For small businesses, working with independent contractors around the world comes with significant benefits. But there are many variables when it comes to paying those workers.
We collected some of the most common questions we hear about costs and fees, currency, taxes and more to give you some insights into your contractor workforce.
What is the least expensive way to pay a foreign contractor?
Money orders, wire transfers and digital payment networks all come with fees. Sending a single international wire transfer, for example, can cost as much as $50. If you’re paying a handful of contractors a few times a month, those fees can quickly add up.
With that said, a smaller transaction fee doesn’t necessarily equate to a lower cost. Your payments may also be subject to fees for changing currencies, paying by credit card, and other hidden charges—which makes it difficult to understand which option is truly the least expensive.
Contractor management platforms like Contractor Unity from Safeguard Global offer a flat, affordable monthly fee per contractor that makes it easy to estimate your costs (and compare them to other solutions).
What is the easiest way to pay a foreign contractor?
Tired of taking time away from running your business to collect tax forms, calculate payments and fees, enter bank details, etc.? Manual data entry, processing individual invoices, and navigating different payment methods for different contractors can be a considerable drain on your time and resources.
The easiest way to pay independent contractors in other countries is with a platform that simplifies the process for you.
Contractor Unity allows you to pay all your contractors’ invoices in one place, with a single approval, significantly reducing your administrative work. This makes it easy to pay all your contractors on time, so you focus on other important initiatives.
How do I pay a contractor in another currency? Do I need a foreign bank account?
You could open a foreign bank account, but you (or your contractor) would still pay the currency conversion fees at some point in the payment process. Plus, if your contractors are spread across several countries, this would mean managing multiple accounts (adding to the hassle).
You can easily pay your contractors in the currency of their choice by using a contractor management platform that includes the exchange fees. And the best part is, no foreign bank account is required.
How do I find the best exchange rate for my contractor payments?
Foreign currency exchange rates are dynamic. These rates can change depending on market conditions like interest rates, inflation, political stability and investor speculation for every country.
Exchange rates also vary widely by platform. Banks, which traditionally offer currency exchange services, may add fees on top of the exchange rate. Wire transfer services likely offer currency exchange, but at much less favorable rates.
You could shop around and painstakingly research dozens of different options and their rates for every country you pay contractors in. But that sounds like a lot of work with no guarantees that the rates will remain consistent.
The best solution is to partner with a platform that has already negotiated favorable exchange rates. For example, Contractor Unity offers transparent, flat-rate fees that include currency exchange so that you can accurately estimate the costs of paying your global contractors.
Who needs to fill out a W-8?
A form W-8 is a U.S. tax form. Each country has an independent taxing structure, but if your business is in the U.S. and you’re paying independent contractors in other countries, each contractor must fill out a W-8.
This form is to report income paid to foreign contractors. It identifies the individual or organization receiving income paid from your company and their relationship to the United States. This information is used by the IRS to determine an individual's income tax liability.
There are five different types of W-8 forms for different situations. Whether or not you are also obligated to withhold income tax from these payments depends on which W-8 form applies. The standard income tax rate for global contractors is 30%, but this amount may be less—even zero—depending on the contractor's country of residence and relationship to your company.
What other contractor details do I need to make payments?
The information necessary to send a payment to a foreign contractor varies from one country or region to another.
For example, Argentina requires a social security number, but not all countries use an individual tax identification system. In China, you need to provide the contact information of someone at their local bank branch. The United Kingdom, India and Brazil all require additional bank codes for deposits.
In the United Arab Emirates (UAE), personal income tax does not exist. These contractors might still be obligated to pay U.S. income taxes, but you won’t have the same pieces of information when filling out the W-8.
The point is, every country and every receiving bank is a little different.
You should make sure to research the requirements for each country you are sending payment to. Alternatively, you can use a contractor management platform that keeps track of each country’s requirements for you. In all cases, make sure that you have a compliant contract in place before issuing payment.
Do I need to withhold taxes for foreign contractors?
Tax withholding requirements vary from country to country.
If you are a U.S.-based company that hires international contractors, you are not typically obligated to withhold income taxes for individual contractors. However, if you fail to collect a W-8BEN form, your U.S.-based company would be obligated to withhold a 30% income tax for payments to that individual.
In the United Kingdom, foreign contractors are generally not obligated to pay income tax unless they enter the U.K. to perform the work. Step foot in the country while working on a project, and everything changes!
Again, make sure to research tax laws and regulations for the countries you are sending payments to—or use a contractor management platform that keeps track of it for you.
Is my worker an employee or an independent contractor?
Don’t forget to ask this critical question—international contractor vs. employee—when paying a worker as an independent contractor. If you get it wrong, there could be significant penalties and tax liabilities involved. In Australia, for example, businesses can be fined 63,000 (AUD) per misclassification violation.
Some of the biggest differences between employees and contractors include the following:
- Contractors work on a temporary, or per-assignment, basis. Employees work shifts or schedules.
- Contractors are paid for their work by project. Employees are paid for their work by time.
- Contractors pay their own taxes, and benefits. Employees have taxes and benefits withheld from their pay through payroll.
Make sure you get your worker classification correct with our free Worker Classification Tool.
Paying global contractors can be a whole lot easier with Contractor Unity
Contractor Unity streamlines the process for you and your finance team, freeing you up to work on your actual day job. If you’re looking for an affordable solution that helps you to stay compliant, and easily pay your contractors on time, schedule a demo today.
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