How To Pay International Contractors for Small Businesses

So, you’ve decided to take your small business to the global stage by hiring international contractors. Amazing! It’s a fantastic way to tap into diverse talent pools and expand your reach. However, one of the challenges that comes with this is figuring out how to pay these international contractors. But don’t worry, from payment schedules to methods, we can help. 

First and foremost: it might seem obvious, but you'll want to confirm that the talent you plan to hire and pay is in fact an independent contractor — not an employee. Misclassifying an employee as a contractor can result in legal and tax problems and penalties. It's always recommended to seek professional advice to ensure compliance with the laws and regulations that apply to your specific situation. 

Define Your International Contractor Payment Schedule

Now let’s talk about payment schedules. And no, we don’t mean time zone differences or local holidays that can complicate matters. Instead, we’re talking about how this contractor is going to be paid: hourly, by project, or by commission. Know that one size definitely does not fit all, so every contractor, project, and business will look different. 

1. Project-Based: If your international contractor is working on specific projects, a project-based payment schedule might be your go-to option. This approach divides the project into milestones, and the contractor receives payments upon successfully completing each milestone. It's a win-win situation — contractors get a sense of accomplishment and reward, and you get the assurance that you're paying for completed work. Project-based payments ensure that contractors are motivated to meet deadlines and produce quality results. Plus, they can help you manage your budget better, as you know how much you'll be spending at each stage of the project.

2. Hourly: Paying international contractors by the hour is a straightforward and transparent approach. This method is particularly useful when you’re working on projects that require flexible hours and a variable workload. The hourly payment schedule works like this: the contractor logs their hours worked, and you pay them for the time they’ve put in. Make sure you set clear expectations about how time tracking should be done and provide the necessary tools if needed. 

3. Commission-Based: For some businesses, particularly in sales and marketing, commission-based payments are a popular choice. This model is all about rewarding contractors based on their performance. They receive a percentage of the sales or deals they bring in, which directly ties their compensation to their impact on your business's revenue. Commission-based payments can be a powerful motivator for international contractors, as they see a direct correlation between their efforts and their earnings. However, ensure that the commission structure is fair and transparent, and that it aligns with your business goals.

When it comes to international contractor payments, the right payment schedule can be the key to a successful collaboration. Hourly rates, project-based payments, and commission-based structures all have their place depending on the nature of the work and your business goals.   Remember, your contractor payment schedule can also impact whether the individual is a contractor or an employee. 

Payment Methods for International Contractors

Deciding on a payment method can greatly affect the efficiency and cost of international contractor payments. Let’s explore a few options: 

1. Traditional Bank Transfers: A tried and true method, while bank transfers offer reliability, they can also be costly due to high fees and expensive exchange rates. 

   • Wire Transfers: This is a direct bank-to-bank transfer. It is secure but can be expensive due to high fees, especially for international transfers.

   • ACH Transfers: Automated Clearing House transfers are another option. They are cheaper than wire transfers but take longer to process.

2. Online Banking Services: Online banking services offer a middle ground between traditional bank transfers and modern payment platforms. This option is usually faster and more convenient than visiting a physical bank, but be sure to compare fees before you make a decision.

3. Online Payment Platforms: Online payment platforms offer competitive exchange rates, lower fees, and faster processing times than traditional banks. They provide local bank details in various countries, allowing companies to pay their contractors as if they are local clients.

4. Payroll and HR Platforms: If you’re looking to streamline your processes even further, consider a formal payroll or HR platform. Services like Justworks not only handle payroll for your local employees but can also facilitate international contractor payments. This can save you time and effort by centralizing your payment activities.  Additionally, this can help you avoid invoice errors, gain visibility into currency conversion, and support the onboarding and administration of your international contractors.

Keeping Compliant When Paying International Contractors

We know, we know, compliance isn’t the most exciting part of the job. But it’s essential to keep things legal and smooth in both your country and the contractor's country. In order to stay compliant, keep this in mind: 

1. Understand Tax and Labor Laws: Familiarize yourself with the tax and labor laws in your country and the contractor's country. This includes knowing the requirements for withholding taxes, social security contributions, and any employment regulations.

2. Determine Contractor Classification: Determine whether the contractor should be classified as an employee or an independent contractor. This classification can impact the tax and labor obligations.

3. Obtain Proper Documentation: Keep records of the contractor's identification documents, tax forms, and any other required paperwork.

4. Withhold and Remit Taxes: If required, withhold the appropriate taxes from the contractor's payments and remit them to the relevant tax authorities.

Remember, compliance requirements may vary depending on the countries involved and the specific nature of the contractor's work. It is always recommended to seek professional advice to ensure compliance with the laws and regulations relevant to your specific situation.

How Justworks Can Help

Businesses using Justworks PEO have access to an International Contractor Payments feature that can be used to pay international contractors in 30+ countries. By using this feature, customers can manage their international contractor payments in the same tool as their domestic contractors and employees. All Justworks PEO customers have access to international contractor payments included in their plan, with no upfront or monthly fee, and are able to view the exchange rates on every transaction. 

Whether you use Justworks or other platforms, you’re now well on your way to building fruitful collaborations with talent from around the world. Go ahead and embrace the global workforce – your business is set for an exciting journey ahead!