Best Ways to Pay Independent Contractors

Making payments to independent contractors can often be easier compared to paying regular employees as you don’t withhold tax for them or need to figure out benefits.

Contractors usually have their preferred methods for receiving their wages. Services like Wise Business and Payoneer are some of the most popular ones as they're easy and cost-effective.

But are these services also a good choice for employers? Let’s find out!

Money Transfer Services

You may be considering using a bank to pay your independent contractors overseas, as it's the most traditional service out there. But here's a quick heads up on the fees and how money transfer services can save you a few bucks.

The average cost to send funds overseas using traditional banks range from 3 - 4% of the amount being transferred. This is due to the SWIFT fees that cost $20 - $50 per transfer and an exchange rate mark-up of 2 - 4%. This means that transfering a $1000 to EUR can costs around $40 - $70 plus a receiving fee charged by the recipient's bank.

The good news is that there are money transfer services that could save you money on international transfer fees. Let's have a look at some of the best ones in the market.

Wise Business

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds.

The convenience of using the Wise Business account together with the batch payment tool for running payroll in different currencies makes Wise work seamlessly for employers and contractors alike.

Employers can pay in 40+ currencies and contractors can use Wise multi-currency balances to receive their wages and take advantage of the low conversion fee. This makes Wise a strong choice for paying contractors abroad, too.

Pros:

• Mid-market exchange rate
• High Transfer limit - up to $1,000,000
• Low transfer cost
• Recipients don’t need a Wise account to receive payments
• Instant transfer for some currencies
• Accepts Payments through debit and credit card, ACH direct debit and Wire transfer
• Safe and secure account.

Considerations:

• No Cash Pick-ups
• Recipient cannot track the status of the transfers

Payoneer

Payoneer’s services are quite similar to Wise. They provide local account details in different currencies where contractors can receive payments for free. Employers can make international payments to overseas contractors.

Pros:

• Free payments between Payoneer accounts if in the same currency
• Provides a MasterCard that can be used on a large number of platforms
• A lot of contractors are already using the service to receive payments which means that it may be easier to send funds to them

Cons:

• Fees to use the MasterCard can be quite costly (up to 3.5% for cross-currency transactions)¹
• Recipient's account details need to get approved first which can take 1 - 2 working days
• Currency conversion charge can be higher compared to other services

OFX

OFX doesn’t charge a transfer fee however, they make money by adding a mark-up on their exchange rate which can vary according to the transfer amount and your transaction history with them. It’s usually higher for smaller amounts and vice versa.

Pros:

• No transfer fees
• No maximum transfer limit
• Operates 24 hours a day, 7 days a week

Cons:

• Flat fee can be high for small amounts
• Doesn’t offer same-day delivery
• Minimum transfer is $2,000

2. Payroll Software

Bigger companies often employ payroll software for larger payout volume but it's usually more expensive due to monthly subscriptions and cost per employee. But this reduces errors and eases tax reconciliation. There are a few services that are tailored to small and medium enterprises. Here are some of them:

BitWage

In order to run Payroll using BitWage, the employees need to be invited to set up a receiving account so even though the service is cost effective for companies, the challenge comes from convincing employees to use BitWage to receive their wages. Unfortunately, as it can be quite expensive for them due to 1% charge per deposit, or $15.99 per month for the Premium Invoicing service, they tend to use other services that charge no fee for receiving payments

Pros:

• Helps manage employee salary and sends necessary form to fill out

Cons:

• Best suited for workers who prefer to be paid in Bitcurrency
• Employees need to use the service too in order to receive payments

Paylocity

Paylocity (see Paylocity Alternatives) offers payroll services, HR, talent management, attendance, and benefits administration functions and supports mobile apps to conduct workforce management on the go.

Pros:

• Offers a number of resources that help streamline payroll processes
• Saves you time on admin work
• Easier tax reconciliation

Cons:

• Can be expensive for companies who run payroll in small volume

Paychex

Paychex offers a compact package of human resources management solutions that integrates HR administration, retirement, ATS, HRIS, and employee benefits.

Pros:

• User friendly and fast
• Saves you time on admin work
• Offers a few other resources that help with HR processes

Cons:

• Can be expensive for companies who run payroll in small volume
• It can take a while to familiarize

It's important to keep in mind that the cost shown above is not final. For most services, you’d have to integrate a bank or financial tools to execute the payment. Also, keep in mind the minimum head count per payroll. Most companies have 20 employees minimum volume.