If your business is scaling rapidly, hiring international independent contractors is enticing.

The world's population is now connected to the internet 24 hours a day and the diverse pool of global talent and skills has never been more accessible. There's instant communication, job marketplaces for almost every industry you can imagine and a willing workforce.

For most modern businesses, it's a no brainer. You can scale your team and import specialist skills, all without having to navigate the burden of traditional employment contracts.

Now, while finding and hiring independent contractors internationally is straightforward, paying foreign independent contractors is still a nightmare. 

Nothing frustrates independent workers more than a company that doesn't pay their bills on time.

Fortunately, where there's a problem, there's a SaaS company trying to solve it. In this article, we'll take you step by step through the problems and solutions to paying international contractors. So you can reduce company expenses and administrative burden, along with keeping the top skilled people engaged with your organization.

What is an international contractor?

An international contractor is simply a self employed person who offers a specific service to a company. They're not considered employees of a business and have the ability to work with multiple companies simultaneously, choosing what jobs to take on.

The exact legal definition of a contractor does vary from country to country. Many jurisdictions, particularly in the European Union, have strict classifications as to whether a person is classified as an independent contractor or an employee, while other areas of the world have more flexible frameworks they work with.

It's important to understand whether your team falls under the definition of a contractor or employee because that directly affects their employment rights, taxes and payment requirements.

If you accidentally classify an employee as an independent contractor, your company can be exposed to regulatory penalties and employment tribunals. Simply put, it can cause unnecessary mess within a business, quickly damaging the reputation of a brand's staff treatment.

So what's the benefit of a contractor over a traditional employee? 

Well, a contractor relationship retains high flexibility when scaling your workforce. You can access highly specialized skills on a short term basis, for a single project or for a predefined amount of time. 

This flexibility means international contractors might come and go regularly from your organization. Some months, you might work with none and in other months, dozens might be used to complete a project.

Flexing resources like this means that businesses can quickly accumulate a burdensome list of administrative duties without the proper technology in place. Without proper processes, this leads to a litany of errors, which is costly for a business and frustrating for contractors.

If you're new to using contractors, the best ones that reliably deliver the results are worth their weight in gold. So you want to keep them happy no matter what.

How to pay international contractors

There’s a lot to think about when paying contractors internationally: currency conversion, the time it takes to send abroad and the added costs for both parties.

There are several options and routes you can go, all with their pros and cons. Let's take a look at the top ways to pay international contractors:

1. International wire transfers

International wire transfers may be familiar to traditional businesses. They provide the security and comfort of the banking payment rails. 

Unfortunately, this is quite an outdated way to pay international independent contractors. A typical wire transfer takes anywhere between one and five days to complete. Contractors are left in the dark as to when the payment will actually reach their account.

Once the money leaves your business bank account, you're at the mercy of payment processes and banking intermediaries to deliver the payment.

Particularly for smaller payments, the fees are excruciating, often reaching $50 per transfer and charged by both sending and receiving banks.

Now, for a large organization, this might seem acceptable, but if you're making regular payments, that's going to add up to thousands over the course of a year. And for the contractor, it directly deflates their earnings.

2. International money orders

An international money order or a paper check is literally a paper document. It is a traditional way to send money abroad and relies on banks or post offices.

It requires you to work with the bank to create an international money order with the recipient's name, address and bank details. The order or check is then physically mailed to the person, who then needs to exchange it for cash or deposit it into a local bank account.

Companies like Western Union are very well known for processing money orders and helping to make payments, particularly to developing nations. They can be useful as you don't need a physical bank account to send or receive money.

But fees are incredibly high due to the processing and mailing processes and it can take one to three weeks or longer for orders to reach the recipient. 

They're not convenient… they're slow, cumbersome and outdated. Any company still using money orders is probably going to look behind the times, especially when digital payment platforms now exist.

3. PayPal and digital payment networks

Most international businesses and contractors will be familiar with platforms like PayPal, Wise and Pioneer. They allow you to grab your phone or laptop, log in and start making payments to other account holders.

In PayPal's case, you can send money from one PayPal account to another via the use of an email address. Simple and easy. Unfortunately, PayPal has ever increasing fees, charges and currency spreads, making it expensive.

It's why platforms like Wise were developed as a more cost effective way to transfer money abroad. With Wise, you can hold multi currency accounts, like having multiple bank accounts and switch between currencies as you need.

This then allows you to send money in the correct currency to bank accounts around the world. While this can be more effective than PayPal, it adds another layer of complexity to a business as you'll need to start managing multi currency accounts and reaching into certain developing nations can be restrictive.

Compare that to an invoicing and payment tool like Acctual and the headaches disappear. It's the best of all worlds. It allows you to make payments in your chosen currency and your international contractors receive funds in their preferred currency. All without having to manage multiple currency accounts or drown in high fees.

Plus, with the ability to use stablecoins, there's access to a wider section of the world's workforce, including more developing nations. So, as a business, you could decide to pay in USD, but your client in Nigeria could receive funds in USDC stablecoin or vice versa.

All of this integrates with your accounting and ERP systems to reduce the administrative burden and avoid expensive human errors.

4. Global contractor management platforms

Global contractor management platforms can help organizations manage the entire process of hiring organizing and paying contractors across the world. They have tools built in for onboarding, compliance, communication and payments.

In theory, they are platforms that help to streamline the whole process. The platforms have enhanced security protocols while maintaining a user friendly experience for your teams.

For large organizations, they can be a compelling way to gain efficiency. But it's important to evaluate software like this before integrating it into your company.

A big problem that people find is the lack of flexibility and customization. Every established business has its operating systems and building in new software that could touch every aspect of an organization is tough.

For some, it can feel almost impossible to onboard. Adding to this, it can make it challenging with unique payment requirements or non standard contractor working agreements.

This might be particularly frustrating for growing startups that need to be flexible in how they work. You're also tied into high monthly fees and a per transaction cost. For large volumes of contractor work, it runs up a serious bill. 

5. Using a global employer of record

If you've ever wondered how companies employ so many staff overseas, it's likely they're using something called an employer of record (EOR). This is a company that acts as an intermediary. Technically, this middleman company is the official employer of the contractors on behalf of a business.

From there, workers can be seconded to your business or you simply pay the employer of record for the costs involved with hiring contractors.

The beauty of an EOR is they can handle the complexities of compliance and employment laws within the specific jurisdictions they operate. It takes the burden off of your company's shoulders, knowing that someone else is technically in charge of the employment procedure.

Of course, this might sound like a dream, but there's a serious cost involved. Markups on contractors can range anywhere between 15 and 30%, a significant overhead.

This is either going to cost your company a lot more in the long run or reduce the budget available to actually hire and pay contractors. And if budgets are affected, the level of skill or number of contractors you're able to hire is going to be reduced.

In addition, your relationship with a contractor changes as well. With this extra layer of administration, managing and contacting contractors becomes more cumbersome. For an independent worker, dealing with an employer of record can be frustrating. While they might feel like they're working for your business, payment delays, compensation disputes and taxes all need to go through the employer of record. 

5. Emerging payment technologies

Cryptocurrencies and stablecoins are decentralized payment systems running on blockchain technology that provide almost instant settlement times and cheap transaction fees. Generally, you'll find there's no percentage markup to process a payment and flat fees can run as little as just a few cents.

The really neat thing about this technology is its accessibility. For anyone to send or receive a cryptocurrency, there's no requirement for a traditional bank account or integration with the traditional finance system. It means essentially you can hire and pay contractors anywhere in the world at any time.

For individuals, particularly those in unbanked developing nations, it offers a route to working and applying their skills abroad. And for businesses, it provides fast and cheap cross border payments. It's one of the standout features of platforms like Acctual, which allow you to make and receive payments using stablecoins like USDC directly to and from crypto wallets with integrated invoicing.

The only downsides are fast changing regulatory frameworks that businesses need to stay on the right side of, including the legalities of cryptocurrency and tax reporting in certain countries.

How to optimize international contractor payments

As we've seen through this article, there are many different aspects to understand and overcome when paying foreign independent contractors. 

Currency management concerns

Managing multi currency accounts and payments across different jurisdictions requires careful management. You need to understand what currencies you will hold funds in the long term and the risk of exposing cash flow to exchange rate fluctuations.

Businesses might not notice small fluctuations in payment values, but for individual contractors, even a slight deviation in currency exchange rates will directly affect their income.

Using multi currency accounts in the contractor payment currency can reduce the fees and risks associated with regular currency conversions. Or working with contractors in stablecoins that are pegged one to one to the US dollar can get rid of currency conversions altogether. Rates can then be agreed in a set currency which never deviates in value.

Without a strategic approach to your currency management, it can erode profit margins, cause unnecessary costs and strain relationships with your contractors.

Fee structures and cost optimization

It's important to check foreign exchange fees with banks and payment platforms. They can range anywhere from 0.5 to 5% above exchange rates. Banks tend to charge the highest markups, whereas emerging payment platforms are on the lower side.

Transaction fees can vary wildly across payment methods. As we've seen, cryptocurrencies can cost as little as a fraction of a cent, whereas traditional payment methods can hit $50.

This is an important consideration based on the size of payment you're making. For smaller payments, using bank transfers or wire transfers isn't efficient. The cost of the fees associated can almost be as much as the payments you make.

On the other hand, if you're making large payments, thousands or tens of thousands of dollars, then you might feel more comfortable using the security of traditional banking infrastructure. The associated fees are less in proportion to the size of your payments. 

If you're doing high volume payments, then it's always worth discussing this directly with your payment processors to see if you can get a better deal on your rates.

Payment efficiency and timing

When you're considering how to pay international independent contractors, understanding the payment frequency (aka when and how often you make your payments) is important to ease the administrative burden.

If you're hiring a lot of contractors, the last thing you want is a bespoke payment relationship with each of those individuals. It'll leave your poor accounts team drowning in invoices, payment currencies and different systems. You'll find yourself logging into internet banking, PayPal and crypto wallets on a daily basis just to keep everyone happy.

A professional organization will set out how it makes payments per milestone or on the completion of projects. This could then work out as monthly, bi weekly or when a project is completed for making payments and also include how contractors get paid.

This is another helpful feature in a system like Acctual, which allows businesses to pay how they want and contractors across the world to receive payment in their preferred currency. So, as an organization, you can set out your procedures but still retain flexibility when paying foreign independent contractors.

Payment documentation for international contractors

Every jurisdiction has a specific set of rules on the required documentation and information to include on invoices. Using a payment platform with digital invoicing tools can help standardize this documentation process across different countries and various contractor relationships. It will help you create consistency and maintain compliance.

The best systems enable you to include clear payment terms such as payment methods, currencies and due dates, whilst also easily maintaining brand consistency and payment clarity.

But beyond this, it doesn't just help satisfy compliance needs. It unlocks better business efficiency, improves contractor relationships and reduces errors causing extra costs to an organization.

International tax compliance considerations

Earlier we discussed the definition of a contractor versus an employee. Of course, this is important to make sure the classification of your workers is correct, but it also has a direct correlation to the tax compliance in every jurisdiction.

Tax withholding obligations will vary dramatically from country to country. Some locations need businesses to withhold tax on all payments, while others have exemptions and international treaties.

When selecting the location of your contractors, looking for countries with tax treaties can significantly reduce or eliminate the need to withhold tax requirements and even help save 15 to 30% on payments.

Even if there are treaties involved, contractors might still be required to provide documentation and forms such as IRS form W8BEN for foreign individuals or foreign countries. This enables payments to be made with no tax withholding.

There's also VAT or GST calculations to consider. These sales taxes vary across jurisdictions and the rates at which contractors pay vary. Quite often, you'll find small individual contractors won't be subject to these sales taxes, whereas working on larger contracts with the most highly skilled contractors or other businesses might require these additional sales taxes to be included.

Remember, tax compliance shouldn't be optional or an afterthought. It's a fundamental part of a business and without proper consideration, it can cause compliance issues or completely erode profit margins if tax positions are not correctly optimized.

Payment protection and security

Working across borders with contractors adds a new layer of fraud and security to take into account. Transferring money abroad is likely to include extra verification processes.

You should ensure that the payment systems you are using fall in line with requirements such as anti money laundering (AML) and know your customer (KYC) regulations, along with adhering to restrictions like the OFAC lists.

This is a critical point to understand as a business. It means that you're protected from hiring and paying people in restricted or embargoed countries.

Adding to this, data security is a growing concern around the world. It's a particularly hot topic in Europe, where GDPR regulations and financial monitoring come under ever tightening restrictions. 

Simplify International Contractor Payments with Acctual

Acctual brings all of your cross border payments into one platform. It allows you to handle both fiat and stablecoin payments for complete flexibility.

There's no need to worry about managing multi currency accounts or frustrating freelancers with high transfer fees. It's not just a bonus for your business, but for foreign contractors, it allows them to invoice quickly and flexibly.

As a business, you can make payments in your preferred currency while your contractor receives funds in their preferred currency. 

This could be done from fiat bank account to fiat bank account or between fiat accounts and stablecoin wallets.

For example, if a business in the US wanted to hire an independent contractor in Nigeria, the contractor could invoice your business with the options for you to pay in either fiat in US dollars or stablecoin like USDC. Then, the contractor can receive funds in either their crypto wallet or local bank account. All currency switches happen automatically behind the scenes to create a smooth payment relationship.

The addition of a batch processing feature gives your business the ability to make payments to multiple contractors across different locations simultaneously. Plus, everything integrates directly into your accounting system to avoid the burden of manual data entry and human error.

You can set up a free account in just two minutes to start making payments to foreign contractors for services.