A Recruiter’s Guide to International Contracting
If you are a recruiter working for a company that hires contractors for projects abroad, there are some important considerations for international contracting. Finding a contractor with the right skills and experience is just the first step, and even if they are available to work in another country it will require some advance planning.
In some ways, recruiting a contractor to send overseas is more complex than hiring a foreign contractor. The company and contractor have to deal with issues of business structure, payment, currency exchange and tax laws, in both the home and host country.
Here is an overview of the primary international contracting challenges that you may be facing as a recruiter:
One of the first things to plan for are the differences in currencies between the home country and the work location. This is easy to overlook if you are new to international contracting, and used to working with a single currency for quotes and payments.
If the contractor is relocating to another country and paying their own expenses in the local currency, they do have some currency risk that they may want accommodated within the agreement with the company to ensure fair compensation.
Company vs. Contractor Currency Choice
There are two basic choices when paying an international contractor: the company’s home currency or the currency of the contractor’s work location. This may also depend on where and how payment is being made, either directly or through a third-party.
The simplest choice for the company is to pay the contractor in the home currency and let them handle any fund transfers and conversions to their location abroad. For example, if a third-party payment platform is used, a payment location does not have to be designated. But for direct bank transfers, the account location and currency selected should be agreed to ahead of time.
For longer engagements, the contractor may want to be paid in a foreign account in the local currency, but may expect some type of fixed exchange rate to avoid the currency risk.
Currency Exchange Losses
Currency exchange losses can affect either the company or the contractor in the event of large changes in foreign exchange rates. Basically, payment fixed in the company’s home currency shifts the risk to the contractor, and payment fixed in the contractor’s host country places the risk on the company.
One way to mitigate losses is to put a limit on currency exchange movement in the agreement, which would require an adjustment of the original quoted pay rate, so that neither party is unexpectedly enriched or burdened by changes in exchange rates.
Aside from currency risks, there are other potential hidden costs with international contracting.
GST (Goods and Services Tax) could be imposed on contractor services in some countries, since the contractor is essentially operating as a business. This will depend on the local laws, length of engagement and nature of the work. The agreement with the contractor should spell out who is responsible for GST payments, if there are any.
Tax and Withholding
Similarly, some countries have special rules for withholding for contractors working on local projects. Recruiters should be familiar with those laws ahead of time, in order to inform both the company and contractor about any withholding obligations.
Much of this will depend on the contractor’s tax residency and business structure, and there are potential issues with double taxation and need for reliance on tax treaties between the two countries.
Other Factors to Consider
There are a few additional factors to consider as well:
When quoting a pay rate there are several unique elements in addition to the currency and tax issues. Cost of living in the work location, security, travel expenses and length of the engagement will play a role in quoting a fair and attractive rate. Generally, contractors will want to be paid at a rate that is equal or more than at home, due to the extra effort and expense of working abroad.
Most countries will require a contractor to obtain a work permit for stays over 2-3 months, and they may want assistance with securing a visa or have the company cover the cost. Some countries have special work permits for independent contractors, or a contractor management company can act as sponsor for visas.
The contractor may have social security payment obligations in the host country, which need to be factored into the rate quoted.
Depending on the nature of the work or location, a contractor might need supplemental liability or health insurance, which will also factor into the contract terms.
In some cases, contractors sent abroad could be classified as formal employees under either the laws of the home or host country. This can bring unexpected tax liabilities and employment benefits, and every effort should be made to treat the contractor as an independent business to avoid misclassification. Use of a contractor management company can help insulate the company from classification issues.
Contractor Taxation: How We Can Help
Contractor Taxation is well positioned to help you as a recruiter in placing and managing contractors working abroad. When your contractor enters a different tax system in an unfamiliar country, they may expect some form of support to ease the transition.
We have a world-wide network of contractor management and umbrella companies to assist with international contracting challenges. This includes setting up payment processing, sponsoring work permits and ensuring correct withholding and tax payments.
This is a real benefit for both the company and contractor, to have a third party that oversees the administration and structure of the contract and avoid any issues with payment or compliance with host country laws. If you have questions about international contracting, please contact us.