How to Pay International Contractors: 5 Best Ways

Vivien Thuri
17.03.22
13 minute read

Nothing’s more important to your contractors than getting paid on time.

And just because someone’s based in a different country doesn’t mean they can afford to wait for their paycheck any longer than a contractor who lives down the street from you.

How you pay foreign contractors may vary, so if you’re looking for the best way to pay international contractors, you’ve come to the right place.

There are a few tried and true ways to send money abroad you may have already considered.

Pay overseas contractors in up to 54 currencies around the world with Wise Business, while saving up to 19x compared to PayPal.

Learn more about Wise Business

How to pay international contractors

When paying overseas contractors you shouldn't face obstacles - if you choose a payment service or method that's best suited for your business.

Read on to find out 5 of the best ways of paying international contractors.

1. Wise Business for paying international contractors

Wise-illustration-people-celebrate

Founded in 2011, Wise Business is on a mission to make it easier and cheaper to move money around the world.

In addition to offering international payments at the real exchange rate like you find on Google, Wise Business offers a multi-currency account that lets you store money in more than 50 currencies.

Also, you can get your own virtual account details for receiving local transfers in the US, the EU, the UK, Australia and more. You can sign up for free, and there’s no monthly fee to worry about.

If you need to make mass payouts to international contractors, make batch payments with Wise Business - with just a single file upload.

Take a look at how a spend management platform called Accrualify integrated Wise global payouts to see just how easy it is.


The pros of paying international contractors via Wise Business

  • High limits
    Depending on which state you’re located in and where you’re sending money to, you could send as much as $1,000,000 in a single transaction with Wise. If you’re sending money in batches, you can send a lot more in total.

  • Low cost
    Research has shown businesses can save up to 19x by sending international transfers through Wise Business rather than PayPal. And, depending where you bank, you may find similar savings over a regular international wire.

How to pay international contractors? Simply, fast and as cheap as possible. Compare the prices of Wise with other providers and see what fits your business the best.

The true cost of sending USD to GBP

  • Convenience
    Once you open your multi-currency account you can pay your international contractors in 80 countries. If you need a local account to receive money and allow your customers to pay you in their own currency, get account details (such as routing number, IBAN, sort code and more).

  • Online
    You might wonder what's the best way to pay contractors online. With Wise Business there's no need to visit a branch or call anyone up. Everything happens online.

  • Your recipient gets notified
    If you enter your contractor’s email, they will get an email once you’ve paid them, which is good for their peace of mind as well as yours.

  • Your recipient doesn’t need a Wise account
    When you use a solution like PayPal, your recipient will need to sign up to get hold of their money. Not so with Wise — it goes straight into their bank account.

  • Bulk payment options
    One of the best ways to pay international contractors -if you have many- is to make mass payroll payouts with Wise Business.

  • Great exchange rates
    You’ll get the mid-market rate like you see on Google, which should save you and your overseas contractors a lot of money. You aren’t likely to get that from a bank.

  • End payments in US dollars or local currency
    In most countries, you can pay your international contractors in either the local currency or in US dollars.

  • Secure
    Wise is regulated by the financial ruling bodies in each country it operates. Which means you can expect bank-level security.


What to keep in mind when paying via Wise Business

  • One-time verification process
    To get your account set up, your business will need to go through a one-time verification process. It could take several business days to start.

  • Local bank details
    You’ll likely need your recipient’s domestic bank details rather than their account number and international SWIFT code. That may mean having to contact them one extra time. While it’s a bit inconvenient upfront, it will cut down on international charges on their end — they won’t be charged for receiving an international payment.

  • No cash pickups
    Wise sends money from bank account to bank account, so cash deliveries aren’t available.

  • No recipient mediation
    Wise doesn’t get involved in disputes between sender and recipient. So if you want your money back from your beneficiary, Wise won’t take sides.


2. International wire transfer to pay overseas contractors

swift-payment-method-illustration

There’s something to be said for sticking with what you know. An international wire transfer is probably the best-known method for paying international contractors.

Most often, a wire transfer goes from your bank account to the recipients, generally via the SWIFT networka complex and sometimes costly system that links together international banks.

Despite its name, SWIFT transfers aren’t always particularly fast.

Depending on the route the money has to take, numerous intermediary banks might also have to get involved with your transfer — and each of them deduct a fee for their trouble.

When you're deciding how to pay international contractors, keep in mind that even though wire transfers are a popular way of sending money, it doesn't mean that you'll always get the fairest prices.


The pros of paying via international wire

  • You can use your bank
    A lot of American banks do offer international wires, even if it’s not their speciality. So the likelihood is that you can probably make a wire transfer with your existing bank. That’s great if you like the simplicity of using a company you already know, rather than signing up for something else. It’s one less password to remember, anyway.

  • Security
    Banks always have to have tight security, so there’s relatively little chance of any disasters happening during an international wire transfer.

  • High limits (possibly)
    The maximum amount you can wire varies from provider to provider. Some transfer providers have relatively low upper limits, but your bank might not — banks are used to handling large sums, after all. But you’ll need to check what your bank’s limit is. Oftentimes there are lower daily limits which may make paying overseas contractors a bit difficult.

  • It goes straight into your recipient’s bank account
    Your international contractors won’t have to sign up for any sort of new account if you wire them their money. The money will go straight to their bank.

  • Fixed upfront fees
    If you’re sending a large amount, most banks charged a fixed, upfront fee for an international wire transfer that’s the same no matter how much you’re sending. Which means if you’re sending a lot, then you may be in luck in this department. However, if there’s a currency exchange involved, that’s likely where most of your cost will come from — and that won’t be spelled out upfront.


The cons of paying via international wire

  • Fixed upfront fees
    You read that right. This can be both a pro and a con. If you’re not sending much money, those upfront fixed fees banks charge will sting if you look at it percentage-wise.

  • Intermediary and recipient bank fees
    Add on fees deducted by up to 3 intermediary bank — oh, and the recipient bank — and it may make jumping the hurdles to sending a few hundred dollars abroad nearly impossible.

  • Exchange rate
    A bad exchange rate can cost you far more than upfront fees. When the banks convert your money, they can choose the exchange rate themselves. That means they generally choose a rate that benefits them rather than you. At an average mark-up of 4-6%, that adds up. They pocket the difference and you’re left none the wiser. Check what exchange rate your bank offers and compare it to the rate you find on Google. You might be unpleasantly surprised.

  • Speed
    SWIFT transfers aren’t renowned for their speed. You might find it hard to get a definite answer from your bank about exactly when the money will arrive, although it’s generally accepted that, at worst, your money should arrive in 5 business days or less.

  • Inconvenience
    This one depends on your bank. But there are still banks out there that don’t let customers wire money internationally via online banking — in which case, you might have to go into a branch every single time you want to pay your overseas contractors. On the other hand, some banks have it sorted with fancy websites or even apps.

  • When something goes wrong, it can go really wrong
    Sometimes things go wrong. The SWIFT code is incorrect. One of the correspondent bank account numbers was off. A reference didn’t get passed on that was necessary. Because SWIFT transfers often have to use intermediary banks to make the transaction, mistakes can cascade and, in worst case scenarios, one error can lead to the money getting lost or stuck somewhere for months on end. So always make sure you triple check your recipient bank information before committing.


3. International money order for paying international contractors

woman-next-to-mailbox-airplane-mail-illustration

Another established international payment solution is an international money order.

You can purchase one at a range of locations, including post offices, by paying the amount you want to send along with a fee.

You’ll then need to send the order to your contractor via post — yes, real, old-fashioned snail mail — and then your contractor will need to work out how to deposit the money once it arrives.


The pros of paying via international money order

  • No need for a bank account
    Your international contractor doesn’t need a bank account. If they want, they can simply get cash from the money order. You don’t actually need to use your bank account, either, if you have another way of paying upfront.

  • A guaranteed source of funds
    Comparing with checks, the money order has one big point in its favor as far as recipients are concerned. The sender pays for it upfront, so there’s zero chance of it bouncing.

  • It’s a common method in some countries
    If you’re sending to a Latin American country, you might find that an international money order is what your clients or contractors expect.

  • The recipient will need to prove their identity
    True, using the postal service isn’t necessarily the most secure option, because there’s always a chance things get lost in the mail — or stolen, in some countries. But the recipient will often need to show ID when they cash their money order, so the chances of the wrong person getting hold of the money are lower.


The cons of paying via international money order

  • Fees for you
    There will probably be a fee for you to get hold of the international money order and send it out.

  • Exchange rates cost even more
    Then there’s the issue of the exchange rate. An international money order doesn’t guarantee a fair exchange rate. In fact, many currency exchange sellers routinely add up to a 10% spread to the exchange rate and pocket the difference. Keep this in mind when figuring out how much to pay.

  • Fees for your recipient
    Your client might well face substantial fees as well when they deposit the money order. Some agencies take a pretty high percentage for the privilege of cashing it. Not always the best approach when making payments to foreign contractors for services.

  • Might be hard to cash
    While money orders are popular in some places, they’re not popular everywhere. In fact, your overseas contractors might even have trouble cashing them at all. You should definitely check with them first.

  • Inflexibility
    Particularly because they are reliant on the postal system, it’s difficult to cancel an international money order and get a replacement sent. If any changes are needed, it could add months to the payment schedule.

  • Scams are common
    Money orders are less regulated than bank transfers. That means fraud is more rampant. So it’s wise to be in close contact with your recipient to make sure everything’s above board.

  • Speed
    Money orders are reliant on the international postal service, so they might take a while to reach their destination. Then, the recipient has to make time to cash it — it doesn’t go straight to their account.

  • You can’t send very much
    This method is generally for low amounts — in fact, the cap is often around $1,000. Which could well be low enough to rule this option out for regular salary payments or substantial contracts.


4. PayPal to pay foreign contractors abroad

transferring-money-online-from-laptop-to-phone

You’ve almost certainly heard of PayPal, one of the most popular of all online payment solutions. But you might not know so much about its business offerings.

That said, it’s worth keeping a close eye on the cost if you want to use PayPal for international transfers.

Because of many of the costs involved that aren’t so clear upfront, research has shown that business payments could be up to 19x cheaper with Wise over PayPal.

Open your Wise Business account today


The pros of paying via PayPal

  • Convenience
    PayPal isn’t hard to use, and you may well have a PayPal account anyway that you’ve used for online shopping. Your international contractor might have one, too.

  • You don’t need the recipient’s bank details
    Sending money via PayPal is very simple, wherever in the world you send it. And, because the money goes into the recipient’s PayPal account rather than a bank account, you don’t need their bank details — just the email address they use for PayPal.

  • Speed The money often gets sent to the recipient pretty fast, so if you’re in a rush and don’t care about cost, it’s an option worth considering.

  • Special business offerings PayPal offers a range of services to businesses, which theoretically make it easier for you to manage international payments and so on. But you should always check how much you’re actually paying.


The cons of paying via PayPal

  • Unclear fees
    Anyone who’s spent time on the PayPal fees page probably knows the pain of trying to understand what you’re being charged. And, somehow, at the end it often seems as if the PayPal international transaction cost even more than you expected.

  • Exchange rates
    PayPal’s exchange rates are generally not great. If they’re converting your money, you might face a substantial mark-up. In fact, they explicitly states you will.

Take a look at PayPal fees and exchange rate compared to Wise Business.

The true cost of sending USD to GBP

  • Business account fees
    If you need a PayPal business account, you might be tempted by PayPal’s offering, especially as there’s no fee to set one up. But that doesn’t mean there’s no fee at all. You’ll face PayPal fees — either percentage fees or fixed fees, or both — when you sell things with PayPal business, make any international payments, and sometimes even when you withdraw or move money.

  • Recipient fees
    The fees don’t stop with you, either. There can be hefty fees for your international contractor once the transfer arrives. Here’s one case study on paying an invoice to prove the point. Coupled with the exchange rate, your contractors pocketbook could really end up feeling the sting of all of those charged.

  • Recipient account needed
    If you’re sending by PayPal, your contractor will need a PayPal account themselves. If your contractor isn’t tech-savvy or lives in a country that PayPal isn’t used in, this could make things a bit difficult.


5. Xoom to pay international contractors

transfer-money-online-illustration

Xoom is owned by PayPal, but offers its own services to individuals and businesses exclusively looking to send money out of the US.


The pros of paying via Xoom

  • Speed
    Xoom is known for being quite fast at getting your money from A to B. So it could be a good option if you’re in a rush to pay international contractors.

  • Ease of use
    It’s also easy to use online and could save you a lot of hassle — especially if the alternative is using your bank.

  • Several delivery options
    Xoom’s delivery options vary from country to country, but in addition to offering transfers straight into the recipient’s bank account, in some places, it offers cash pick-up or even delivery.

  • Send up to $10,000 a time
    Its maximum sending limit for a single transaction is $10,000, which could well be enough for most of the transfers you need to make.


The cons of paying via Xoom

  • Fees
    Xoom fees may be clearly displayed on their website, but that doesn’t mean they’re necessarily a good value. They often charge a fixed fee and can charge substantially more for credit or debit card payments.

  • Exchange rate
    Then, of course, there’s the exchange rate of Xoom. Xoom admits on its website, “In addition to the transaction fee, Xoom also makes money when it changes your U.S. dollars into a different currency.”¹ Which means those rates you find on Google won’t quite match Xoom. Rather, just like a bank, they effectively take a cut when they convert your funds.

  • Limits. If you’re trying to send a bit more than $10,000, then Xoom’s limits may be a bit, well, limiting.

Of course, there are many more than 5 options available when you're deciding how to pay international contractors. But these are some of the most common.

Whichever method you choose, make sure that you’re happy with your chosen option. And that you’re getting a deal on your transfer that you — and your contractors — deserve.


Benefits of hiring international contractors

hiring-process-animation

Working with contractors from overseas means that you can manage talents from a wider pool.

This can be especially important when you're expanding your business globally. So what are the benefits of hiring an international contractor?

Increased knowledge
When hiring globally you increase the chances of recruiting highly skilled contractors.

This will not only increase the quality of products and services you offer but have a positive impact on revenue and customer experience as well.

On top of that you might get some innovative ideas, which can boost your competence on the local market.

Cost efficiency
Wages in the US compared to developing countries are usually higher.

You can hire highly qualified contractors while paying less in wages but still offering a competitive salary in the given country.

Investing this saved amount on providing further benefits for your international contractors - or reinvesting in your business to boost its financial health are both beneficial options.


What to consider before hiring international contractors

There are some rules that you have to follow when hiring an international contractor. Let's see a few.

International contractor or employee?
This might sound obvious but it's crucial that you determine precisely if the individual you work with is a contractor or an employee. To quote the IRS here:

"Generally, you must withhold and pay income taxes, social security taxes and Medicare taxes as well as pay unemployment tax on wages paid to an employee.
You do not generally have to withhold or pay any taxes on payments to independent contractors."²

You may find more information and help on this topic on the official IRS site, and be sure to avoid getting any penalties for misclassifying your contractor.

Payment terms
Other than misclassifying - payment terms is another important aspect of hiring an overseas contractor.

If you're hiring a contractor through a work marketplace you might have an easier job. Some work marketplaces, such as Upwork have their own payment solutions - in case of Upwork it's Direct Contracts.³

With this option your money will be protected and you can pay once your contractor is finished with the given task. You'll have yourself a contract as well as a convenient payment method.


On the other hand contractors can simply send you an invoice when their work is done.

To pay international invoices on time it's key to use an online payment service. Still, you should keep an eye out for unwanted bank fees and high exchange rates.

Wise Business can equip your business to pay international contractors fast and convenient with instant money transfers, converting your money at the mid-market rate.

Get your Wise Business account today

Sources

  1. Xoom - Transfer fees
  2. IRS - Independent contractor or Employee?
  3. Upwork - How to pay freelancers

All sources checked on 2022 March 17


This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.

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