So why does every business seem to want to hire international contractors? 

It’s for good reason. Huge cost savings depending on the location of contractors, access to a wide range of talented individuals, and an opportunity to scale the business beyond borders. 

While this sounds enticing – there is one question that businesses have been asking. How do we pay these international contractors when they are spread around the world? We should also not forget that they come from different countries, with different currencies, and varying laws. 

This is the question we want to answer in this blog post.

Table of Content

Before we proceed, here’s a summary of what we would cover:

  1. What is an international contractor?
  2. Advantages of working with international contractors.
  3. How do you deal with taxes when working with international contractors?
  4. What is the easiest way to pay international contractors, minimizing administrative hassle?
  5. Which currency should you use to pay your global contractors?
  6. Factors to consider when choosing a currency for international contractor Payments.
  7. Payment schedules to follow when paying international contractors.
  8. Best practices for working with international contractors.

Who are international contractors?

International contractors, also known as foreign or overseas contractors, are independent workers who provide services to a firm while residing in a different country from the firm. For example, a South African game developer who works for a US-based firm on contract basis is considered a global or international contractor. 

What sets international contractors from employees is that contractors work on their own terms. 

They work on contract basis, manage their own taxes and benefits, and set their own hours. International contractors also decide which company to work for and as a result, a firm does not have much say over what their payroll and other work arrangements are.

It should be noted, however, that not all contractors have the same regulations or laws governing their work. How they file their taxes, determine their benefits, and run their payroll differ from country to country. For example, when working with a US-based global contractor, the laws governing their arrangement with you as a business would be different from when working with a Maltese-based international contractor. 

However, there are some fundamental characteristics that define every global contractor, which include the following:

  • They are 100% independent – and operate using their own firms, sometimes through freelance platforms.
  • Highly remote – and perform their tasks from any location of their choice.
  • The work with international contractors is usually categorized into certain specific contracts or projects, as compared to full-time employment.
  • The work of an international contractor is usually specialized and sometimes, may not be readily available in the firm.

Advantages of working with international contractors

As a business, the biggest question has always been: why should we hire a global contractor? 

Well, here are the benefits that come with hiring international contractors:

It is highly flexible and scalable

There are specific tasks that do not require a full-time employee. Others are just once-in-a-while assignments. With such tasks, an international contractor is the best option as a business. They will help you scale up or down based on your needs.

Access to worldwide talent

The talent economy is filled with people with special skills and diverse perspectives needed for innovation. However,  a chunk of this talent is not found in the same location as your business. Which is why it’s important to look beyond your geographical borders for talent. Hiring international contractors will not only give you a competitive edge in your industry, but also a way of practicing diversity at work.

Cost-effective

Thanks to the differences in cost of living around the world, international contractors can offer their services at lower rates compared to their local counterparts. This can significantly reduce your labour costs as a business – and help you save money.

Reduce overhead and operational cost

Engaging international contractors can reduce the amount spent on running the day-to-day activities of the office. Instead of needing a new desk or expanding an office because of new in-house team members, you can hire an international contractor. They don’t have to come to the office, no need to buy them new office furniture, and their existence doesn’t add much overhead costs to your business, especially for firms with physical offices.

Expand international operations

One of the best ways to expand operations as a business is to go beyond borders. Hiring international contractors is the surest way to achieve this goal. They will help you navigate local cultures, explore opportunities available in foreign markets, and build relationships with your new location.

How do you deal with taxes when working with international contractors?

Taxation is a complex topic – and more complex when dealing with contractors in a different jurisdiction. But certain principles cut across. Here’s how to deal with taxes when working with international contractors:

  1. For income tax, most contractors handle that on their end. And as a business, you don’t have to do anything. Once they are paid, they file their own taxes.
  2. Laws on taxation are different for every country, but you sometimes need to withhold payments for social security payments, taxes, and pension for certain contractors.

However, you need to be prepared as a business to deal with any tax obligations that may be attributed to you. Here are important steps to take to stay safe and legal:

  1. Don’t put your trust in the contractor only. You have to know how taxes work for each international contractor you hire. This is to keep you safe and ensure you follow the right laws.
  2. The responsibility to pay tax should be clearly stated by each side. Is the business in charge of paying taxes? Does that include pensions and social security? Everything should be documented.

What are the platforms to pay international contractors?

There are many platforms out there that businesses use to pay international contractors – but not all are the same. Here are some of the best:

Arbonum

When it comes to paying international contractors, Arbonum leads the pack. With more than 5k teams globally using the platform, Arbonum handles payments for game development teams, software engineering teams, remote startups, small businesses, digital marketing agencies, and more.

Since it’s built purposely to make the work of contractors and their teams easier, Arbonum prides itself for enabling fast and reliable multi-currency payments around the world. The firm also has 24/7 support for when your payment has an issue, either from the firm or from the contractor.

What makes Arbonum even more powerful is that it’s not just built for payments. 

So what other things can Arbonum do?

  1. You can create contractors for your international contractors instantly and invite them to work for your team through the Arbonum platform.
  2. Arbonum provides multi-country payroll, so hiring international contractors is simple and straight forward.
  3. It also offers KYC for contractors, so before you hire an international contractor, you’re sure of their identity and security.
  4. Want to administer insurance and benefits for your international contractors? Arbonum has all the documentation to do that as well.

Wise

Wise has been around since 2011, and is one of the platforms that you can use to pay international contractors. Wise has lots of features, including a multi-currency account to hold money in different currencies or pay your contractors in different countries. 

Additionally, Wise offers you bulk-payment features, has an interface where you can manage your spending, and also offers very good interest rates. 

However, unlike Arbonum, Wise is more focused on offering a payment gateway, spend management, and mostly international transfer. That is to say that you don’t have a single place to manage your contractors and their work, calculate their payroll, or handle KYC and other compliance stuff.

Payoneer

Since its founding in 2005, Payoneer has processed transactions for millions of customers around the world. The platform now supports up to 22 languages, available in over 190 countries, and supports up to 70 currencies.

Payoneer can be used by teams to pay their international contractors because of the many features it offers. Its card has also become very popular, enabling freelancers, contractors, and remote workers to have access to their money regardless of location. 

When it comes to contractor management though, Payoneer doesn’t have a single place to manage their tasks. It also doesn’t do KYC, Payroll, and benefits management, like Arbonum does.

PayPal

Paypal checkouts on some online stores, instant payments, buy now pay later, etc. When it comes to paying international contractors, PayPal is definitely among the list with these features. 

But like many of the platforms we have reviewed, PayPal may give you an interface to manage your spending and payments for contractors. However, that’s where it probably ends. Want to verify the identity of your contractors? Not possible. Want to do Payroll inside PayPal? Doesn’t work. These, and many others like your inability to have a single place to manage everything about your contractors makes PayPal not so attractive when compared to Arbonum.

Bank Transfers

Bank transfers are a common way to pay international contractors. They offer a direct and secure method for sending funds across borders. 

A typical bank transfer works like this: request your contractor's bank details and use the information to initiate the transfer. Once that is done, there’s a processing period that the contractor has to wait to get their money. And as we may all know, this can take somewhere between 2 and 5 business days. 

However, there are some potential troubles with bank transfers. 

International bank transfers can incur significant fees and processing time can delay beyond the given time depending on the destination country. Also, banks are known to have not-so-good exchange rates, and in addition, you don’t have enough information to track the transfer.

Which currency should you use to pay your global contractors?

It’s never a one-size-fits-all when it comes to paying international contractors. Here are a few options available to you depending on the relationship with the contractor:

Local currency of the contractor

This is where you decide to pay contractors in their own local currency. With this, the responsibility of exchanging the currency is on you as a business. While this is convenient for the contractor, it can lead to cost fluctuations for you whenever there are unstable exchange rates.

Your company’s official currency

If you run all your finances with a single currency as a company, then you can pay your contractors using that. It may be a little inconvenient for contractors not using that currency, but it’s great for your budgeting as a firm.

Using a major international currency

This option is where your business and the contractor opt to use a global currency, like the USD, GBP, or EUR. Sometimes, fluctuating exchange rates will affect both parties, but it’s kind of the middle ground to make everyone happy. 

Factors to consider when choosing a currency for international contractor Payments

Whatever currency you and the contractor decide to use, always remember to take the following into consideration:

  • What’s the preferences of the contractor?
  • Are there any high volatilities with currencies? And how does that affect us?
  • The infrastructure to make this payment possible – banking, payments, etc.
  • Are there any tax and legal regulations that affect our payments agreement?

Payment schedules to follow when paying international contractors

You’ll have several schedule options to choose from when it comes to paying international contractors. Here are some of the most popular:

Hourly pay

With hourly, contractors track their time and invoice your business for the hours worked. This is common for ongoing work, but requires that you both agree on billing frequency and rates.

Per Project basis

Here, a fixed fee is paid after the project is completed. While there’s a form of predictability for your business, it could be risky for contractors if the scope of the project changes.

Upfront/Down Payments

You can choose upfront payment (paying the full amount before work starts) though it is less common and risky for your business. However, down payments (partial payment upfront) can help build trust between your firm and the contractor. Just remember that whichever option you go for carries some risk for either the business or contractor.

Retainer

A regular payment for ongoing work or availability, similar to a salary. This may be a preferred option for contractors who regularly perform various tasks. In a way, it also provides stability for both parties.

There’s no “best” pay structure here. The optimal schedule depends on the nature of the project, the relationship between the parties, and legal considerations. Always remember to communicate these terms, negotiate, and document your final agreement. 

Best practices for working with international contractors

Make sure your firm and the contractor sign a written contract. It should outline the scope of work, deliverables, timelines, payment terms, termination clauses, and intellectual property ownership.

  • Set communication channels, expectations for response times, and availability of each party.
  • Always ensure you properly classify your contractors based on their location. 
  • Know your contractor's jurisdiction and the tax obligations they have.
  • Familiarize yourself with any labor laws or regulations that apply to foreign contractors in their jurisdiction.
  • Select a payment method that is secure, cost-effective, and convenient for both parties.
  • Decide on the currency for payment upfront to avoid disputes later on. 
  • Be mindful of cultural differences and adapt your communication style accordingly.
  • Before hiring, thoroughly vet potential contractors, check references, and review their portfolio.

Final morsels

There are a lot of benefits to hiring international contractors. Whether you want specialized talent or to scale your business abroad, they will help you achieve that. 

However, remember and be prepared for challenges. Anticipate potential obstacles like language barriers or cultural differences and have strategies in place to address them.

Use ARBONUM to make hiring and paying international contractors easy.