6 Ways To Approach Paying International Contractors

As businesses expand their reach across borders, they must figure out how to pay people living in other countries. It might seem simple enough to send money electronically, but there are many factors to consider, like currency exchange rates, tax compliance, and local labour laws. This article explores how to approach paying international contractors, so you can get it right and keep your business running smoothly.

Who's Considered An International Contractor?

An international contractor is a self-employed worker who services a business in another country. Unlike employees, they work independently and are responsible for their taxes and compliance with local laws. 

International contractors may include independent professionals, subcontractors, or staffing agencies depending on the business's requirements. Companies need to understand the key considerations when hiring international contractors.

Three Types of International Contractors

International contractors may take different forms, depending on the business's specific needs.

1. Independent Contractors

Independent contractors are self-employed professionals who offer their services to clients in other countries. They usually: 

• Run their businesses
• Set their schedules
• Take care of taxes and legal compliance

Examples of independent contractors include: 

• Freelance writers
• Graphic designers
• Software developers
• Consultants

2. Subcontractors

A leading contractor hires subcontractors to complete specific tasks or parts of a larger project. This allows the main contractor to access specialised skills that may not be available internally. 

Subcontractors can work across a range of industries such as: 

• Construction
• IT
• Marketing
• Engineering

They contribute to efficient project delivery by focusing on their area of specialisation.

3. Staffing Agencies

Staffing agencies are organisations that deliver services through a team of professionals. They often support international clients with services such as: 

• Marketing
• IT support
• Customer service 

They can adapt to different project sizes, which makes them suitable for businesses that need to outsource tasks. Examples include: 

• Digital marketing agencies
• IT service providers
• Creative design studios

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6 Ways To Approach Paying International Contractors

There are several ways to pay international independent contractors, although some are simpler. The options available may also depend on the contractor’s country of residence.

Below are some widely used methods for paying international contractors:

1. Paying International Teams with Cercli

Cercli provides a multi-currency payroll system to support international teams in over 150 countries. This enables businesses in the MENA region, including the UAE, to handle international payroll without relying on multiple systems or third-party providers.

The platform helps ensure payroll complies with local regulations in each country where teams are based. Centralising payroll through Cercli reduces reliance on: 

• Separate tools
• Simplifies administration
• Helps maintain consistent processes across regions

Cercli will help you to save money (no hidden or additional fees), ensure that your contractors get paid as per their contract, and we will ensure that all tax invoices are compliant.

Cercli facilitates timely and compliant payments for businesses of all sizes, from small remote teams to larger cross-border workforces.

2. International Wire Transfers

This method transfers funds directly from your business bank account to the contractor’s account. Although commonly used for larger payments, wire transfers can be expensive due to bank charges and unfavourable exchange rates. Processing times can also vary based on the recipient’s country.

3. International Money Orders

Money orders are issued by a bank or financial institution and posted to the contractor. While secure and traceable, this method is slower and less practical than digital alternatives. As a result, it is now rarely used in business.

4. Digital Payment Platforms

Platforms like PayPal and Wise enable online money transfers with modest fees and quick processing times. They are suitable for smaller transactions, although availability and costs can differ based on the contractor’s location. Some platforms also impose limits on transfer amounts or charge currency conversion fees.

5. Cryptocurrency

It is also possible to make payments using cryptocurrency, such as Bitcoin. These transactions are typically processed quickly and bypass banks or other intermediaries, often reducing costs. This method may not suit all contractors due to market volatility, regulatory differences, or limited familiarity with the technology.

6. Freelancer Platforms (e.g., Upwork, Fiverr)

Platforms such as Upwork and Fiverr allow businesses to hire and pay international contractors through a single system. Contractors typically select their preferred payment method, such as: 

• PayPal
• Payoneer
• Direct bank deposit

Depending on their location and chosen method, they may incur platform or withdrawal fees.

What To Consider Before Making Payments To International Contractors

Before paying international contractors, it’s important to understand: 

• Local tax laws
• Worker classification rules
• Relevant regulations

Without this understanding, businesses may risk: 

• Penalties
• Legal complications
• Reputational harm

Cercli supports businesses in navigating these challenges by offering tools to support your growth.

Worker Classification

Before making payments, it is essential to determine whether the individual is legally classified as an independent contractor or an employee in their country. Legal definitions and criteria vary between jurisdictions.

Typically, a contractor works independently, manages their own schedule, and provides services to multiple clients. In contrast, someone who works mainly for a single client over a long period and is directly managed may be considered an employee.

Misclassification can result in liability for: 

• Unpaid taxes
• Entitlements
• Other legal obligations under local employment laws

Tax and Legal Penalties

Misclassification can lead to: 

• Back taxes
• Penalties
• Repayments of employment-related entitlements

For instance, if a contractor ought to have been classified as an employee, local authorities may require payment of: 

• Income tax contributions
• Statutory entitlements
• Termination-related payments such as severance.

In many cases, claims may be raised by government bodies and contractors seeking retrospective compensation.

Tax Documentation

Businesses are required to collect specific tax documents when working with international contractors in the United States. One commonly required form is IRS Form W-8BEN, which confirms the contractor’s non-resident status for US tax purposes.

Having the correct documentation on file helps reduce the risk of tax compliance issues.

Local Compliance Requirements

Companies should understand whether contractors meet their tax obligations in their countries. Although this is typically the contractor’s responsibility, some jurisdictions may hold the engaging company liable if obligations are not met.

It is advisable to maintain formal agreements that specify the: 

• Contractor’s status
• Payment terms
• Tax obligations

Permanent Establishment Risk

Suppose a business is considered to have a continuous operational presence in a foreign country, often due to a long-term relationship with local workers. In that case, it may be classified as a permanent establishment. This may make the business liable for local corporate tax and income reporting requirements. Non-compliance or failure to register in that jurisdiction may result in further penalties.

Permanent establishment poses a significant tax and legal risk for companies working with international contractors. It is essential to understand how local tax authorities may interpret a company’s activities and to take steps to avoid unintentionally creating a taxable presence.

Supporting Growth in the Middle East with Local Expertise

Transform your HR operations with Cercli, which is aligned with the UAE’s vision for business excellence. It is the only platform built specifically for MENA businesses that unifies workforce management needs in one powerful system. Manage your entire team, whether local or global (Cercli supports payments in 150+ countries), with our comprehensive solution that handles multi-currency payroll, leave management, onboarding, and compliance documentation tailored to the unique requirements of the MENA region.

Whether you're managing a growing team of 25 or coordinating 500+ employees across multiple countries, Cercli provides the localised expertise and streamlined processes that MENA businesses need to scale confidently and manage remote teams effectively. Experience the only HR platform truly designed for how you do business in the Middle East. Schedule a demonstration today to speak with our team about our global HR system.

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Misclassification Risks For Contractors And How To Avoid Them

Working with international contractors can effectively grow your team, but it involves legal and financial risks if not managed properly. A key concern is misclassification, when someone engaged as an independent contractor is considered an employee under local regulations.

What is Misclassification?

Misclassification often arises when a contractor’s work resembles an employee's, as defined by local laws. This could involve: 

• Long-term arrangements
• Fixed working hours
• Close oversight
• Limited independence

In such cases, local authorities may reclassify the contractor as an employee, making the hiring business liable for: 

• Unpaid taxes
• Statutory entitlements
• Penalties

Implications of Misclassification

Incorrect classification can result in:

• Repayment of taxes and employment benefits
• Penalties for non-compliance with tax reporting
• Audits or legal proceedings
• Reputational damage

In the United States, for example, Form 1099-NEC reports payments to independent contractors, while Form W-2 applies to employees and includes withheld taxes. Submitting the wrong form may lead to an IRS review or investigation. If classification is unclear, either party may submit Form SS-8 to the IRS to request a determination.

How to Reduce the Risk of Misclassification

To help avoid misclassification, consider the following steps:

• Seek legal and tax advice: Consult experts familiar with employment laws in your jurisdiction and the contractor's jurisdiction.
• Understand local definitions: The criteria may vary depending on how each country classifies employees and contractors.
• Educate internal teams: Ensure hiring and HR staff understand the differences between employees and contractors.
• Provide clear contracts: Use written agreements that outline the: 
  
  • Scope of work
  • Independence
  • Payment terms
  • Responsibilities
• Keep detailed records: Maintain documentation of contracts, tax filings, and payment history.

Country-Specific Tax Obligations

When engaging international contractors, be aware of any tax obligations in their home country. Some jurisdictions may require specific reporting or withholding of taxes at the source. As these requirements differ widely, it is advisable to work with a qualified tax adviser to ensure compliance.

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Book a Demo to Speak with Our Team about Our Global HR System

Cercli is the only human resources platform explicitly designed for organizations in the Middle East and North Africa. It combines all HR functions into one powerful system, transforming regional businesses' workforce management. From multi-currency payroll to compliance documentation, Cercli handles the complexities of local regulations so you can focus on your team. 

Whether you're managing 25 employees or 500, Cercli provides the expertise and streamlined processes MENA businesses need to scale confidently. With Cercli, you can eliminate the inefficiencies of using multiple fragmented tools and instead operate with a single source of truth for all your HR needs. Book a demo today to see how Cercli can transform your HR operations.

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