Founders of venture capital-backed startups usually think about ramping up their headcount, and they want the best talent. A result of the Covid pandemic is that business owners are more and more comfortable with hiring remotely and even hiring internationally. And so, what we see is a lot of startups hiring international tech talent, international marketing talent, even international administrative talent.
Hiring globally is becoming that much more critical for startups. Since startups and early-stage companies don’t usually have an internal HR department, hiring and human resource tasks such as payroll fall on the founders’ shoulders. Startup founders often want to know the best way of how to pay international employees and contractors.
Since we’ve helped hundreds of VC-backed startups set up their international employee payroll systems and find ways to pay international contractors, we thought that we’d share best practices on how to pay international employees and contractors.
Note that we have partnership agreements with most of the companies we list in this review, which means our clients get preferred customer support, sometimes better pricing, and we earn a referral fee from many of these vendors.
The simplest way is to make someone a contractor. You simply hire them as a contractor and have them sign a contractor agreement with an IP assignment clause in it. This contractor agreement also includes the hourly rate or the fixed monthly fee you’re paying someone. If it’s hourly, you want to cap or limit the number of hours they can charge. Sometimes, you have things like overtime or incentives if they work more hours. Contracting is easy and gets people going. Compared to making someone an employee, contracting does not have a substantial administrative run-up. A pro is that anyone in the world could be a contractor.
I do think it’s best practice for startups to have that contractor agreement from their law firm. Ensure it’s ironclad, enforceable, and every person signs it. To sum it up, contracting is the easiest way to hire international talent - but now you’ve got to find a way to pay those international contractors.
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. This makes Bill.com a great way to pay international contractors, since they contractor will be able to send you an invoice, put in their banking information, and then you’ll be able to trigger the payment. If you have the $79 per month Bill.com plan, then international wires in the contractor’s local currency are $0 (yup, zero dollars), and international wires in US dollars are, as of the time of us writing this article, $14.99. Note that if you pay using the local currency, you’ll end up paying some money in the exchange rate.
Another option is to pay your international employees or 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 the record. For that, you may want to look into a payroll system like Rippling and Gusto.
Gusto is steadily making progress on the ability to pay international contractors. They have Canadian international contractors that can be paid now. We think 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 Deel and Remote. We’ll talk about Deel and Remote in just a moment, but they are good ways to pay international contractors”. One thing that separates Deel vs Remote, right off the bat, is that Deel makes it very easy to grant options to your non-domestic team. This is a major plus for many tech startups, where option grants are an important part of the overall package - although, not every part of the world is as excited about options as people in the US are.
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. There are now some decent crypto currency accounting software providers, but you do have to pay for these, so they make using Bitcoin to pay international contractors not as “low fee” as you’d think. 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.
Besides hiring international talent as a contractor, you can decide to make someone an employee. For U.S.-based companies, there are a few ways you can make someone an employee internationally.
The first way is to start a subsidiary. This can be a lot of work, both on the legal, accounting, and tax sides. It takes a little while to get going; you’ll need local payroll, bank accounts (probably), employment agreements, etc. We don’t recommend this if you are just getting started. However, if you’re hiring many employees in one country, having a subsidiary makes sense.
Another way is to do what’s called a global PEO. A PEO is a professional employer organization. Professional employer organizations provide comprehensive HR solutions that are best for small and medium-sized companies.
Global PEOs allow you to leverage the legal infrastructure of another company, the PEO in that country. They will hire the employee directly for you. It cuts down on the need to have that subsidiary. It also cuts down on your legal expenses and time. Global PEOs are becoming much more popular. This is a lot easier of a way to pay international employees than setting up an entire subsidiary in each country!
We have worked with Globalization Partners for a long time. They are a great option as the person you’re working with gets to call themselves an employee, and they get benefits and some other perks.
However, note that although there is a little bit of lead time and global PEOs charge a little bit more, it’s often worth it.
Finally, there are global hiring aggregators, like Remote or Deel. These aggregators straddle both the contractor and employer realms. They allow you to have a software interface that enables you to interact with them seamlessly.
The actual value is that you have easy access to the global PEO functionality that a legacy global PEO would provide in a little bit better of a software interface. Also, Deel and Remote can give you excellent coverage internationally. They are a significant value-add for hiring and paying international talent.
There are also a couple of contractor-centric companies like the new company, Deel. Deel allows you to pay your contractors and foreign employees all 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 excellent option. When comparing Deel vs Remote, a major difference right now is that Deel makes it very easy to offer stock options. Listen to our recent Founders & Friends podcast interview with Deel’s COO, Dan Westgarth here.
Remote offers a global HR platform for distributed teams across the globe. Remote makes it easy to onboard, pay, and delight remote employees and contractors anywhere in the world. Remote handles local compliance, payroll, and benefits all in one place. It is nice that Remote has a full-stack legal infrastructure in every country. Listen to our recent Founders & Friends podcast interview with Remote’s CEO, Job van der Voort, here.
|Basic Description||With Deel, you can hire and pay your global team. Deel helps companies with international payroll, benefits, taxes, and compliance in 150 countries - all through a nicely designed dashboard.||Remote offers a global HR platform for distributed teams across the globe. They help big and small companies with international payroll, benefits, taxes, and compliance.|
|Pricing - Hiring Contractors||From $49/per contractor||Free for contractors, although there are payment processing fees|
|Pricing - Hiring Employees||1st employee Free in many countries
$500 per employee/month after 1st employee
|From $299 to $599 per employee/month, depending on the country|
Built-in legal compliance
Remote IP Guard
Stock option grants
Custom systems integrations
|Generate & sign local compliant contracts
One-click global payroll
|Number of Countries Covered||150+||30, soon will be 80|
|QuickBooks Online Integration||Excellent||None|
To conclude, paying international employees is not as difficult as it may first seem.
You do have several options including - hiring them as contractors, wire transfers, using a PEO, or utilizing a global aggregator such as Deel or Remote. Do your research to find the method that best suits your company’s needs. Don’t forget to get IP agreements so the work the international team does is protected! And, as always, feel free to reach out to us at Kruze Consulting for any questions or financial assistance.
It’s a great idea to collect IRS form W-8BEN from overseas contractors. The W-8BEN is an official form that foreign individuals or entities should complete and provide to their U.S. payors if they’re receiving certain types of income from sources within the United States (the domestic company should be the one to ask, it’s unlikely that overseas contractor would know to fill this out). The W-8BEN is a form that certifies that your international contractor is not a U.S. Citizen and not subject to U.S.Withholding Tax. It is collected by US companies for their records and is liability protection for the company. The W-8BEN is for foreign individuals while the W-8BEN-E is for foreign entities. The form is valid for 3 years.
Our data suggests that startups that hire foreign contractors and employees have modestly lower payroll - but only about 10% or so lower - that companies that only hire domestically. That’s not a particularly huge savings, and our theory is that the cost of hiring top-tier, Silicon Valley quality contractors and employees has normalized globally since COVID.
Foreign developers, designers, devops professionals, etc. know their value, and have decently high salary expectations. And US companies tend to determine how much they are willing to pay before paying international talent. So our data doesn’t show a huge savings for companies that choose to go international.
It’s tempting to think that overseas hiring will save money, but the other aspect we’ve seen companies that hire overseas deal with is the fact that they may need to hire a greater number of developers to produce their product vs. companies in the US. This is usually an issue when a founder attempts to save money by focusing on low-cost over quality. Non-US contractors likely know if they are high-quality, and will demand a salary that isn’t such a huge discount to domestic talent.
Gusto does now have the capability to do some international contractor payments. Supposedly it takes about 3 days for the payment to get to the contractor. Note that if the person is actually a US citizen, you need to set them up as a domestic contractor in Gusto.
Not really how you are thinking - Gusto’s overseas payments are for contractors, not employees. You’ll need to use one of the international payroll providers we’ve listed above, not Gusto, to pay overseas employees. Note that we really like Gusto as a domestic payroll provider. You can read our comparison between Gusto and Rippling here.
Rippling announced their international employee and contractor payroll system, and we are seeing clients start to set it up. So far, they’ve had good experiences. Rippling is known for good UX and design, and our current experience with it has been solid.
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