A Guide to Paying Overseas Freelancers
Table of contents
Paying overseas freelancers can be complicated - but don't worry; we're here to help! This guide will cover everything you need to know on how to pay freelancers overseas without any headaches!
Freelancing has allowed organizations to tap into a global talent pool, helping them find the most competent individuals to help them get the job done. This growing trend has led to freelancers representing 46.5% of the global workforce, with around 1.6 billion people out of an estimated 3.5 billion global workforce being freelancers in 2021.
Working with freelancers benefits your business in more ways than one, but it also comes with challenges. When hiring overseas freelancers, one of the most significant issues is making the payments in the desired local currency, managing taxes, navigating compliance aspects, mitigating the added extra fees, and so on.
Fortunately, several global payment options and solutions can help you when paying freelancers abroad. This article will explain how to pay freelancers overseas, including choosing the right payment method, handling taxes and fees, and avoiding common pitfalls.
Challenges While Paying International Freelancers
When paying freelancers abroad, some of the common hurdles you may experience include the following:
Add-on Fees for international payments
When it comes to international payments, knowing the exact amount to transfer is more complex than paying someone in the same location. The payment might include several fluctuating and complex add-ons, like fluctuating local currency, processing fees, and add-on fees for international wire transfers.
Thus, the amount you pay to the overseas freelancer can be higher than what you had factored in, and it can significantly impact your overall budget.
Complicated International Tax Compliance
Working with international freelancers is challenging due to different countries' tax policies and regulations. As a business making international payments, you must comply with local and international laws. Non-compliance or minor lapses in these regulations could end up with fines and penalties for you and your freelancers.
Fluctuations In Exchange Rates
If paying freelancers in different currencies, large currency fluctuations can often impact the overall budget for the business. This can be an issue since it affects the actual amount the freelancer receives and also the amount that the employer has to pay if it is calculated in local currency.
For example, if sending $100 to a freelancer in their currency incurs approx. $2 forex charge, the freelancer will receive only $98. Therefore you would have to pay around $102 so that the freelancer receives the full amount.
Time Gap For Payments
Several checks and whistles go in for an international payment to go through. Thus, there can be a time gap for payments per the platform and method you are using. Not communicating this in advance may spoil the trust between the freelancer and the business.
For example:
If you use Payoneer to manage international and local payments, transferring the amount within the US generally takes 1-3 business days. Meanwhile, international payments can take 2-5 days.
Selecting the Right Payment Method
Today, multiple payment gateways are making international payments to freelancers less complicated than it once were. However, choosing a single payment option can be tricky and depends on several factors, like the incurred fees, benefits you get, support, and the location of your freelancers.
For example, PayPal is available in 191 countries but offers limited services in some regions while offering no service in 28 countries. Furthermore, even within the countries it supports, there can be additional requirements, such as requiring a US bank account or supporting only local bank accounts (as in India and Vietnam).
Best Methods To Pay International Freelancers
Selecting the right payment option for your paying overseas freelancers is crucial. The ideal platform should globally available, easy and cost effective and for you and your freelancer. Below are some of the popular international payment options for freelancers, along with their advantages and disadvantages:
Bank Transfers, Wire Transfer, and EFT
The most secure and widely-accepted payment option for international payment remains the trusted bank transfer or electronic fund transfer (EFT). You may set up a virtual international account specifically for paying overseas freelancers or opt for an account in top-tier banks with a global network like JP Morgan Chase, Citi, Bank of America, HSBC, BNP Paribas, Capital One, and others.
Unfortunately, international transfers usually incur a high transfer fee and currency exchange rate, which can be 1% - 4% of the amount.
PayPal
PayPal is the pioneer in international online payments and has the most comprehensive coverage. It is convenient and can be used for one-time payments or ongoing payments. However, the freelancer has to set up an account with PayPal to receive and transfer money to the bank account. Additionally, the platform charges up to 3%-4% fees on transfers, which can be high for a longer term.
Payoneer
Payoneer is a payment platform that offers a variety of options for receiving payments, including bank transfers, check, and prepaid debit cards. It is available in several countries and has relatively low fees. To use Payoneer, freelancers must set up an account and link it to a bank account or prepaid debit card.
Deel
Deel is a global payroll and online payments platform specifically designed to manage remote teams. It allows you to hire and pay team members spread across multiple locations. It offers a variety of payment methods, including bank transfer, debit card, and PayPal.
Wise
Launched in 2011 to facilitate multi-currency payments, Wise is used by millions of businesses and freelancers. It can hold over 50+ currencies in a single account and helps you save on bank fees and time. However, there are limited countries you can send money to using Wise, and you'll have to pay freelancers outside the list only in USD, EUR, or GBP.
Freelance Marketplaces
Platforms like Fiverr, Upwork, WeWork, and others offer a direct payment gateway, making international payments a breeze. It is highly convenient and less complicated but charges high commission fees, which can be 20% of the earnings for the freelancer.
Plus, it makes working with freelancers much easier since you can manage advance payments and request a refund if your task is not completed.
Things To Remember Before Making A Payment
Here are some key steps you need to take to know how to pay overseas freelancers and follow industry best practices.
Ask for the proforma and invoice
The ideal way to safeguard your interests and avoid disputes when working with overseas freelancers is to request a quote before placing a work order and requesting a proforma invoice before making advance payments.
Also, requesting the invoice before making the final payment will ensure that there is no dispute late related to advance, payment, and due date
Calculate payments correctly
You must have a Master Service Agreement or Statement of Work (SOW) signed by the freelancer, which includes pricing terms. Use this to calculate payments for the freelancer depending on the milestone (number of projects delivered, task completion, or work hours).
If the payment is based on work hours, ensure that this is appropriately tracked and you're billed correctly.
Factoring the taxes applicable
Ideally, the contract should mention applicable taxes and who has the onus of complying with local taxes. However, it is best to communicate this in advance and calculate the taxable component of the payment that you will be charged.
Double-check the details
Often, a payment can get stuck due to minor errors or avoidable issues. This can be a big problem, especially if the transaction amount is large, and you and the freelancer must provide detailed documentation for the transaction to get approved.To safeguard yourself from such issues, always ensure that the details are correct.
Pro Tip: If you are making a payment for the first time, make a small payment first ($1) to validate the details.
Communicate payment terms
Clear communication is essential for a healthy long-term relationship when working with international freelancers. This includes discussion and clarity on specific aspects of payment, including the currency that the freelancer will be paid in, the exchange rate applicable (especially who bears the exchange fees), the method of payment (who bears the add-on fees, wire transfer fees, platform commissions, etc.).
Having a clear contract with terms or payment and charges being mentioned helps all parties to safeguard their interests.
For example:
Suppose you signed a contract with a freelancer for a rate of $100 per project (which was Rs. 8000 at the time of contract signing). By the time the project comes to completion, the fluctuation in USD to INR rate leads to the $100 being Rs. 8200. What should be paid to the freelancer- Rs 8000 or $100
The answer is as per the rate and currency mentioned in the contract. If the currency used in the agreement is USD ($), then the payment has been made in the same currency, no matter the fluctuation in currency rate. However, if the contract agreement mentions the rate in INR (Rs.), the freelancer gets only $97.5.
Look into refunds and chargebacks
International payments can often get delayed or canceled due to unavoidable situations. If you have chosen a platform that is not well-known for its support or chargeback policies, you might have a lot of trouble getting the chargeback.
Additionally, if you have made advance payments to the freelancer and the project is not delivered, make sure you have a refund option. Hiring and paying via a freelancer marketplace will save a lot of hassle since you can make a refund request through this platform and get the required support.
How not to pay: In Bitcoin, Crypto, and Gift Cards
This can seem lucrative since the freelancer and your business can save on taxes and transaction fees. However, paying freelancers in cryptocurrencies, gift cards, or other non-approved methods can lead to legal complications and fraud.
Since businesses globally are required to maintain their business transactions, it is best to use a legally accepted mode of payment.
In a Nutshell
Paying overseas freelancers seems complex, but it can be convenient and hassle-free if you have the right processes. You should carefully consider the multiple payment platforms and payment methods, and understand the taxes and fees involved, as this will define how well this model can work for your business.
By thoroughly researching the options and communicating clearly with your freelancers, you can ensure that the process goes smoothly for everyone involved.
We highly recommend working through a convenient platform and payment method for both parties and safeguarding the interests of you and the freelancer. If you plan to work with multiple international freelancers across various countries, consider PayPal or Payoneer, which are available in multiple geographies. If you plan to work with a limited number of freelancers
FAQs
What is the best way to pay an overseas freelancer?
The best way to pay overseas freelancers is by using a payment gateway that supports both locations (yours and the freelancer's). Bank transfers or wire transfers are ideal since they can work in several geographies. However, you may also use internationally recognized and safe payment gateways like PayPal, Payoneer, Deep, and Wise, which are safe and have good support.
Do freelancers pay taxes when they are paid in foreign currency?
Yes, local and overseas freelancers must pay taxes, even if they are paid in foreign currency. The amount can vary depending on local tax regulations that apply to the freelancer. For a smooth working process, it is best to communicate in advance about who bears the local tax payments with the freelancer to avoid any last-minute hiccups.
How do I protect myself from fraud or scams when paying a freelancer overseas?
Here are some tips to protect yourself from fraud or scams:
- Hire freelancers or work on initial projects through a freelancing marketplace like Upwork, Fiverr, or another that can help them get refunds in case of any lapses
- Do a thorough background check by cross-checking portfolios on the platform, LinkedIn, and other sources before hiring or making advance payments to freelancers.
- You may consider hiring a freelancer with a proven track record of delivering quality work and a solid reputation and evaluate their skills for a short-term project before getting into a long-term contract.
- Additionally, ensure you use a secure payment method that offers protection and support for both parties in case of any payment frauds or scams.
Can I pay the freelancer in their local currency?
You may pay the freelancer in their local currency using a multi-currency exchange account or wire transfer. However, this will incur high exchange fees and transfer fees. So, as a standard industry practice, most freelancers accept payment in your local currency or US Dollars.
How do I ensure that the freelancer will receive the payment?
To ensure that the freelancers receive payment on time, you should follow some simple steps like - following a payment schedule; making payments using trusted and secure payment gateways; and maintaining records of all payments, including receipts and invoices. This will ensure that the freelancer receives payment on time and, in case of a delay, can procure the required documents quickly.
Paying overseas freelancers can be complicated - but don't worry; we're here to help! This guide will cover everything you need to know on how to pay freelancers overseas without any headaches!
Freelancing has allowed organizations to tap into a global talent pool, helping them find the most competent individuals to help them get the job done. This growing trend has led to freelancers representing 46.5% of the global workforce, with around 1.6 billion people out of an estimated 3.5 billion global workforce being freelancers in 2021.
Working with freelancers benefits your business in more ways than one, but it also comes with challenges. When hiring overseas freelancers, one of the most significant issues is making the payments in the desired local currency, managing taxes, navigating compliance aspects, mitigating the added extra fees, and so on.
Fortunately, several global payment options and solutions can help you when paying freelancers abroad. This article will explain how to pay freelancers overseas, including choosing the right payment method, handling taxes and fees, and avoiding common pitfalls.
Challenges While Paying International Freelancers
When paying freelancers abroad, some of the common hurdles you may experience include the following:
Add-on Fees for international payments
When it comes to international payments, knowing the exact amount to transfer is more complex than paying someone in the same location. The payment might include several fluctuating and complex add-ons, like fluctuating local currency, processing fees, and add-on fees for international wire transfers.
Thus, the amount you pay to the overseas freelancer can be higher than what you had factored in, and it can significantly impact your overall budget.
Complicated International Tax Compliance
Working with international freelancers is challenging due to different countries' tax policies and regulations. As a business making international payments, you must comply with local and international laws. Non-compliance or minor lapses in these regulations could end up with fines and penalties for you and your freelancers.
Fluctuations In Exchange Rates
If paying freelancers in different currencies, large currency fluctuations can often impact the overall budget for the business. This can be an issue since it affects the actual amount the freelancer receives and also the amount that the employer has to pay if it is calculated in local currency.
For example, if sending $100 to a freelancer in their currency incurs approx. $2 forex charge, the freelancer will receive only $98. Therefore you would have to pay around $102 so that the freelancer receives the full amount.
Time Gap For Payments
Several checks and whistles go in for an international payment to go through. Thus, there can be a time gap for payments per the platform and method you are using. Not communicating this in advance may spoil the trust between the freelancer and the business.
For example:
If you use Payoneer to manage international and local payments, transferring the amount within the US generally takes 1-3 business days. Meanwhile, international payments can take 2-5 days.
Selecting the Right Payment Method
Today, multiple payment gateways are making international payments to freelancers less complicated than it once were. However, choosing a single payment option can be tricky and depends on several factors, like the incurred fees, benefits you get, support, and the location of your freelancers.
For example, PayPal is available in 191 countries but offers limited services in some regions while offering no service in 28 countries. Furthermore, even within the countries it supports, there can be additional requirements, such as requiring a US bank account or supporting only local bank accounts (as in India and Vietnam).
Best Methods To Pay International Freelancers
Selecting the right payment option for your paying overseas freelancers is crucial. The ideal platform should globally available, easy and cost effective and for you and your freelancer. Below are some of the popular international payment options for freelancers, along with their advantages and disadvantages:
Bank Transfers, Wire Transfer, and EFT
The most secure and widely-accepted payment option for international payment remains the trusted bank transfer or electronic fund transfer (EFT). You may set up a virtual international account specifically for paying overseas freelancers or opt for an account in top-tier banks with a global network like JP Morgan Chase, Citi, Bank of America, HSBC, BNP Paribas, Capital One, and others.
Unfortunately, international transfers usually incur a high transfer fee and currency exchange rate, which can be 1% - 4% of the amount.
PayPal
PayPal is the pioneer in international online payments and has the most comprehensive coverage. It is convenient and can be used for one-time payments or ongoing payments. However, the freelancer has to set up an account with PayPal to receive and transfer money to the bank account. Additionally, the platform charges up to 3%-4% fees on transfers, which can be high for a longer term.
Payoneer
Payoneer is a payment platform that offers a variety of options for receiving payments, including bank transfers, check, and prepaid debit cards. It is available in several countries and has relatively low fees. To use Payoneer, freelancers must set up an account and link it to a bank account or prepaid debit card.
Deel
Deel is a global payroll and online payments platform specifically designed to manage remote teams. It allows you to hire and pay team members spread across multiple locations. It offers a variety of payment methods, including bank transfer, debit card, and PayPal.
Wise
Launched in 2011 to facilitate multi-currency payments, Wise is used by millions of businesses and freelancers. It can hold over 50+ currencies in a single account and helps you save on bank fees and time. However, there are limited countries you can send money to using Wise, and you'll have to pay freelancers outside the list only in USD, EUR, or GBP.
Freelance Marketplaces
Platforms like Fiverr, Upwork, WeWork, and others offer a direct payment gateway, making international payments a breeze. It is highly convenient and less complicated but charges high commission fees, which can be 20% of the earnings for the freelancer.
Plus, it makes working with freelancers much easier since you can manage advance payments and request a refund if your task is not completed.
Things To Remember Before Making A Payment
Here are some key steps you need to take to know how to pay overseas freelancers and follow industry best practices.
Ask for the proforma and invoice
The ideal way to safeguard your interests and avoid disputes when working with overseas freelancers is to request a quote before placing a work order and requesting a proforma invoice before making advance payments.
Also, requesting the invoice before making the final payment will ensure that there is no dispute late related to advance, payment, and due date
Calculate payments correctly
You must have a Master Service Agreement or Statement of Work (SOW) signed by the freelancer, which includes pricing terms. Use this to calculate payments for the freelancer depending on the milestone (number of projects delivered, task completion, or work hours).
If the payment is based on work hours, ensure that this is appropriately tracked and you're billed correctly.
Factoring the taxes applicable
Ideally, the contract should mention applicable taxes and who has the onus of complying with local taxes. However, it is best to communicate this in advance and calculate the taxable component of the payment that you will be charged.
Double-check the details
Often, a payment can get stuck due to minor errors or avoidable issues. This can be a big problem, especially if the transaction amount is large, and you and the freelancer must provide detailed documentation for the transaction to get approved.To safeguard yourself from such issues, always ensure that the details are correct.
Pro Tip: If you are making a payment for the first time, make a small payment first ($1) to validate the details.
Communicate payment terms
Clear communication is essential for a healthy long-term relationship when working with international freelancers. This includes discussion and clarity on specific aspects of payment, including the currency that the freelancer will be paid in, the exchange rate applicable (especially who bears the exchange fees), the method of payment (who bears the add-on fees, wire transfer fees, platform commissions, etc.).
Having a clear contract with terms or payment and charges being mentioned helps all parties to safeguard their interests.
For example:
Suppose you signed a contract with a freelancer for a rate of $100 per project (which was Rs. 8000 at the time of contract signing). By the time the project comes to completion, the fluctuation in USD to INR rate leads to the $100 being Rs. 8200. What should be paid to the freelancer- Rs 8000 or $100
The answer is as per the rate and currency mentioned in the contract. If the currency used in the agreement is USD ($), then the payment has been made in the same currency, no matter the fluctuation in currency rate. However, if the contract agreement mentions the rate in INR (Rs.), the freelancer gets only $97.5.
Look into refunds and chargebacks
International payments can often get delayed or canceled due to unavoidable situations. If you have chosen a platform that is not well-known for its support or chargeback policies, you might have a lot of trouble getting the chargeback.
Additionally, if you have made advance payments to the freelancer and the project is not delivered, make sure you have a refund option. Hiring and paying via a freelancer marketplace will save a lot of hassle since you can make a refund request through this platform and get the required support.
How not to pay: In Bitcoin, Crypto, and Gift Cards
This can seem lucrative since the freelancer and your business can save on taxes and transaction fees. However, paying freelancers in cryptocurrencies, gift cards, or other non-approved methods can lead to legal complications and fraud.
Since businesses globally are required to maintain their business transactions, it is best to use a legally accepted mode of payment.
In a Nutshell
Paying overseas freelancers seems complex, but it can be convenient and hassle-free if you have the right processes. You should carefully consider the multiple payment platforms and payment methods, and understand the taxes and fees involved, as this will define how well this model can work for your business.
By thoroughly researching the options and communicating clearly with your freelancers, you can ensure that the process goes smoothly for everyone involved.
We highly recommend working through a convenient platform and payment method for both parties and safeguarding the interests of you and the freelancer. If you plan to work with multiple international freelancers across various countries, consider PayPal or Payoneer, which are available in multiple geographies. If you plan to work with a limited number of freelancers
FAQs
What is the best way to pay an overseas freelancer?
The best way to pay overseas freelancers is by using a payment gateway that supports both locations (yours and the freelancer's). Bank transfers or wire transfers are ideal since they can work in several geographies. However, you may also use internationally recognized and safe payment gateways like PayPal, Payoneer, Deep, and Wise, which are safe and have good support.
Do freelancers pay taxes when they are paid in foreign currency?
Yes, local and overseas freelancers must pay taxes, even if they are paid in foreign currency. The amount can vary depending on local tax regulations that apply to the freelancer. For a smooth working process, it is best to communicate in advance about who bears the local tax payments with the freelancer to avoid any last-minute hiccups.
How do I protect myself from fraud or scams when paying a freelancer overseas?
Here are some tips to protect yourself from fraud or scams:
- Hire freelancers or work on initial projects through a freelancing marketplace like Upwork, Fiverr, or another that can help them get refunds in case of any lapses
- Do a thorough background check by cross-checking portfolios on the platform, LinkedIn, and other sources before hiring or making advance payments to freelancers.
- You may consider hiring a freelancer with a proven track record of delivering quality work and a solid reputation and evaluate their skills for a short-term project before getting into a long-term contract.
- Additionally, ensure you use a secure payment method that offers protection and support for both parties in case of any payment frauds or scams.
Can I pay the freelancer in their local currency?
You may pay the freelancer in their local currency using a multi-currency exchange account or wire transfer. However, this will incur high exchange fees and transfer fees. So, as a standard industry practice, most freelancers accept payment in your local currency or US Dollars.
How do I ensure that the freelancer will receive the payment?
To ensure that the freelancers receive payment on time, you should follow some simple steps like - following a payment schedule; making payments using trusted and secure payment gateways; and maintaining records of all payments, including receipts and invoices. This will ensure that the freelancer receives payment on time and, in case of a delay, can procure the required documents quickly.
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