A card swipe, a phone tap, a button click — you hardly notice how you pay for things.
That is unless you are trying to pay a freelancer.
Between horrendous hidden fees, bounced transfers, and currency conversions a hefty sum can get pinched from your payment. But this shouldn’t be your case.
In this post, we’ll show you how to pay freelancers from anywhere without worrying about compliance, costs, or speed of your payments.
Hiring a person with a different zip code is no biggie thanks to incredible connectivity and a ton of remote collaboration tools.
But payment systems are yet to catch up with the pace of remote work. So the brunt of payment complexities falls on freelancers in one way or another.
Traditional bank systems were not designed to accommodate fast, cheap, and low-cost B2B transfers. So the global average cost of a cross-border remittance remains a whopping 6.5%.
Online payment tools like PayPal and Stripe partially filled that vacant “low cost” niche. But again — they are not always available to freelancers in all locations and come with extra fees.
Cross-border complexities lead to late payments. The average settlement time for cross-border payments is 2-3 days. But for countries with limited payment infrastructure, the timelines are much longer.
Likewise, high wire transfer costs can deter some clients from working with freelancers overseas. Especially if we are talking about one-off projects, rather than retainer work. A €56 fee (that's an actual banking fee!) for transferring a €500 payment to a Mexican freelancer is…too much.
And even if the transfer costs are not an issue, freelance payments still tend to arrive late.
According to a 2021 Sonovate report, a third of small and medium-sized businesses consistently miss the payment due dates because:
Because of the above, 30% of SMEs delay payments to freelancers until the final due date, which can be anywhere between 30 to 60 days.
Now tell me this: is that your case too? No shade if your freelancer payroll management isn’t great at the moment. Because you are already trying to get better with your payments by reading this guide, right?
So payments to freelancers are complex because they either cost too much, take too long, or get delayed because of your cash flow issues.
While you need a good accountant to help you deal with the latter, the speed, cost, and compliance factors are way easier to address.
When you want to pay freelancers overseas, you need to consider three things:
Payment compliance is important for avoiding run-offs with the tax authorities (which often mean costly fines). That’s the last thing you and your hires want.
Likewise, payment terms are there for a reason. Everyone wants to be paid sooner than later to avoid personal cash flow issues. Plus, they are a legal obligation. While the legislature on late fees isn’t universally perfect, some countries like the UK allow freelancers to charge compensation and penalty interest on commercial debts.
Ultimately, late payments can leave you with a bigger invoice and a busted relationship with a business partner. Neither is fun. So here’s how you can improve your freelance payroll management to prevent tax run-offs, annoying delays, and high payment fees.
Freelance taxation is a complex subject. Even more so when working with people from abroad.
But as a client, you're not the one dealing with all payroll tax intricacies. That’s one of the biggest differences between an independent contractor and an employee.
In most jurisdictions, you are not obliged to withhold or collect any employment taxes or social contributions from freelancers. The rules somewhat differ from country to country, however. In the US, you need to ask all local independent contractors to fill in the W-9 form. But if you are working with Estonian e-resident companies, there’s no extra paperwork for you to stay compliant when paying freelancers.
That said, you are still obliged to properly record and report all payments to freelancers as business expenses on your tax return.
Again, the requirements differ a lot depending on your country of residence (or incorporation). Check in with the local tax authorities on any special caveats. Usually, there aren’t many apart from submitting invoices in valid formats and making VAT payments on time (if these apply to you).
Every freelancer has an established fee structure — a model of how they prefer to get compensated for their services.
The common freelance fee structures are:
You’ll see the above fee terms proposed in a price quote and then documented in the freelance work contract the two of you sign.
The second thing you need to pay attention to are the payment terms — a due date by when the payment is expected. This term is spelled out in an invoice.
The standard freelancer payment terms are:
Most freelancers prefer shorter due dates to optimize their billing and reduce admin work.
But clients often push for longer deadlines because of admin overheads on their end such as lengthy payment approval process, payment setup complexities, etc.
And this builds up the bane of every freelancer's existence — late payments.
Research from IPSE shows that freelancers spend an average of 20 days a year chasing late payments. 43% are forced to write off at least one unpaid piece of work from such nightmare clients.
So be a Punctual Polly and pay your freelancers on (or ahead!) of time! But how do you do that?
The best way to ensure that you are paying your freelancers on time (and without exorbitant costs) is to use online payment tools. There are plenty of options to choose from.
Best ways for for one-off, same-day freelancer payments:
These tools work great if you need to occasionally pay subcontractors for their services. Also, many freelancers use these apps to invoice their clients.
But there are two major cons:
If your goal is to run a distributed team, upgrade to a freelance payroll management platform.
Standalone freelancer payment platforms emerged as a bridge between customers' and freelancers' accounts.
Think of a freelance payment platform as a virtual office hub. Apart from automating freelancer payroll management such solutions also help with onboarding, promote legal and tax compliance, and assist with day-to-day team management.
Popular features of freelance management platforms include:
By using an online freelancer payment solution you can stay compliant, and have a clear overview of your payment obligations and schedules (to prevent cash flow issues of your own). Plus keep the payment speed blazing-fast!
We got started with a mission of making it easy for anyone, anywhere to start freelancing without worrying about taxes, compliance, and payments.
Now, we want to help even more people profit from the freelance economy by hiring the amazing talent we support.
That’s why we’ve built Xolo Teams — a platform that helps you hire, onboard, pay, and manage freelancers from any location.
You choose who you want to work with — we make sure they get paid on time according to all tax and compliance requirements. No gimmicks or hidden fees.
At the end of the day, the talent marketplace is competitive. You are picking freelancers, but they are also sizing you up. Being a “late-payer” bares you from working with the best talent. Because 56% of freelancers say they will only work with businesses that pay their contingent workers on time. So it's time to become one!
Note: The information contained in this document is for guidance only and cannot be considered financial, legal or tax advice.
Elena Prokopets writes content for tech-led companies & software development businesses, marketing to them. Her empathy for the customer, expertise in SEO, and knack for storytelling help create content that ranks well and drives industry conversations.
Elena uses Xolo so she can focus on her solo B2B content writing business without stressing over the compliance and admin overhead.
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