How to Pay Foreign Independent Contractors (a no-nonsense guide)

Vera Agiang
Written by Vera Agiang
on January 26, 2023 9 minute read

After work is done, messages like, “I’m about to send my invoice, does X payment method work for you?”, “Our company doesn’t use PayPal”, and “Stripe doesn’t work in my country” are exchanged time and again.

International exchange rates, payment methods, and foreign labor policies make working with overseas freelancers a struggle. 

But is there a way out of this mess? Because today, remote and hybrid working is a norm. Companies of varying sizes hire independent contractors home and abroad to fill the skill gaps in their organizations. 

Reading this guide will help you navigate paying your international freelancers.

Who is a foreign independent contractor?

In the Middle Ages, the word “free lancer” came about, there were two types of soldiers — those who worked with kings and those who worked with whoever paid for their services. Those working for other nations (or persons) were called “free lancers.” 

The term traveled from the military to business, and the meaning remained the same. 

Modern international independent contractors like the free lancers in the middle age help out with specific business functions, particularly with citizens of other nations.

In simple terms, 

A foreign independent contractor is a self-employed worker or an agency that provides services to companies outside of their current residency irrespective of their nationality.  

Look at it this way: 

  • If you’re a Spanish company working with a LatAm freelancer who resides outside of Spain, the contractor is a “foreign independent contractor”

But what if the same Spanish company is working with a LatAm freelancer who resides in Spain? They are not “foreign” independent contractors because they follow the same labor laws 

  • Similarly, if a Portuguese company works with a Brazilian freelancer residing in Portugal, they’re not a foreign independent contractor 

However, if the same Portuguese company hires a Portuguese freelancer who resides permanently in the US, the company works with an “overseas” independent freelancer 

See where we're going here? 

It’s also good to know that there’s a slight difference between freelancers and independent contractors, the general idea is the same: professionals offering services at their convenience. Freelancers are usually self-employed, whereas an independent contractor is an umbrella term. It includes talent who work under an agency or are self-employed (freelancers). 

So, what are the benefits of hiring overseas contractors? The next section discusses just that. 

Benefits of hiring a foreign independent contractor?

Why should you go out of your way to work with overseas contractors? Why not hire someone in the same location? 

  • A wider pool of talent: There are currently 1.1 billion freelancers worldwide, which equals 31.4% of the global workforce. Rather than settling for mediocrity, companies can find the best talents that match their job positions and complete projects within specified timelines. It's just a matter of knowing where to look and assessing the skills of potential contractors.

  • Distinct knowledge: Folks from different places and backgrounds think differently. So international contractors can bring unique insight and perspective to your company. They can boost your results with vast knowledge and high-level skill sets backed by experience. Usually projects fail because of a lack of technical know-how. A unique idea might be what your project needs to get results sometimes.

“We prefer the business mindset of a freelancer, and we like to build a freelancer into a bigger engagement over time instead of hiring an employee right away.” Branko Kral, Director of Content at Chosen Data

  • Subject experts: Skills like computer programming, web design, and software engineering are sometimes challenging to find in one’s country. But a skill drought in one country is not always the same in another. The U.S. is home to top IT experts, while Israel and Australia are known for nurturing the best doctors worldwide. You can find almost 50% of freelancers offering specialized services on Upwork. 
  • Scalability. Hiring an in-house employee might slow down your momentum if you’re trying to meet deadlines or test a new path. That’s where a foreign independent contractor comes in. With the help of social media like Twitter and freelance marketplaces, you can access talented contractors for your role within weeks.

“In marketing, we have to test things quickly. And sometimes, we need to have our first experience with a channel, content type, etc., before evaluating if it works for us. So hiring freelancers gives us the flexibility to try things and scale production quickly.”

        - Marketing Lead of Zavvy.io, Alexander Heinle

  • Cut cost: Unlike employees, most contractors handle their tax and business expenses. When you consider their insurance and flexible rates on top of that, it’s easy to see why companies outsource their projects to independent contractors. Especially early startups who are trying to scale using limited resources.

Challenges when working with independent contractors overseas

High Payment fees

Because foreign contractors operate from another country with a different economy and challenges, service fees may vary. For instance, a rise in the consumer price index in the US and continuous inflation are significant parts of the reasons US-based foreign contractors charge higher for their services.  

However, some contractors, may charge extra due to years of experience and the high quality of their work. 

Furthermore, payment platforms and freelance marketplaces apply charges for each successful transaction performed on their website. Thus, freelancers compensate for this by increasing their payment fees.

Misclassifying workers

Hiring overseas contractors is a viable option when your business is ready to expand globally

However, if substantial HR, legal, and finance teams are not in place at your company to keep foreign independent contractors compliant, consider other options that involve less risk. 

Otherwise, you will encounter severe financial consequences or reputational damage. Countries have different implications for foreign independent contractor misclassification, and many enforce severe fines. 

Case in point: France imposes a €150,000 penalty and up to two years of imprisonment for independent contractor misclassification. Any company in Spain will attract a fine of €626 to €6,250 per misclassified employee.  

Intellectual property may not be protected 

It’s pretty common to see “intellectual property ownership” issues when freelancers or independent contractors are involved in a project.  

Especially with IT or related projects, this ownership bias is an ongoing battle between creators and employers that frequently leads to a courtroom. 

A well-drafted contract and understanding of IP rights are common to avoid such conflicts, but these solutions may not be best suited in some other areas. 

Managing work and timezone differences

A Payoneer study shows that most freelancers have clients across different parts of the world. 

While working with freelancers can save a lot of overhead costs, communicating across different time zones can affect the success of projects. 

Missed deadlines, lack of trust, and lack of communication are also key challenges of managing work with freelancers overseas. Most companies working with foreign freelancers either hire contractors with overlapping time zones or work asynchronously.  

Payment Options

“As an independent contractor, getting paid is a constant headache. I’ve had to cut ties with several fit clients because no payment method worked for us,“ says Freelance Tech Writer Femi Oyelola

Independent contractors, especially those from India, Nigeria and Pakistan, find it difficult to accept payments from international countries because of the scarcity of reliable payment options. 

Onboarding and managing work 

Even though the modern-day gig economy eases training burdens on hirers (since they can hire top talents to fulfill the services they need to perform for their customers) it still requires proper onboarding to work.

Independent contractors must understand tools alongside brand messaging and values to help a company succeed. 

The more streamlined your onboarding process, the easier it will be for your independent solopreneurs to get started. 

How overseas contractors charge for services 

Payment to foreign contractors happens in multiple ways, which is usually dependent on industry best practices, marketplace policies, or the countries contractors operate from. 

If you don’t know where to look, below are some common ways freelancers in the gig economy seek payments: 

Upfront payments  

Getting upfront payment is a widespread industry practice among gig workers. 

Because around 44% of freelancers have worked with clients who didn’t pay them, some independent contractors take some percentage of the contract fee before committing to the task. 

On the client’s side, paying upfront may seem a bit risky, but it reassures that the freelancer will begin the work immediately. 

Also, it helps both the client and freelancer get serious about the project. When a business has invested some amounts into a project, they’re more likely to become actively engaged. 

However, clients should ensure contractors have the necessary skills to complete the project or risk losing their down payments.  

After Payment

This billing method counters the “upfront payment” idea. 

Instead of asking for an initial deposit, the client proposes paying the international contractor a fixed price once the project is completed. 

While this allows the client to see the project completed, it doesn’t always favor the independent contractor most of the time. 

They mostly don’t get paid at the end of the day or have to deal with late payments. 

Per-hour

Freelance marketplace like Upwork and Flexjobs lets freelancers charge for their projects by the hour. 

On an hourly project, a freelancer is paid for the number of hours they have worked rather than being paid a fixed price for specific deliverables. 

With hourly rates, you get paid for the amount of work you do. This is an excellent strategy if the foreign independent contractor is working on a project that has the potential to get bogged down by multiple revisions. 

The downside? 

You’re charging the value of your time, not the value of your work, meaning it’s difficult to ask for an increased payment later.

Fixed projects 

Instead of charging by the hour—which is usually a bargain of time vs. value—independent contractors can set a fixed rate for each project they embark upon. The fixed-rate could be paid upfront or after project completion.

Peak Freelance State of Freelance Writing report reveals that most freelance writers prefer to charge per project. 

Charging per project makes it easier for freelancers to quote what they’re worth. 

Plus, it allows companies to see value for their investment since freelancers charging by the hour are often rushing to meet up with deadlines, so the focus is not on quality. 

Monthly Retainer 

Seasoned freelancers know that the “feast or famine” scenario is real. 

You have a boatload of projects today, and then, tomorrow, well, things seem so bad that you can only get on a handful of projects. 

That’s why both new and experienced freelancers hop into the retainer agreement idea. A retainer agreement is a service contract between a company (or an individual) and a service provider. 

A solid retailer agreement allows gig workers to plan their work, even out income fluctuations, and take on other clients. 

42% of freelance writers earn up to $5,000 monthly, and most are working with a company that puts them on a monthly retainer contract. 

A monthly retainer contract also allows clients to review freelancers’ expertise and measure progress to see if they’re getting value for their money. 

Best ways to pay international contractors

International bank transfers(SWIFT) 

SWIFT, which stands for Society for Worldwide Interbank Financial Telecommunication, is a secure messaging network that enables financial institutions to send money transfer instructions to each other.

For a successful SWIFT transfer, the receiving bank is assigned a unique SWIFT code—e.g., CITIUS32—allowing other banks to send money to the receiving bank’s account holder. 

Case in point: Let’s assume a client, Braddit, wants to send money to their foreign independent contractor who banks at Nedbank, South Africa. 

The account team of the sending company walks into their bank with the freelancer's account number and a Nedbank unique SWIFT code to perform the transaction. 

When Nedbank receives the SWiFT message about the incoming payment, it will credit the money to the freelancer account. SWIFT payment can take anywhere between 1 to 5 working days to complete.

SWIFT is usable globally, and you don’t always need to visit a bank to send money. You can simply wire funds from your bank account through online wire transfer services. 

However, because transfer via SWIFT only requires transaction codes and tracking numbers, cybercriminals can access your funds with little effort. 

International Money Order 

A money order is a government-issued certificate—like a cheque—used to make payments to someone in another country. 

Though it has been in existence since 1882, a money order is still a safe and convenient method for sending money internationally. 

With a money order, the recipients don’t need a bank account to receive the fund. They can simply do so with Money gram or Western Union in their country. 

Most money orders have a maximum of $1000 per transaction, but the sender can purchase more than one if they wish to perform multiple transactions. 

Rather than being limited to the US, international money orders are accepted by other countries. 

One major downside: it’s expensive. Additional fees may be charged when cashing international money orders, plus added bank rates can reduce the money during cash-out. 

Revolut 

Revolut provides digital banking and international money transfer services for personal customers from different countries. It’s one of the fastest-growing digital banks alive today. 

From prepaid debit cards available in 120 countries to a crypto-currency exchange wallet that allows users to convert their currencies into Bitcoin, Revolut offers everything to help its customers scale quickly. 

No transfer fee is charged for internal transfers—transfers between one Revolut customer and another—in the SEPA (Single Euro Payment Area) region in EUR. 

But when a transfer goes beyond the local currency, Revolut charges a flat fee of £3 per transaction. 

Also, Revolut doesn’t offer account managers, and can be challenging to use for bulk transfers. 

PayPal

PayPal is the largest online payment processor globally, with over 325 million active users in 202 countries and 25 supported currencies. 

It’s among the best payment solutions for organizations looking to make bulk international payments to remote contractors. 

Because most people already have an account, it’s super simple to send, receive, and pay invoices across 200 countries. 

Your freelancer can ping over an invoice within a few clicks, and likewise, it’s just as easy for you to wire money across. 

Within the U.S., PayPal transaction fees are significantly lower (2.9% + $0.30). But keep in mind that if you’re making international transfers, you’ll incur a 3.9% charge plus the current exchange rate. 

Also, PayPal doesn’t operate in developing countries like Nigeria and Pakistan, primarily places to find skilled gig workers. 

Xolo

If you want to pay multiple freelancers at once and reduce the admin burden with bulk payments, Xolo serves as an intermediary between freelancers and your company, allowing your business to create only one invoice for multiple payments and process them without additional fees.

Pay independent contractors compliantly and easily with Xolo

The struggle of paying international contractors is fresh with remote work. So, most solutions are a work in progress. This means, no “perfect” tool exists—yet.

Foreign labor laws, exchange rates, and policies are tough constraints to tackle. 

However, Xolo ticks the right boxes for paying independent contractors easily —Ease of use, bulk payment, streamlined contract management, fast processing time, and friendly, knowledgeable support. 

About Vera

Vera Agiang is a technical freelance writer and software developer. She has 4+ years of experience in B2B SaaS content marketing and SEO. She’s passionate about people's experiences, data engineering and no-code. She loves to laugh and is a travel, music and food enthusiast.