How to Pay Remote Contractors Across Europe:Key Steps for a Smooth Global Payroll

With European countries like Cyprus, Romania, Bulgaria, and many others, the continent is a hot cake for teams looking to hire remote contractors.

But as we all know, hiring is only the start of the journey.

An important aspect of getting your contractors' trust and keeping them in your team longer is sorting out payments.

There are lots of tools out there that claim to process payments for teams hiring European talent.

However, not all tools or platforms are the same.

And aside from these resources, there are also legal, regional and tax regulations that one needs to adhere to.

This guide is here to help. We’ll walk you through the ins and outs of paying European remote contractors. From regulations and payroll to the best tools for the job, you’ll walk away with full knowledge on the next step to take to hire and pay the best talent from Europe.

Let’s get started.

Understanding the Structure of Europe: EU, EEA, and EFTA

True. Europe encompasses the entirety of the continent. However, it also has several economic regions, which all come with different rules. Let’s look at these divisions.

• The EU (European Union): This is a group of 27 countries that share many regulations, including easier payment processes for businesses and contractors. Many of these countries also use the euro (€) for transactions across the region.
• The EEA (European Economic Area): Made up of the EU countries plus Iceland, Liechtenstein, and Norway, with its purpose being to allow for free business movement. Rules are mostly similar to the EU but may vary slightly.
• The EFTA (European Free Trade Association): Includes Iceland, Liechtenstein, Norway, and Switzerland. EFTA members, especially Switzerland, may have different agreements with the EU, so you might see some regulatory differences when paying contractors in these countries.

Each of these groups within Europe has unique rules. And these rules can affect payment processes, tax handling, and other business operations. Knowing which group a country belongs to helps streamline contractor payments.

Brexit’s Impact: Working with UK Remote Contractors

The United Kingdom official left the European Union in 2020. This was after a referendum held in 2016. The entire process of the UK withdrawing from the EU was termed Brexit and has impacted a lot of activities within the country and around the continent. 

Here are some complexities that may arise because of this decision, and you should consider them when hiring and paying remote contractors from Europe.

• Transaction fees: Payments between the UK and EU may have added fees.
• Taxation differences: VAT rules have changed, so check both UK and EU requirements to ensure correct tax handling.
• Classification rules: Worker classifications may vary, so be sure contractors are categorized correctly to avoid compliance issues

Choosing Payment Methods for Contractors

Like many parts of the world, several tools exist in Europe to help teams pay remote contractors. Each platform comes with its own unique features, so let’s explore some of the options in the industry. Here are the main options for paying contractors in Europe:

Bank Transfers

Banks, from different countries, are not, on their own connected to make payments. They need a mechanism to connect them for seamless transactions. And that is where these systems come in. When paying contractors in Europe, you’ll encounter these two bank transfer systems:

1. SEPA Transfers 

Great for Euro payments within Europe, treated as domestic transfers and usually inexpensive. SEPA (Single Euro Payments Area) is a payment mechanism that facilitates and standardises electronic payments denominated in euro across Europe. Under the SEPA mechanism, all bank accounts must be identified by an International Bank Account Number (IBAN) and a Bank Identifier Code (BIC)

2. SWIFT Transfers

The Society for Worldwide Interbank Financial Telecommunications, or popularly referred to as SWIFT, is also used for payments within Europe. It’s a mechanism that’s used around the world to send money and securities between financial institutions. All you need to know is that SWIFT works for international payments outside the Eurozone but can be costly due to fees.

Digital Payment Platforms

Aside from banks, we have lots of digital payment platforms that you can use to pay remote contractors within Europe. Let’s explore some of the best ones in the game:

1. PayPal 

Paypal has been around for a long time and a lot of teams use it to pay their remote contractors and freelancers in Europe. It is easy to use, but cross-border fees can be high.

2. Arbonum

Good for making payments. However, Arbonum goes beyond just paying your remote contractors. It also has global payroll, contracts, benefits & insurance administration, and contractors KYC checks all built in. So with a single platform, you can manage your entire remote contractors, without any hidden costs. Check arbonum here: https://www.arbonum.com/

3. Wise (TransferWise)

Wise, which started as TransferWise, has been around for a long time. It allows businesses and individuals to send and receive money around the world. It’s one of the preferred payment methods for many freelancers and remote workers. And it’s known for transparent rates and low fees, ideal for multi-currency payments.

4. Payoneer 

You can use Payoneer to pay your European 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. It’s good for managing payments from different countries and offers low fees.

5. Revolut 

Often referred to as a "neobank", Revolut has a number of banking services to help you pay remote contractors, in Europe and around the world. It offers real-time currency exchange with low fees; popular for international payments.

NB: Each platform has its pros and cons, so choose one based on your contractor’s location, currency, and the level of integration needed.

Dealing with Payment Regulations

Regulations in Europe include general EU laws and specific country laws. For instance:

• PSD2 Directive: This is a major EU law that makes digital payments safer by requiring strong security, such as two-factor authentication.
• Country-Specific Laws: Each country may interpret EU rules differently, leading to unique requirements.

Examples include:

• Germany vs. Spain: Germany requires invoice payments within 30 days, while in Spain, payments can be extended to 60 days.
• France vs. Poland: French contractors handle their own social security, while Polish contractors can choose between public and private options.

Handling Taxes and VAT

Understanding VAT and tax obligations in Europe is crucial when paying contractors you hire from the region. Each country has different rules:

• VAT Requirements: Countries like Italy have strict VAT rules, while others like the Netherlands are more flexible.
• Social Security: Contractors in some countries must manage their own contributions, while in others, there’s flexibility.

Privacy and Data Protection - GDPR

At the core of data protection and privacy in Europe is the General Data Protection Regulation. The GDPR is a comprehensive European Union law that regulates the collection, processing, and storage of personal data of individuals within the EU. 

It aims to give individuals more control over their personal data. To comply, make sure your payment processes comply with the GDPR (General Data Protection Regulation) to protect your contractor’s personal information.

Using an Independent Contractor Agreement

A contractor agreement is essential. It outlines the payment terms, work expectations, and confidentiality requirements. This ensures both sides understand the arrangement and minimizes legal risks.

Conclusion

1. Know the Region’s Rules: Understanding European regions (EU, EEA, EFTA) and Brexit impacts will help you manage payments effectively.
2. Choose the Right Payment Method: Bank transfers, digital platforms, and e-wallets offer various ways to pay contractors across Europe.
3. Stay Compliant: Be aware of tax, VAT, and data protection regulations to avoid penalties.
4. Use Clear Contracts: An independent contractor agreement is vital for clarity and compliance.

By following these steps, paying remote contractors in Europe becomes much more manageable and compliant. 

Europe offers incredible talent and market access, and a clear payment plan helps build strong relationships with your European contractors.

Start hiring and paying remote contractors from Europe now

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