer from the bank to the contractor’s bank via the SWIFT network. Bank transfer is an easy and secure way to ensure that payments are sent directly to the contractor’s account.

However, international bank transfers are not the best option as it can take up to 5 business days to receive the transfer. In addition, large bank charges and exchange rates may be incurred.

International Money Order

International money orders are prepaid cheques available from a variety of locations, including post offices and grocery stores. They are prepaid and can be sent and redeemed anywhere in the world.

Money orders are an accessible and easy payment method, but make sure your contractor has a local location to redeem your order. It is important to note that the contractor’s payment may be delayed as the money order is in the hands of the postal delivery system. Money orders can also incur high fees on both sides of the exchange.

Online Money Transfer Providers

Online money transfer providers are a convenient way to pay international contractors. These payment apps require you to create an account that allows senders and recipients to make instant payments over the phone or computer. 

This method of payment allows you to create an account free of charge, but there are transaction fees, bank transfer fees, and exchange rate fees. In addition, many payment apps are not allowed in some countries and do not protect the company from non-compliance by foreign contractors. Check with your international contract partner to see if an online transfer is a viable option for them.

Contractor Payments

Contractor payment solutions are typically automated payment platforms that allow you to pay contractors in the international market. Standard solutions on the market integrate all forex fees into payments and seamlessly transfer funds to the other party. 

In some cases, the contractor’s payment solution may provide a foreign contractor’s risk assessment and provide additional functionality for tracking compliance, such as by providing contract templates.

Paying Your International Contractors Compliantly 

Working with international contractors opens up a world of opportunities, but navigating different country-specific regulations is a time-consuming and complex process. 

Most companies choose to classify foreign talent and pay accordingly in partnership with a global platform provider which is familiar with international local labour laws. Playroll simplifies the employer and talent experience with a complete suite of solutions, allowing you to hire, pay, and manage your workforce within one easy-to-use and flexible platform. 

Connect to Playroll now and learn how our solutions support and streamline both contractor payment and contractor management processes.

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