How to pay international contractors

Independent overseas contractors can be a vital asset to a growing global business. These individuals are often specialists in their field, offering companies expertise on a flexible, on-demand basis.

Companies entering new markets can also tap into the knowledge of their overseas contractors to better understand market demand and local practices.

There’s more to global payroll than simple financial transactions. You must ensure compliance with employee classification and reporting requirements in your home country and in every country where your extended team lives. You’ll also need a plan for handling things like payment methods and foreign exchange before onboarding new talent.

This is where things can get confusing.

Paying international contractors involves navigating international labor laws if your team is spread across multiple countries. It can be a frustrating and expensive process, especially with professional tax and payroll services in every country.

Understanding how to pay contractors overseas at scale is essential for businesses with a global workforce. 

This guide contains everything you need to know about paying independent contractors in other countries, compliantly and at scale. With the right service provider, this process can be a stress-free, cost-effective experience.

What is an international contractor?

For US-based companies, an international contractor is someone who doesn’t reside or work in the US and isn’t a US citizen. For other countries, the distinction is the same: different country AND non-citizen status. It’s important to note that the definition has to do with where the services are performed rather than with which passport the independent contractor holds.

If the actual work occurs in a country outside of the US, even if it’s done by a US citizen, the local government almost always imposes an income reporting requirement or a withholding obligation. Put simply, you can’t just pay US contractors working abroad without considering where they perform their work.

There are advantages and drawbacks to working with international contractors, so make sure you’re compliant with local regulations. In some countries, these changes are based on the length of your relationship with a service provider. If you aren’t careful, you could wake up one day to discover a longtime contractor is now legally considered an employee entitled to benefits. Misclassifying employees as contractors can bring harsh consequences, even if the mistake is unintentional.

Beware of the dangers of contractor misclassification when hiring overseas

Keep in mind that different countries determine employment status based on contract and payment structure. For example, you may run into a situation where a country doesn’t recognize long-term contractor agreements and instead requires companies to hire contractors as full-time employees.

After a certain period — sometimes only six months of continual work — your contractor may be considered an employee due to the country’s labor laws. It’s essential to understand the local formula for classifying employees (i.e., how your payment structure, plus the length of time, impacts the local classification of your foreign contracting staff).

Misclassification of contractors is serious and can lead to hefty penalties.

Determining the currency in which to pay contractors

Before you can know how much to pay, you need to confirm the currency in which the contractor will be paid. Because foreign exchange rates are constantly changing, the way you manage currency payments can have a major effect on cash flow and operating expenses. Options include the following:

• Paying everyone in US dollars. This approach works well if your international contractors have US dollar accounts. Otherwise, they’ll have to pay a fee to receive US dollars into their account.

• Paying contractors in their local currency. This choice is good for contractors, but it means you’ll need to have multiple foreign accounts or use a payment platform that can handle the conversions for you. Expect to pay more in foreign exchange fees. Reconciling your accounts can be complicated.

• Using a hybrid method of payment. Use a contractor management platform or a digital payment tool to help you take advantage of currency fluctuations.

Pros and cons of common international contractor payment options

Here’s a quick breakdown of different international contractor payment options:

Remote

Pros: Designed to manage international contractors’ payments, contracts, and IP protection. Remote’s contractor management platform lets you:

• Onboard contractors quickly and safely with localized contracts

• Pay contractors on time in their local currency

• Manage all employment documents in one secure platform

• Protect your intellectual property and invention rights

• Receive around-the-clock support

Con: Because Remote was founded in 2019, its contractor payment services are less well-known than Wise or PayPal.

Wise

Pros: Wise gives you everything you need to grow your business and operate internationally but without the headache of opening bank accounts in multiple countries. Wise provides a transparent pricing structure, and you know exactly how much will be deposited in your contractor’s account.

Cons: Does not provide any contract management services or IP protections. It also has higher fees than some of the other options listed here, and it doesn’t allow for in-person cash pickup or delivery.

PayPal

Pros: PayPal is a mature platform with widespread adoption, and its transaction fees average about 4% of the invoice amount.

Cons: It does not provide any contract management services or IP protections, and recipients must have a PayPal account. Also, it may not be the most secure option, as PayPal experienced a data breach of customers’ personal information in 2022.

Xoom

Pros: Xoom tends to be quicker than a lot of other platforms (like PayPal). The app claims that funds sent to Visa and MasterCard debit cards are usually deposited within minutes, although other types of transactions can take up to a few days. With Xoom, you can also send money in a variety of ways, including cash pickup or delivery.

Cons: There are limits to how much you can send at once. For example, US Level One residents can’t transfer more than $2,999 in 24 hours or $6,000 in 30 days. European Level One residents are limited to €1,000 in a single transaction within 24 hours. Plus, Xoom charges a fee for each transaction.

Bank transfers

Pros: Your bank will be motivated to give you personalized attention through an account manager.

Cons: Bank transfers have poor exchange rates and high service fees. Your contractors are likely to experience hidden fees and receive less than you sent them. This method also does not provide contract management services or IP protections.

International money orders or wire transfers

Pros: People can receive money if there is no option for digital payments in the area where they live. Funds can also go straight to the recipient's bank account, so they won’t have to download an extra app or sign up for an online account.

Cons: This option has high fees, and the recipient must appear in person to receive the funds. It’s also difficult to make changes to money orders once they’re sent out, and they can be tricky to cash in certain locations.

Paper checks

Pros: There are very few upsides to using paper checks to pay contractors, although some traditional vendors may prefer checks for certain types of work.

Cons: Paper check payments are dependent on international mail services, are highly susceptible to fraud, and have high fees and long payment cycles.

SWIFT transfers

Pros: SWIFT transfers are one of the most secure options out there. They go through multiple security checks, including one for laundering, so choosing this option can reduce the risk of fraud. Plus, it’s highly likely that SWIFT transfers are available in your contractors’ respective countries.

Cons: Because of all its security checks, SWIFT transfers aren’t the speediest option. It can take at least a few days for a transaction to go through. SWIFT also isn’t the cheapest method when you factor in the exchange rate and fees from both banks.

Cryptocurrency

Pros: Although this isn’t the most popular option, paying contractors in cryptocurrency means you don’t have to worry about bank fees or exchange rates. Plus, your money transfers quickly and securely.

Cons: Your contractors are more likely to prefer a different payment method (although it’s worth asking if you’re interested in this option). Crypto can also present legal and compliance challenges since taxes can be tricker to report, and crypto’s value can change quickly.

How much do international contractors make?

Ideally, you’ll want to attract and retain new talent at the right point in time to help your business achieve its goals in a financially sustainable way. Before you start onboarding anyone, it’s worth considering the financial and social consequences of your payment structure.

With a global workforce, determining fair compensation policies can be complex. Contractor pay expectations vary from country to country, as does the cost of living. Some contractors will be comfortable telling you what they need or negotiating with you to arrive at a mutually agreeable pay rate. Others may not negotiate at all and merely accept or decline your initial offer.

To avoid a payment faux pas, consider the following strategies:

#1. Set a global payment standard by role, and pay everyone the same amount in US dollars

Pros:

• You know exactly how much it will cost your business to bring on new contractors.

• No one in the organization will feel disadvantaged or disrespected.

Cons:

• Your costs for contractors will be higher than average.

• Your labor costs (and incentives) will hinge on the strength of the US dollar.

• Your rates may not be attractive to people living in countries with a higher cost of living than the US.

#2. Localize your pay structure to meet the going rate for each country

Pros:

• You’ll know you’re offering a locally competitive rate without overpaying your contractors.

• Your international contractors can enjoy a local standard of living that is in line with their education and skills.

Cons:

• Your contractors may resent making less than contractors from other countries.

• If an international contractor moves from one country to another, they may not be happy if their wages decrease to reflect the local economy.

Unintended consequences:

Your company could be seen as taking advantage of cheap labor, fragile economies, or civic instability if you don’t have a thoughtful approach to localization. Remote cares deeply about offering fair and equitable compensation globally. We strongly advise our customers and partners to do the same, and we share practical insights on how to manage this.

Research in detail: Read through Remote’s dedicated guide that explores how to calculate compensation for remote employees

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Managing foreign exchange costs

Managing foreign exchange (FX) costs when paying international contractors can be challenging for companies, but these costs can be minimized. Here are some tips to keep in mind:

• Batch payments. If paying multiple contractors in the same currency, batch payments can reduce the number of individual transactions, minimizing transfer fees and FX conversion costs. Bulk transfers often come with better rates.

• Monitor FX rates. Timing payments when exchange rates are more favorable can result in significant savings. Keeping an eye on the currency markets and using tools that notify you when rates are optimal can help reduce costs.

• Understand hidden fees. Be aware of hidden FX fees, such as those baked into exchange rates by banks or payment processors. Look for transparent platforms that clearly show FX rates and fees to avoid unexpected costs.

• Choose the right payment platforms. Opt for platforms that specialize in international payments and offer competitive rates or low-cost currency conversion options. Some platforms might offer better rates than traditional banks and charge lower transfer fees.

These are some ways companies can better manage FX costs when paying international contractors, resulting in more predictable and cost-effective payments.

If you’re in doubt, check out Remote’s contractor payments and invoicing services.

Our platform aims to provide flexibility for global transactions between clients and contractors, enabling both parties to operate in their preferred currencies.

For example, a US-based client may prefer to pay in USD, while a UK-based contractor might want to receive payments in GBP. Traditionally, currency conversions have required manual calculations, leaving room for uncertainty due to fluctuating exchange rates. However, our platform addresses this by guaranteeing a fixed exchange rate when a contractor generates an invoice. This eliminates manual conversion work and the uncertainty around payout amounts.

How to make mass payments to contractors?

Mass payments refer to the process of making multiple payments simultaneously to a large group of recipients. This is commonly used by companies that need to pay contractors, freelancers, or employees spread across different regions or countries. 

By making mass payments, businesses can streamline payment distribution and avoid the inefficiencies of processing each payment individually.

What are the benefits of mass payments?

The key benefit of mass payments is efficiency. By automating and centralizing the payment process, companies save time and reduce administrative overhead. 

Additionally, mass payment systems can handle multiple currencies, ensuring that international contractors receive their payments in their preferred currency without the need for manual currency conversion. This minimizes errors and delays, ensuring timely payments. Many mass payment platforms also offer real-time tracking, allowing both companies and contractors to monitor the status of payments.

How can companies make mass payments effectively?

To effectively implement mass payments, companies can:

• Partner with banks. For larger organizations, partnering with local banks for domestic transfers can reduce international payment costs and speed up transactions.

• Multi-currency accounts. Holding multi-currency accounts in major currencies helps companies avoid currency conversion fees, making the process more cost-effective.

• Payment platforms. Use global payment services that support mass payouts. These platforms offer automated batch payments, multi-currency support, and lower transaction fees.

• Payroll solutions. Employ automated payroll services like Remote, which handle compliance, taxes, and contractor payments across different jurisdictions.

Partner with Remote Contractor Management and make mass payments to your global contractors easily. Our simple and reliable platform allows for bulk payments processing across 200+ countries and jurisdictions, enabling efficient management of contractor payments⁠.

Offering benefits to international contractors

Fringe benefits packages can be a great way to attract the top contractors in a region and, in some cases, may be more important than pay. Just as pay varies between countries, so do benefits packages.

If the contractor has access to socialized healthcare, like in the UK and Australia, health insurance will be of limited value. In other countries, the norm is to provide additional benefits that may seem unusual in the US. For example, in Latin American countries, contractors may look for childcare subsidies and food allowances. You can also consider offering paid time off for public holidays, cultural or religious festivals, and vacations.

Keep in mind that fringe benefits are taxed differently overseas. You need to understand the fringe benefit tax obligations for each country in which you have contractors. In addition, while you can offer benefits to international contractors, crossing certain lines could lead to misclassification.

Research in detail: Use Remote’s Country Explorer to find specific data about typical benefits and holidays in more than 170 countries.

If you’re confused about the best way to approach pay and benefits policies for international contractors, Project FAIR has developed principles and standards for fair reward. Project FAIR is supported by the University of Edinburgh Business School and focuses on helping international aid organizations arrive at fairness in overall compensation through a combination of pay and benefits.

Their free toolkit includes the following:

• A self-assessment quiz designed to help you think through different aspects of your pay and benefits

• Key strategic considerations to make as you review your international contractor compensation policies

Project FAIR bases all its efforts on the United Nations’ Sustainable Development Goals and aligns with the Core Humanitarian Standard on Quality and Accountability. Their five principles and standards for fair compensation across international borders provide excellent guidance for startups and businesses who want to ensure their contractors feel valued and connected. These principles are as follows:

1. Ethical Reward: Your compensation policy for international contractors is fully aligned with your mission and values.

2. Transparency: Compensation is transparent, evidence-based, and easy to understand.

3. Equity: Compensation packages for different contractors are fair, consistent, and justifiable.

4. Sustainability: The compensation you provide ensures long-term organizational financial viability, and pay levels ensure sufficient wages for all contractors in all countries.

5. Compliance and Risk: All compensation policies and practices meet local and international legal and regulatory requirements while also respecting broader organizational social responsibility.

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Preparing offers for international contractors

There’s no universal contract for a global workforce. Once you’ve decided how you want to approach compensation, you can work with local experts to help you prepare the correct paperwork to comply with local employment laws.

Another option is to work with an employer of record (EOR) like Remote to onboard, manage, and pay contractors in multiple countries around the world — or you can use Remote’s contractor management service to scale your team with maximum speed. Here’s the best part: you can onboard international contractors compliantly in minutes with customizable contracts. This lets you focus on growing your business instead of getting lost in the details of international labor laws and work contracts.

Find out more about the fast, hassle-free way to onboard and pay international contractors with Remote.

Do foreign contractors have to pay taxes?

Yes, your international contractors will have to pay taxes in the country where they live and work. Tax obligations should be clearly stated in the work contract, and both contractor and client should be aware of their respective liabilities.

Depending on the country, you may have to withhold payments for income tax, social safety net payments, or national pension fund contributions, although such payroll deductions for contractors are very rare. Don’t trust your contractor to know the local laws. You’ll want to ensure your business is compliant with foreign government mandates.

If you’d like help understanding the tax obligations for foreign contractors working in different countries, find out how Remote can help you hire international contractors with minimal hassle. Remote’s contractor platform automatically generates the right US tax forms for you to send to the US federal government. For overseas contractors, we offer compliant contracts on a self-service basis.

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Do overseas contractors need a 1099?

1099 is the IRS code for US-based contract workers, not contract workers in general. The IRS doesn’t require companies to withhold taxes or submit income reports for non-US contractors engaged in work that takes place outside the US.

So, for example, if you have a US contractor working for you while they live in Peru, you’ll need a 1099 for them. What about a Canadian contractor living in Canada? As they aren’t subject to US taxes, they don’t need a 1099.

Companies are required to submit a 1099 for overseas contractors who are:

• US citizens living abroad but working for a US company

• US citizens who perform some work in the US but are based internationally

If you’d like to learn more about 1099 form management and requirements for your team, make sure you read through Remote’s dedicated "What is a 1099 form?" guide.

Other countries have their own rules for hiring overseas contractors. The UK classifies contractors according to IR35 legislation, and other countries in the EU set their own labor laws. These rules are constantly changing, and hefty consequences can result for companies that incorrectly classify their international employees as contractors — from monetary fines and back taxes to loss of IP.

Remote’s Contractor Compliance Checklist can help you determine if a new hire should be treated as an employee or an international contractor.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

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What are the benefits of hiring foreign contractors?

The most obvious benefit to hiring foreign contractors is the ability to work with top talent, regardless of where that talent lives. It’s quicker and easier than hiring an employee, and international contractors are often more cost-effective because you don’t have to pay for benefits.

A contract relationship is also a good way to test-run someone for long-term employment, allowing you to convert a contractor into an employee at a later date. For instance, you might hire a contractor in a foreign country to work on a year-long project. During that time, the contractor might turn out to be a great fit for your company culture. Also, they learn about your work processes and increase their skills while collaborating with your internal team. At the end of the contract, you can offer your contractor a full-time position and bring in someone who’s already familiar with your company rather than recruiting and hiring from scratch.

Best of all, international contractors arrive ready to contribute and require very little of your time and other resources before they begin adding value to your organization.

Research in detail: Read more about working with international contractors with our expert guide to hiring international contractors.

What are the pros and cons of working with international contractors?

One of the top reasons to work with international contractors is the ability to remain agile when sourcing talent for your project, especially if you have short-term requirements.

With an unlimited talent pool, you’ll have more potential candidates to choose from. You can also hire overseas contractors more easily than employees.

And, just like with hiring overseas employees, international contractors bring different perspectives, knowledge, and skills to the table, driving innovation and growth. Ultimately, hiring overseas contractors helps you create a more diverse and inclusive workforce. More diversity can benefit your business and help you retain your existing workers — over 60% of adults say companies that focus on diversity and inclusion in the workplace are something they want to see.

There are drawbacks to working with international contractors, however, including the following:

• The expense of working with them over long periods of time

• IP exposure risk in foreign countries

• Compliance regulations in different countries

• The time needed to manage foreign payments

• HR and benefits for a global workforce

Before deciding what employment model is right for your business, explore the pros and cons of working with international contractors.

What else do I need to hire compliantly?

If you’re thinking about hiring independent international contractors, you’ll want to consider what’s required to stay compliant in every country in which you operate. Some of the areas to investigate include the following:

• What foreign tax obligations will you have?

• What tax forms will you need to lodge with the IRS?

• How will you develop localized contracts for each country?

• Do you have access to legal advice in the countries where your foreign contractors reside?

• Are there HR consultants in the local area whom you trust to give you good advice?

• Are you entitled to your intellectual property by default, and how do you protect yourself in advance?

• Is there a minimum or maximum duration for contract workers in the country?

• Will your company need a local presence or branch office to operate in the country?

• What currencies can you use for payment?

• How will you manage foreign exchange?

The more you know before entering into a contract, the better positioned you will be to have a fruitful relationship with global contractors while avoiding unnecessary legal problems and liabilities. Remote makes it easy to work with international contractors all around the world.

What are the penalties for misclassifying workers?

When it comes to misclassifying employees, intent is not taken into consideration. Making a genuine mistake will attract the same harsh consequences as an intentional misclassification.

Misclassifying your contractors can attract penalties and fines, subject your company to scrutiny from foreign governments, and impact your ability to operate in a country going forward. You can even lose rights to your company’s intellectual property.

Luckily, contractor management doesn’t have to be difficult or expensive. Remote’s platform ensures that you begin attracting, onboarding, and contracting global talent without ever needing to second-guess your compliance standing overseas. We take care of the legal headaches so you can focus on building your international dream team and growing your business.

Find the right contractor management platform

If you would like a quick and easy way to automate your contractor management, choosing a contract management platform like Remote is an excellent place to start. You can begin sourcing, onboarding, and paying international contractors in just a few minutes.

With the right contractor management solution, you’ll be able to pay your contractors in their local currency without any hidden fees. Automated contractor management software also simplifies compliance management to protect your business from legal complications.

Remote’s Contractor Management platform provides you with the peace of mind you need to hire contractors in compliance with local labor laws while reducing the management burden of filling out tax forms.

Here’s the best part: you can build a global workforce, accept invoices, and pay contractors across the world. Easily manage and approve one-off and recurring invoices using the Remote platform and initiate one payment for all contractors in your local currency. Our Expert Guide to Working with Remote Contractors covers all the details you’ll need to know.

Book a demo with one of our compliance experts to learn how Remote can help you find, hire, and pay international contractors compliantly.