Today, let’s dive into the question, “how do I pay international contractors?”. I’m writing this during the COVID pandemic and every company has gone virtual or remote. What we are seeing across the Kruze client base, is that folks are working with many more international contractors and it makes a lot of sense. There is incredible talent abroad, outside of the United States. So companies want to take advantage of it. In this article, we’ll discuss six ways to pay international contractors.
So the first step is to make sure they’re a contractor. So these people may need to be employees, especially if you are working with a bunch of people in one country, that country, governments love payroll taxes. And so oftentimes if you are building a big presence and they can argue that you have tax nexus, you may end up having to put them on the payroll. You can use a global PEO to do that, but that’s the first test. Make sure they’re a contractor and they pass all those tests.
Now, if, once you have validated them as contractors, there are a couple of easy ways to pay them.
How to pay international contractors
Here are the best ways to pay international contractors:
- Wire from your bank
- Gusto or Rippling
- Paypal, Transferwise or other payment apps
- Bitcoin - with some caveats
My personal favorite is just using bill.com. I like bill.com because it allows you to upload the invoice the contractor gave you into bill.com. You then have some documentation, both for your records and your accountant. It makes booking all these contractor payments in the correct periods so much easier.
Also sometimes contractors are a little disorganized. They might try to double bill you. Or you pay them and they complain that they never got the money. You can show the cash trail through bill.com. Bill.com also has international wires now so you can set it all up through the tool.
Another option is to pay your contractors just through the old-fashioned bank wire. However, bank wire is not always the best option.Some countries do not have developed banking systems, or maybe there is a high chance of fraud.
Also, with bank wire, you aren’t always able to upload an invoice for record. For that you may want to look into a payroll system like, Rippling and Gusto.
Gusto or Rippling
Gusto is steadily making progress on the ability to pay international contractors. They have Canadian international contractors that can be paid now. One thinks that they will probably have the ability to pay contractors in the rest of the countries soon. Rippling does allow you to pay contractors globally, which is nice.
There are also a couple of contractor-centric companies like a new company, Deel. Deel allows you to pay your contractors and foreign employees in one place. They have abstracted the global PEO and so it looks like one interface to you. Yet, the payments can go through a PEO or they can go through a wire or a different channel, but it all looks the same to you, which is a pretty nice option.
We are careful about Bitcoin because when you make payments with Bitcoin, it is a currency that is moving around quite a bit. It makes the accounting a little bit harder. However, if you only have a couple that want to be paid in Bitcoin, it is an option as well.
The key thing to remember is whatever way you choose to pay your contractors, you need to have invoices. The IRS requires you to keep three years of invoices at all times in case you are audited.
And second, you want to have invoices to make your accountant like Kruze, work a lot faster and keep your accounting bill down.
If we have access to the invoices, we can see the period for which the expenses should be booked and therefore we do not need to bug you. We can also see if you are being double billed. We can see if there was a deposit already made. We can answer so many questions on your behalf for those contractors and save you a lot of time.
So check out all of the, all the new options there are on the PEO front. On the global PEO front, there is Globalization Partners. There is Deel, which is abstracting global PEOs. There are a lot of options here, but if you are doing just pure contractors, you’ve got five or six options, all are pretty easy, just be consistent and be careful, and best of luck to you.
As always, if you have questions on this, reach out. We are here to help your startup succeed. Thanks.