If your business is considering hiring contractors from other countries, you may have questions about the best way to pay them across international borders. Hiring contractors outside your home country does increase access to top talent, but there are different issues to consider when setting up contracts and payment methods.
We have put together your best options for paying international contractors, to keep it simple and without excessive risk.
Contractor Taxation is a third-party platform that offers your business a trusted and reliable method for paying international contractors. We manage the payments, withholding and taxes, to ensure complete compliance in the contractor’s location. Because payments are handled by us, there is little risk that your contractor could be classified as an employee, or that there are disputes about project completion or compensation.
Your Other Options
You have three other options as well for paying international contractors:
As with any vendor or service provider, you can just pay your contractor directly. For international contractors, you would have to set up a payment method across borders that was cost efficient and secure.
It is important that the contractor invoice your business, and that there are clear payment and performance terms agreed to ahead of time. The currency of payment also needs to established.
There are also third-party escrow services that can provide a level of payment security through web-based platforms. This option can work well internationally, but there are fees associated with each payment to facilitate the contractor relationship with your business. An escrow service can help to keep a ‘buffer zone’ between your business and the contractor, and avoid any tax, benefits or insurance claims.
If you are considering using a contractor long term, it is possible to bring them on as a regular employee. Accomplishing this internationally does require the use of a local employer of record or other registered business in the contractor’s home country. In this way, you avoid the risks of hiring international contractors, but there is an added expense and obligation to comply with local employment, labor and tax laws.
Why Does It Matter How You Pay Them?
Some companies may wonder why it even matters how a contractor is paid, since they are technically an independent business entity. While this is true, there are a few potential pitfalls to be aware of as you decide upon your payment method:
The first is the risk of misclassification as an employee of your business. With the increasing number of contractors in the workforce, there are more incidents of governments reclassifying contractors as actual employees, and enforcing payments of benefits, overtime and severance. The laws of the country where the contractor lives and works would define the relationship and any misclassification.
You can minimize this risk by insisting on contractor invoices and avoiding any elements of an employee relationship such as controlling their schedule or work methods. Using third-party payment services can also be helpful in avoiding misclassification.
If you use contractors a great deal, you may run into two issues with tax liability. The first is the need to report contractor payments to your own tax authorities, regardless of where the contractor lives.
The second is the tax or withholding obligations in the contractor’s country, which may have special rules regarding payment of independent contractors.
Risk of Direct Payment
Another risk is the payment itself. For example, if your contractor requests an advance deposit for the work and then does not deliver as promised, you have little recourse internationally to recover those amounts.
There is also the method of payment to think about, which can carry risks as well. This will often depend on where the contractor is located, their preference and how the payment is structured. Payment methods in some countries may not be secure or reliable, and should be thoroughly researched.
Depending on the nature of the work, liability insurance may be necessary. If your contractor does not carry their own policy, and they are deemed to be your employee under local law, your company could be liable for any claims. This is another risk to paying and treating contractors as though they are employees.
As you review your options and the various risks involved, it may become apparent that the simplest route is using Contractor Taxation’s payment and compliance platform. This service allows you to virtually eliminate most of the risks of international contractor payments, and to hire workers anywhere in the world.