How to Pay Your International Freelancers
Freelancers living abroad rely on receiving payments on time, and it’s your job as a business owner to make sure that happens. If you constantly encounter difficulties sending funds abroad, you risk damaging or even losing your relationship with a vital cog in your business.
Luckily, a range of modern payment solutions make it much easier and cheaper than in the past to keep your international bills up to date.
Compliance with reporting and record-keeping obligations is also far less of a challenge today than it was in the days of money orders.
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What is an international contractor?
Before deciding on a payment solution, you must confirm whether your contractors qualify as “international” for purposes of reporting to the IRS. For example, if you work primarily with US citizens living abroad, you must obtain a Form W-9 from your contractors and pay close attention to the hours billed and the type of supervision to avoid being charged with a misclassification be fined (opens in new tab).
If your contractors perform their work outside of the US and are not US citizens, you do not need a W-9 form, but you should take the time to refresh the local legal landscape. Clarify in advance what local regulations apply to your relationship with an independent contractor.
Why hire an international contractor?
When you have too much work for one person but not enough for two, a contractor may be the best staffing solution. You don’t incur the cost of hiring a full-time employee, but still avoid the risk of overburdening your team.
You may also find that you have a specific need that requires specialized knowledge, such as: B. website building, social media management or content design, but find it economically difficult to hire someone in the US. Thanks to sites like Upwork (opens in new tab) and Fiverr (opens in new tab)puts a whole world of freelancers at your fingertips, many offering extremely competitive rates.
How do I pay an international contractor?
Ideally, your onboarding conversations with a new contractor will include a discussion of their respective payment preferences. For example, freelancers and independent contractors working in Europe prefer payment by bank transfer for accounting purposes, while freelancers in developing countries prefer the security and traceability of an ACH transfer. Other countries with more robust banking infrastructure or less restrictive regulations allow transfers through PayPal or other solutions, provided everyone keeps detailed records.
On September 13, two cost simulations were run using payment methods for the two most commonly exchanged currency pairs (US Dollar to Euro and US Dollar to British Pound) for international payments. In both scenarios, international payment providers like MoneyGram, Wise, OFX and XE had significantly lower costs compared to the banks, while PayPal had the highest costs.
Image compiled with Wise.com’s payment comparison aggregator.
(Image credit: Courtesy of Justin Grossbard)
Here are more details on each of these payment methods to help you decide which is right for your business.
Smart for business
Popular fintech company Wise (opens in new tab) allows Americans to open a business account that can hold and receive up to 50 different currencies. When your team of contractors spans the globe, Wise makes it easy for you to pay in local currency with no additional fees. Wise also allows you to create and send multiple payments at the same time using the batching tool, which can greatly simplify your monthly accounting.
To open a Wise business account, you must submit documentation to verify that your business exists and verify your identity. Once approved, you can start sending payments immediately. Wise does not charge a monthly account maintenance fee, but you do pay a small commission for every transfer. Contractors only need to provide their preferred bank account information to receive payments.
Smart by numbers:
- Exchange rate: Current exchange rate
- Transaction Fees: From 0.41%
- Account Management Fees: none
- Supported Currencies: 50+
PayPal for business
The original digital payment platform has evolved from a simple online wallet into a full-fledged business solution with several attractive features. Receive invoices directly from contractors and pay with a single click. liquidity problems? PayPal (opens in new tab) allows you to deposit funds into your account or make payments by credit card. Hold and receive up to 26 different currencies.
Note, however, that PayPal charges a 4.5% transaction fee for international transactions and uses the retail exchange rate when paying in a different currency.
To open a PayPal business account, you must provide your employer identification number or social security number and provide proof of identity. Once you’ve linked a bank account or credit card, you can send payments. Your contractors must have their own PayPal accounts to receive payments through the platform.
PayPal in numbers:
- Exchange rate: Surcharge of 4.0%
- Transaction Fees: 2% of the total transaction amount
- Account Management Fees: none
- Supported Currencies: 25
cable transmissions
If your contractor lives in a country that frowns on digital payments for entrepreneurs, or your contractor prefers a more secure transfer method, traditional transfers could be an option. However, make sure you agree which party will cover the potentially high exchange rate fees. Unlike fintech solutions and digital wallets, banks charge a significant surcharge for currency exchange.
The good news? You pay a single standard fee for every transfer, regardless of size. That means no surprises or extra costs when sending large amounts. On the other hand, it can make sending smaller monthly payments more expensive.
To send a transfer you will need your contractor’s bank account information including IBAN, SWIFT code and sort code. Contact your bank directly to confirm fees for multi-currency payments.
Transfers by number:
- Exchange rate: Varies, typically a 4% markup
- Transaction Fees: Vary, usually between $35 and $50
- Account Management Fees: Vary
- Supported Currencies: Any
money orders
Although more commonly used by individuals, businesses can also use money orders such as Western Union (opens in new tab) or MoneyGram (opens in new tab)to pay contractors living in countries where banks charge significant withdrawal fees. Low limits on the amount you can send — as little as $1,000 for a single order — may not make this the most practical option for larger projects. However, the lower transaction and exchange fees might make the extra hassle with buying and shipping worth it. On average, you’ll pay between $5 and $25 to send a money order, depending on the currency and size of the order.
To pay an international contractor with money orders, you must find a Western Union or MoneyGram representative. You can use your business credit or debit card to purchase an order for your desired amount, for which you will receive a receipt. To ensure your contractor receives prompt payment, ensure you fill out the order with their full legal name printed on a valid government issued ID.
In the 10 years since I started my online marketing business, I’ve worked with so many dedicated, talented contractors I’ve lost count. Although they may not appear in my official headcount, I take my obligations to them as seriously as I do my permanent employees.
Ensuring they receive payments on time and never have to chase me over an invoice ensures they know I value their contribution to my bottom line.
This article was written by and represents our contributing consultant, not the Kiplinger editorial board. You can check the advisor records with the SEC (opens in new tab) or with FINRA (opens in new tab).