How to Pay Contractors Internationally
September 6, 2021
Modern technology has made the world a much smaller place. As a result, it’s easy to tap into a global talent pool when it comes to hiring contractors. A North American business can look to every corner of the globe to find a worker with the skills best-suited for their needs. Graphic designers in Sweden. Programmers in Israel. Full-stack developers in South Korea. Engineers in Germany. But while talent is becoming easier to find, questions about how to pay contractors internationally persist.
Collaborating with global professionals may be easy thanks to cloud technologies, but sending money still comes with several obstacles that businesses need to consider. Here’s what you need to know about paying workers around the world and what considerations are important before contracting with them.
Why hire contractors internationally?
The first and most important question to ask is why you’re hiring abroad, instead of from a domestic talent pool. The answer can vary based on each company or situation. Some of the most common reasons businesses look globally for talent include:
- Affordability. The United States (and Canada) rank higher on the cost of living index than many other countries, which means it’s often more affordable to hire from these areas of the world. For example, the United States as a cost of living index of ~70.6, while counties like Malaysia (~37.5), the Philippines (~39.1) and Vietnam (~36.9) are all roughly half that. Hiring from these countries often means paying a much lower wage.
- Capability. While the North American talent pool is rich, it can’t compare to the total global talent pool. When companies open up their search to international contractors, they’re drawing from a more diverse and complete scope of capabilities. This is especially important for niche skills or specialties that may be difficult to hire for.
- Geographic advantages. Some areas of the world offer a geographic advantage when it comes to hiring. Currency differences may push the cost of hiring down even further. Or, contracting from one country may open up the door to a specific region—for example, hiring from Hong Kong can bring exposure to Mainland China, Vietnam, the Philippines and other Indo-China countries.
- Strategic advantages. Working with global contractors is sometimes the quickest way to gain exposure to different cultures or strategic footholds in certain markets. For example, if you’re producing a product for the Japanese market, it pays to collaborate with Japanese contractors.
Hiring and paying international contractors opens the doors to numerous possibilities that are largely dependent on the situation. Nevertheless, there are more than a few reasons North American companies are looking internationally for reliable workers on a contract basis.
Currency and transfer considerations
Every international contractor comes with their own currency and transfer consideration. It’s up to businesses to understand them before they choose to hire them. Some of the most common considerations include:
- Currency conversion. Most countries have their own local currency, which means companies need to convert USD to the local currency. In some cases, the fee is nominal—as is the case with major currency pairs. In other cases, such as minor currency pairs, the conversion rate may be highly variable.
- Currency preference. In countries with weaker currency, contractors may want USD as the landed currency. This means finding the right mode of payment to transfer USD instead of transacting with a conversion before the funds land.
- Transfer criteria. Depending on the destination country, you may need special approval from your bank to ensure transactions get processed as-intended. Some banks require this for any outgoing international transfer at first.
And, of course, the most important consideration is how you’ll end up paying international contractors. Thankfully, there are more than a few options.
Ways to pay contractors internationally
The mode of payment to international contractors will differ from company to company, case-by-case. Here are the most prominent modes of payment for how to pay contractors internationally:
- Wire transfer. Great for lump sums and one-time payments, wire transfers are instantaneous and highly secure. They’re also expensive to send, which makes them prohibitive for anything other than occasional payments.
- Check or money order. While still a viable mode of payment, paper checks and money orders are by far the slowest and offer the worst visibility for payments. They’re rapidly fading from the landscape of international business payments.
- Bank transfer. ACH transfers are quick and affordable, but only if the contractor you’re working with is traditionally banked. Unbanked contractors are out of luck. Moreover, there’s some concern about the lack of transparency in currency conversion rates offered by banks. And, of course, payment stoppage to international recipients is common if not preauthorized with the bank.
- Digital payments. Digital payments are the fastest growing mode of paying international contractors for a reason. Setting up digital wallets is simple, and both payer and payee have total visibility into everything involving funds transfer. Currency conversion is effortless, and recipients can manage their funds in whatever currency they want.
There are, of course, other ways to pay international contractors. That said, these are the most common and most reliable. But which one is the best?
The best way to pay independent contractors internationally
Often, the best way to pay international contractors comes down to the method that suits both business and contractor. This is part of the reason digital payments are so prolific today. With great visibility, ease of funds transfer and the convenience of being able to pay multiple contractors in multiple countries through the same platform, digital payments make working with global professionals simple.