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How to pay International Contractors

The world is getting smaller for business owners. The rise of global communications technology provides UK businesses with access to labour markets around the globe. Lower international labour costs combined with faster, efficient communications could be a huge boon for your profit margins. But it can also cause complications and vulnerabilities for your business. 

If you’re thinking of using international contractors, you need to know the best way to pay them and the legal and tax implications of engaging independent contractors overseas.

Paying foreign independent contractors

Access to top-tier talent makes your business what it is. Everyone from the sales team in your office to the web designer in the Philippines you hired to overhaul your website plays a part in building your brand. 

Everyone deserves to be paid in a timely manner, whether they’re set up on your payroll or not. Before your international subcontractors start work, it’s important to establish payment terms and methods in advance. International payments are subject to fluctuations in exchange rates and fees. So it’s essential to agree on terms that are mutually beneficial. 

There are payment platforms that offer faster payments and more advantageous rates than using conventional bank transfers. Some contractors, for instance, prefer to be paid via PayPal. 

It’s important to consider multiple payment options and platforms, and communicate with subcontractors to ensure the most satisfactory means for both sending and receiving money. 

Tax implications  

One benefit of using international contractors is that there are generally no additional tax implications. However, it’s important to ascertain that overseas contractors are legally established as independent in their contracts. UK employment law makes firm distinctions between employees, workers and independent contractors. 

As long as overseas contractors understand their status, there are generally no differences in tax liability between international and domestic contractors. Under UK law, taxes from payments to overseas contractors are only withheld if they are made for interest or royalties.

International collaboration can be complicated by differences in employment law and business cultures between nations. When engaging independent contractors overseas, it’s important to familiarise yourself with specific employment regulations in their home country. 

Legal disputes between UK companies and international contractors can get very complicated, particularly when parties are unsure which nation’s courts should hear proceedings.   

So it’s vital to ensure that terms are clearly established in writing before the business relationship begins. It’s a good idea to consult with a lawyer before drafting a subcontracting agreement. They can ensure that the contract adheres to the employment laws of both countries and can serve as the foundation of a mutually beneficial business agreement. 

Essential things to keep in mind

Making international payments may seem daunting. But if you want to reap the benefits of a global workforce, it’s essential to have a clearly established policy for paying overseas contractors. 

Here are some important things to keep in mind:

  • Take the time to choose the right payment partner. This will have lasting implications for payment speeds and rates.

  • Keep an eye on exchange rates. If you’re making a lot of international payments, these can significantly affect your bottom line.

  • Speed matters. Your contractors deserve to know when the money you pay will make its way into their accounts. So be sure to factor in any complications, such as your bank’s cut-off times that might affect your payments.

Establishing a consistent policy for making payments to international contractors can result in lasting harmonious business relationships. 

We can help

If you’re interested in finding out more about making international payments, or any other aspect of your business finances, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.

GoCardless is used by over 60,000 businesses around the world. Learn more about how you can improve payment processing at your business today.

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