How to engage and pay international contractors

Do you want to expand your talent pool and hire international contractors? Congratulations, you are on the path to unlocking your business’ full potential! But before you start popping the champagne, there are a few things to consider when hiring international freelancers. What will their contract look like? Do you have to pay taxes for your new contractors? And how can you organise an international payroll without investing too much money in services for currency exchange and global bank transfers?

Don’t worry, we’ve got you covered! In this article, we will look at:

• The benefits of working with freelancers

• What to consider before hiring international freelancers

• Local laws and regulations

• How to manage freelancer contracts

• Country-specific hourly rates

• If you have to pay taxes for international contractors

• How to make international payments

Let’s dive right in.

First off, let’s take a look at the advantages of working with international freelance talent. There are a number of benefits, but if you want to be able to quickly scale your business, there is no better option than hiring contractors. Flexible workers give your business a lot of freedom to plan resources on a project or campaign basis, and therefore don’t enter into binding agreements that could potentially impact your company’s cash flow.

But that is not the only upside of contractors. Especially when opening your business up to international freelancers, you are able to engage with some of the most talented and experienced workers in their field, who are used to working independently and productively.  And it doesn’t hurt that you can save on taxes and benefit payments by hiring independent contractors either.

Now that we have established why hiring international contractors is a great idea, let’s talk about a few more complicated topics: Local labor laws and tax regulations. I know, we just crashed the party. But it’s best to get this out of the way early on, so we can eventually get back to that bottle of champagne, so here we go.

Labor laws can differ from country to country. So it’s best to always check if you are compliant with the local laws and regulations in the country of residence of your new contractor. One of the most common issues revolves around employee misclassification, so mistakenly classifying someone as a contractor, while their duties and work agreement in their place of residence would classify them as an employee. 

You can easily avoid this and other tax related issues by consulting with a legal specialist beforehand, or partnering with an employer of record.

It is somewhat common to work with freelancers without a written contract, but we strongly advise you to draft an independent contractor agreement. This document is beneficial for both parties, as it sets the boundaries for your collaboration and clearly defines the working conditions, including the expected hours, the scope of work, and payment terms. 

In addition to that, contractor agreements also regulate the ownership of creative work and confidentiality in regards to your business relationship. Either way, it is a great and easy solution to help prevent disputes and create some common ground for both the company as well as the contractor.

Many people are well aware that hourly rates for contractors are much higher than the average hourly wage of an employee, but how much money should you be paying for a freelancer in Switzerland vs. one in Hungary? A lot of times, rates are calculated against the local industry competition. But since things like minimum wage vary a lot internationally, it can be hard to know for sure how much you should pay for a contractor in a specific country. 

Looking at a country’s minimum wage as well as the average cost of living can therefore be a good indicator to determine an appropriate hourly rate for international contractors

Generally speaking, you do not have to withhold tax for contractors like you would for your employees. However, there are some exceptions to this rule, and as mentioned a bit earlier, you should always ensure you are not falsely classifying an employee as a contractor, as this might lead to serious legal issues for your company.

The tax law of the United States for example requires American companies to report payments to international contractors to the IRS, the federal agency that oversees the collection of taxes. If your business is based outside of the US, but works with a contractor based in the United States, you might also have certain tax obligations. In these cases, it is best to consult with an accountant, or once again involve the services of an employer or record.

Finally, making international payments can be another obstacle when hiring global talent. While there are many options such as international bank transfers or money orders, or services like PayPal and Payoneer that can help you move money from one account and currency into the other, they usually come with an array of service fees and additional charges.

One great way to organise cheap international payments is through a digital wallet. This allows you to organise international transfers in a few clicks and send money to countries all over the world. Lano offers a wallet solution, allowing you to pay contractors in more than 170 countries and in 28 different currencies. Local payments are free, and exchange rates for cross-border payments are up to 3% lower than traditional banks.

Learn more about the Lano wallet

Alright, now it’s time to get out that bottle of champagne again and recap what we learned so far: International freelancers are a great way to scale your business while benefiting from experienced talent from all over the world. But before you hire global contractors, you should look into local labor and tax laws and make sure you comply with whatever regulations might be in place at the country of residence of your new talent.

In addition to that, it always pays off to have a formal agreement in place to set clear boundaries and expectations around your partnership, while also regulating payment and tax details. Finally, you should look into appropriate and country-specific hourly rates for your freelancers, and find a simple and low-priced option such as the Lano wallet to complete international payments.