Contractor Management

How to Pay International Contractors in 2024 - Gloroots

Discover the top 10 countries to hire international remote workers with our comprehensive eBook. Learn about the best locations to source global talent, taking into account key factors.
How to Pay International Contractors in 2024 - Gloroots
Written by
Mayank Bhutoria,
July 2, 2024

Key Takeaways

The gig economy today is bigger than ever. There were about 31.9 million occasional independent workers in the United States, an increase from 15.8 million in 2020.

This gives us a glimpse of what the future of work will look like globally. Businesses are working to address economic volatility, geopolitical instability, and the lasting effects of COVID-19. Organizations are transforming their structures, processes, and people to do that efficiently.

Independent contractors are highly valued when organizations need to expand, scale up or need extra hands during peak or seasonal demands. The concept of independent contractors is no longer restricted to just the same country of operations. Thanks to technological advancements, businesses can hire from a global talent pool, a limitless, boundaryless world of opportunities.

According to Ceridian’s 2021 Executive Survey, 71% of executives will hire more remote workers in the next two years, and 63% will hire outside their country.

These trends do lead businesses to a bigger concern; how to manage and pay international contractors compliantly in their currencies efficiently.
Before we get into the detailed approach and process of paying independent international contractors, let's understand what positives independent international contractors bring to the table.


Who is an international contractor?

An international contractor is an individual or entity hired by a company to perform a specific job or project across national borders. Unlike traditional employees, international contractors are not part of the company's regular staff but function as independent or self-employed business entities. They often work for multiple clients around the world and are responsible for their own taxes and insurance. The agreement with a company emphasizes the successful completion of the job rather than the methods used to achieve it.

What are the most effective ways to pay international contractors?

It goes without saying contractor payouts should be done on time, accurately, and hassle-free. Narrowing down the most suitable payment plan for you and the contractors is a win-win situation. The process might become complicated With multiple currencies and many banking regulations. However, keeping an organized approach to the process with the right documentation will quickly resolve international payment issues.

Let's now understand in detail the most popular payment methods and which will suit your specific needs.

1. Online Payments

Several online payment apps do not require linking personal bank accounts but use the payee's email addresses for payments. The Payee can also request a payment to the employer via the app. Many payment apps are available in the market; your decision should consider transaction fees, exchange rates, minimum amounts, and the list of countries where their services are available.

Some examples of online payment apps are PayPal, Stripe, and Wise.

2. Cryptocurrency

Cryptocurrency is another easy and fast payment solution and is quite popular for being safe and secure. With crypto, you save yourself the hefty exchange rates and bank fees.
Though cryptocurrency may be a tempting option, its volatile nature makes it difficult for people to trust it.
A few prominent players in the market are USD Coin, Bitcoin, Libra Coin, and Ethereum.

3. Digital Wallets to pay overseas contractors

Digital wallets are financial applications that allow you to store funds, make transactions, and track payment histories on devices like phones and tablets. They do not have high fees and are quite popular among employers needing to pay international contractors. Contractors use digital wallets to securely store money online and instantly accept or remit payments to bank accounts without high fees. 
Some highly popular digital wallets for paying international contractors are PayPal, Google Pay, Cash App, Samsung Pay, Apple Pay, Amazon Pay, Venmo, and more.

4. International Wire Transfers for paying international contractors

Wire transfer is another electronic money transfer mechanism from one entity to another. The money will be sent directly to the recipient from your account and deposited in a contractor’s local currency. They are secure, have a great network, and have high limits. To pay international contractors, employers can use international wires online, through payment and banking apps, by phone, and in bank branches.

The sender could be asked to verify their account and present some id for first-time payments. Once that’s done, you’ll usually need to provide your recipient’s full name, your recipient’s banking details, including bank name and account number, and details of the payment, including the currency required. For high-value payments, one might be asked to state the transaction's purpose and the funds' source.

Bank international wire transfers are normally sent through the Society for Worldwide Interbank Financial Transactions (SWIFT). SWIFT is the global standard for paying money to other parties in another country. International wire transfers usually take 4-5 business days.

5. International money order for paying international contractors

International money orders can be as simple as buying a paper document for the said amount and mailing it to the contractor in another country. Once it reaches the destination, it can be encashed. Since there is no cash involved, it is relatively safer.  It is also an excellent choice for people who do not have a bank account.

However, this method is slow and expensive. The sender and receiver are charged a fee, making it expensive. This makes the delivery amount less than what you sent. The transaction limits aren't too high either.
In most of the aforementioned modes of paying foreign independent contractors, one should stay vigilant and cautious against scams or misleading activities. 

Read More: Employee and independent contractor misclassification

What to consider before paying international contractors?

If you have planned to have a set of international temporary workers, here are a few critical considerations. These operational considerations require a thorough understanding of taxation, currency conversions, forms, timelines, payments, etc. Once you create a standardized process, paying independent international contractors becomes easy.

1. Classification

Most countries require proper contractor classification. This is critical because some roles for gig workers may be considered permanent employment in the country, leading to misclassification. Governments worldwide are introducing strict local labor laws and regulations to fight potential tax avoidance (AB5 in the U.S., IR35 in the U.K.)

2. Contract

Having a contract is a great way to stay compliant with local laws. A contract defines the relationship between employer and contractor and how they would function during the tenure through a Statement of Work (SOW).

The contract should include key details such as::‍

  • Name and title
  • Payment terms 
  • Employment relationship 
  • General information about the scope of work
  • Dispute resolution process
  • Ownership of work and protection clauses (Based on their country’s laws)

This shall state the relationship between the parties and how that relationship works in practice through the Statement of Work (SOW). This document is a requirement in some countries, while it's strongly encouraged in others. 

3. Frequency of payment

Businesses may opt for the frequency of payment at their convenience and align the payment process accordingly. Some countries have rules around payment frequency that contradict an employer’s standard practices. Therefore, being aware of such information is crucial before finalizing the payment frequency with a contractor. 

Most often, the payments are either-

Monthly - This is the most common way employers use to pay contractors in case of long projects. This mode of payment favors both the contractor and the employer. The contractor gets a continuous flow of income in a streamlined manner, while the employer gets to assess his costs and manage the budget better.

Upfront - This payment frequency requires employers to pay partial or full amounts to the contractor before the work starts. This advance payment frequency works great in favor of the contractor however puts the employers in an uncomfortable position in case there are delays or issues in assignment completion.

Upon project completion - Here, the contractor gets the payment only after the satisfactory completion of work. This suits employers, but most contractors shy away due to credibility issues and payment delays. This payment mode is suitable for short-term projects. However, most often than not, both parties decide on a break up of the full payment in percentage. Some part is paid upfront (an advance) or based on any timeline agreed upon by both parties.

By milestone - Under this payment method, employers can pay some amount upfront and then pay throughout various project phases.

4. Payment terms and conditions

Having a fair compensation structure is crucial not only for permanent employees but also for temporary workers. Therefore, thinking through local pay expectations, currency exchange rates, local cost of living, and foreign taxes is essential. It is imperative also to set a deadline for paying international contractors as this leaves no scope for disagreements in the future. 
Businesses do not incur any tax liability unless they set up an entity in a country.  However, tax and enforcement mechanisms vary with each country.

5. Documentation

Most countries have their own forms for tax and employment purposes. This requires businesses to understand the forms they must fill out based on an international contractor’s country of residence. Payments shall be done according to the right classification and should have the appropriate tax documentation.
Another set of documentation that must be gathered without fail is a KYC (Know Your Customer). This shall be done before onboarding and paying foreign independent contractors to ensure credibility and help in verification processes.

Read More: EOR vs contractor - Make an informed choice

Challenges In paying Foreign Independent Contractors

Most often than not, the need to streamline the payment process arises from employers' challenging situations while paying independent contractors. To stay well aware early on, here is a list of challenges employers encounter.

1. Currency issues

Going global with the workforce requires paying independent contractors in their respective currencies. This requires knowledge of currency conversions, banking rules, processes, timelines, etc. Payments must be initiated in advance to avoid delays, keeping in banking partners and their processes.

2. Compliance issues

Regulations around labor laws are a serious matter for the smooth functioning of businesses once they go global. Countries have their own set of rules and regulatory requirements around employment. Various valid forms in that country must be agreed upon and duly filled to be documented and saved for verification or government scrutiny. 

3. Tax Issues

We already discussed how misclassification could be a grave concern and might hamper your business's harmony. Employers should consider the employee’s tax-paying status or identification when paying their contractors. The contractor’s working status in their country must be aligned with the local laws on classifying contractors. 

Summing up

Making payments is easy. But paying international contractors involves a few complexities, especially if an employer has hired contractors in different countries. 

Fortunately, Gloroots can solve all your payroll-related problems. The platform simplifies global employment, allowing you to hire in 140+ countries.  

Gloroots can handle all your needs around contractor management, multi-country payouts, and compliance-related issues. So, if you’re planning a business expansion in another country, join hands with Gloroots to test new markets quickly and effectively. ​​
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