6 Best Ways To Pay overseas Freelancers

In today's interconnected world, the rise of the digital job subculture has paved the way for a thriving freelance community across the globe. 

Forecasts suggest that the online freelance marketplace, including India, could contribute $2.7 trillion to the global GDP by 2025. In fact, India's freelance community is projected to grow impressively, reaching $20-30 billion by 2025. 

However, while many companies struggle to navigate through complex legal regulations, the issue of misclassification between employees and freelancers has become a rising concern. Incorrectly distinguishing between the two can lead to various implications, including:

1. Legal penalties and litigation costs
2. Compliance challenges
3. Back taxes and unpaid benefits
4. Employee rights violations
5. Reputation damage.

Let us start this post by understanding “What is a freelancer/independent contractor?”

What Is A Freelancer?

A freelancer or independent contractor is a working professional offering services to clients on a project or contract basis. They work independently and enjoy the flexibility to choose workplace/working hours while handling their own taxes and business-related expenses.

In contrast, an employee is an individual hired to perform a designated job under the control and direction of the employer. In return, employees are entitled to various benefits like health insurance, paid time off and retirement plans, with employers typically withholding taxes.

Understanding the distinction between employees and freelancers is crucial for businesses, especially when hiring foreign freelancers. This ensures proper classification, payment and tax arrangements. 

How To Pay Foreign Freelancers Online

The laws of each country differ vastly. Hence, businesses must cautiously navigate through their home country and the rules and regulations of the contractor’s country.

For instance, hiring international freelancers from countries like the United States and India differs in terms of handling tax and compliance. In the United States, businesses must follow IRS regulations, use form W-8BEN and withhold taxes. Contrarily, in India, companies must comply with tax regulations like Goods and Services Tax (GST) and the Income Tax Act. 

Understanding and adhering to these regulations will lead to seamless and compliant collaboration with freelancers from different countries. 

Apart from compliance, here are the top three challenges businesses face when paying freelancers abroad: 

1. Payment terms and schedules: Different freelancers have varying payment terms and schedule preferences, leading to complexities in managing payments. For instance, a freelancer may prefer advance payment, while another may require milestone payments. Managing multiple terms and payments can complicate arrangements for teams. 

2. Multi-currency challenges: Dealing with freelancers from different countries involves multiple currencies. Converting payments to different currencies can lead to exchange rate fluctuations, impacting the business's budgeting and financial planning. Moreover, businesses need to consider transaction fees and decide whether the freelancer or the company will bear these fees.

3. Reporting issues: Different countries have specific reporting requirements and businesses have to ensure compliance with these regulations. For example, companies must adhere to India's GST reporting needs when hiring freelancers from India. 

Addressing these challenges requires careful planning and coordination between businesses and freelancers. Once businesses get clarity over these basics, they can easily pick a suitable alternative to pay foreign freelancers online seamlessly. 

Top 6 Ways To Pay Foreign Freelancers

Here are the top six ways companies can pay overseas freelancers:

1. ACH (Direct Deposit)

Automated Clearing House (ACH) is a secure and convenient method of transferring funds directly from a company's bank account to a foreign freelancer's account. It is a hassle-free way to make regular payments to freelancers but is restricted to domestic transactions within the United States.

• Charges: ACH transactions typically have lower fees, ranging from 0.5% to 2% of the transaction amount, making it cost-effective for businesses and freelancers.
• Currencies supported: United States dollar (USD)
• Information required: The freelancer's bank account details, including the bank name, account number and routing number.

Pros:

• Low transaction fees
• Easy to set up and use
• Reliable for recurring payments.

Cons: 

• Only available for the United States

2. Invoice Payments (Credit and Debit Card)

Companies widely use credit or debit cards for paying foreign freelancers. Businesses can pay freelancers by sending payment through an invoice and the freelancer can process the payment using their preferred card.

• Charges: Credit and debit card payments incur foreign transaction fees, ranging from 2% to 4% and currency conversion charges, approximately 1% to 3% of the transaction amount.
• Currencies supported: Generally supports major currencies, such as USD, EUR, GBP etc., accepted by the card networks such as Visa and Mastercard
• Information required: Freelancer's card details, including card number, expiration date and CVV

Pros: 

• Quick and easy payments
• Widely accepted

Cons: 

• Higher transaction fees (suitable for one-time payments only)
• Potential chargebacks

3. Payment Platforms

Payment platforms like PayPal, GooglePay, Stripe etc., offer a digital ecosystem to send and receive money globally. They provide a user-friendly interface and various payment options.

Most platforms support multiple currencies, allowing freelancers to receive payments in their preferred currency. Each app has its fee structure, including exchange rate markups and transaction fees. 

Here is an overview of fees and currencies supported by various platforms:

Pros: 

• Wide acceptance
• Multiple currency support
• Accessible from various devices

Cons: 

• Transaction fees can vary and include multiple charges such as conversion fees and price markups
• Restrictions on specific countries, such as North Korea, Cuba, Syria etc. 

4. Wire Transfers

Wire transfers are the most popular method for making large international payments, involving the electronic transfer of funds from one bank account to another. While a domestic transfer takes about a day, international wire transfers can take more than five days to process payment.

• Charges: Wire transfers often have higher transaction fees and exchange rate markups, ranging from 1% to 3% of the transfer amount.
• Currencies supported: Wire transfers commonly support major currencies such as USD, EUR, GBP etc. However, for less common currencies, options may be limited. For instance, some banks do not facilitate transfers for certain African or Asian currencies.
• Information required: To process a wire transfer, the freelancer's bank account details, including the SWIFT/BIC code, are necessary.

Pros:

• Suitable for larger payments
• Direct and secure transfers between bank accounts

Cons:

• High transaction costs
• Potential delays due to manual processing (more than five days)

5. Freelancer Platforms

Freelance platforms (e.g., Upwork, Fiverr) handle payment processing, providing freelancers security and convenience. They take payment from companies in advance and pay freelancers based on project completion. 

• Charges: Freelance platforms deduct a service fee or commission from the freelancer's earnings (typically 5% to 20%).
• Currencies supported: Platforms support multiple currencies for global transactions
• Information required: Companies need to make the payment to the platform and need no details of the freelancer’s account.

Pros: 

• Streamlined payment process
• Built-in dispute resolution
• Escrow services

Cons: 

• Some platforms impose additional charges for cross-border payments and certain countries have specific regulations that impact payment processing (e.g. tax withholdings).
  
  For example, when a US-based company hires an international freelancer through a platform, it may need to comply with tax withholding requirements for payments made to foreign contractors.

6. Employer of Record (EOR)

EOR services, like Rapid, act as an intermediary, hiring freelancers as temporary employees and handling payroll and tax compliance on behalf of the employer. 

For instance, Rapid enables tech companies to easily hire Indian talent by taking over all the HR operations and management. 

From managing timesheets, invoices and contracts to making seamless payments, it handles all the freelance intricacies, enabling companies to focus on core operations. 

Businesses can pay in their respective currencies and it pays to freelancers in their local currency. No more payment hassles, whether you opt for hourly, milestone-based or a flat monthly fee.

• Charges: EOR services charge a fee based on the agreed-upon terms and services provided. 
• Currencies supported: They support major currencies used in international business transactions. However, it's essential to confirm the specific currencies supported by a particular EOR service before engaging their services. 
• Information required: EOR services typically handle all the administrative processes.

Pros: 

• Simplified payroll and compliance management
• Reduced administrative burden for employers
• Suitable for long-term projects

Cons: 

• Higher costs compared to direct payment methods 
• Additional hidden costs

However, Rapid has no hidden fees and only charges $49 per contractor per month. 

Also, if your team has less than 20 people, prices drop to $39 per contractor per month. 

Special prices for growing businesses and startups! (Read terms and conditions here)

Final Thoughts

Ensuring safe and compliant payments to foreign freelancers is essential for fostering a productive and mutually beneficial working relationship. To achieve this, businesses must adopt the following best practices:

1. Discuss payment terms: Clear communication about payment terms, schedules and preferred payment methods with freelancers will avoid misunderstandings and delays.

2. Conduct background checks: Performing background checks helps verify the freelancer's identity, reducing the risk of fraud and ensuring transparency in financial transactions.

3. Understand tax compliance: Understanding tax regulations in both the freelancer's and business's countries is essential to meet tax obligations accurately. 

4. Set reporting standards: Implementing standardised reporting processes for tracking hours, in case of hourly payments or project milestones, ensures transparency and simplifies financial record-keeping.

These practices will ensure timely and compliant payments. Rapid can help you make your hiring experience hassle-free and take it one step further with its features such as:

•  e-KYC, i.e. paperless documentation
• Locally compliant contracts
• Background checks
• In-app invoice generation and approval options
• Local expertise - simplify legal and payroll compliance
• Time sheets and reimbursements requests within platform

Rapid has many other features to enhance hiring experience for companies looking to expand their team in India. 

Contact us today and get started on your growth journey.

‍