What Businesses Need to Know About Paying Overseas Contractors

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What Businesses Need to Know About Paying Overseas Contractors

It’s increasingly common for businesses to hire overseas contractors. There is any number of reasons to hire a contractor, from website development and technical tasks to administrative work. Hiring overseas contract workers can be a good way to save time and money, and outsource tasks that you can’t handle on your own or fill skills gaps.

However, there are certain considerations to keep in mind when it comes to working with overseas contractors and particularly paying them.

The following are some of the primary things businesses should know about hiring and paying overseas contractors or freelancers.

Sending Payments

Before you hire a contractor, you should have a clear idea of how you plan to pay them. Some significant risks can come with sending money overseas. For example, if you wire money to someone overseas, there’s no way to undo that wire transfer if something goes wrong.

The best option is to do your research and find a reputable service that sends money to the destination where you’re planning to hire someone.

Customer reviews are a good place to start. For example, if you go to transfer service Remitly’s site, they provide customer reviews.

“Effortless and quick service. They update you with every step with the procedure which is such a relief. Thank you Remitly,” wrote one customer of Remitly.  

Along with looking at customer reviews directly on the site of the transfer service you’re considering, you can also use a third-party site like Trustpilot to determine what real customers have to say about these services.

If you’re hiring overseas contractors, you need to make sure that not only you’re going with a secure service, but also that they’re going to be able to get the money to its destination quickly. Getting payments to contractors on-time is an important part of having a good working relationship.

Security Considerations

Specifically, when you’re sending money overseas if you’re using an online transfer service, check with them to determine how they make sure all transactions are secure.

For example, look for transfer services utilizing 256-bit encryption, which is standard bank-level security.

Sometimes it can seem like the easiest way to pay an overseas worker is through a wire transfer, but this is the most expensive way to do it in most cases. It can also take the longest, and it can present the most security issues and challenges.

Understand Employment Law in Both Countries

It’s valuable to have a general understanding of employment law in your home country, but also the country where the contractor resides.

Having an overview of how employment law works in both places can help you if you need to create an agreement that you’ll use when working with foreign freelancers.

However, you have to ensure that the contract doesn’t indicate employment status, because then you have a whole host of other considerations you’d have to keep in mind and laws and guidelines to adhere to.

Tax Considerations

You may want to consult with a tax professional if you’re considering hiring foreign contractors. As your business grows, if you plan to hire multiple foreign contractors, this can be even more important.

You’ll likely need to provide contractors with Form W-8BEN. However, you might not need to give them a 1099. In fact, you probably don’t need to. You likely won’t need to withhold federal tax from overseas contractors either. There may be differences that you need to be aware of when it comes to state and local tax laws and requirements, however.

Something else to be aware of when it comes to the IRS is whether or not a US citizen is doing work for you abroad. In this case, there are likely to be other tax issues that you should be aware of, and you also need to make sure that even a portion of the work isn’t being done in the U.S.

Currency Conversions

Finally, bear in mind the relevance of currency conversions when paying overseas contractors. When you’re sending money to any foreign country, there is going to be a conversion of the money you’re sending to the local currency of the contractor.

Typically, as the person making the payment, the charges associated with this are going to fall onto your shoulders. You want your contractors to receive their full payment in their local currency. You will need to factor the costs of any conversions into your budget when you’re planning to hire an international contractor.

There is minimal overhead involved with hiring an overseas contractor, but still, there are some things that will make the costs go up, and currency conversions are one thing to remember.

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