How to pay international contractors

Here's how to pay overseas contractors:

1. Create an account with OFX to save on all foreign currency payments and mitigate exchange rate risk.
2. Log in to get a live quote for international transfers.
3. Collect the necessary banking information, including your recipient's name and bank account number.
4. Set up a one-off or recurring payment or pay up to 500 suppliers at once with our Multipay system.
5. Track your transfer(s) with the OFX mobile app.

The world is getting smaller as businesses of all sizes expand across the globe. Competitive companies need a simple, reliable way to promptly pay their employees while complying with all relevant tax laws in their home country.

With the proper plan and strategy, you can use the power of foreign currency exchange to drive the global future of your business while minimizing costly delays and complications.

By using OFX to pay your international employees, you save money, first and foremost. OFX's rates are significantly lower than those of high street banks, and with repeated payments to multiple employees, these savings add up, and fast. 

OFX also means your payments arrive sooner. Our global network of 115 local bank accounts means your payments can often be processed same-day. And because we use local networks to process most transfers, you can probably kiss all those confusing international banking codes goodbye.

When paying foreign contractors for services or paying overseas suppliers, it is crucially important to consider your business’s appetite for risk and to develop a currency strategy. Our dedicated dealers can help you manage your currency exposure through the use of tools such as Forward Contracts which allow you to lock in an exchange rate for up to 12 months, so your cash flow stays predictable even when the forex markets aren’t.

When sending large sums of money across the globe, you want speed and security. OFX provides 24/7 customer support, so even if your bank is closed, OFX is open and ready to help you capitalize on international opportunities..

Plus, with OFX Multipay, you get the ability to pay up to 500 employees with a single click. You save time, cost, and operational efficiency. Your employees? They get paid faster. That's what we call a win-win.

Contrary to some commonly held beliefs, if the foreign contractor in question is a nonresident alien – that is, if they do not live or work in the United States, do not claim any residency there, and are in no way married or related to a U.S. taxpayer who does – then you may not need to provide them with a 1099 form, nor withhold any federal tax from them. Keep in mind though that state and local taxes vary, so you should always speak with a professional about your particular business requirements. 

You do need to provide international contractors with a Form W-8BEN, however. According to the IRS, this form officially declares that international contractors do not meet any of the requirements above that would require them to sign a W-9. The contractor must complete Part I and Part III. They usually do not need to attain and/or provide a U.S. taxpayer identification number. As of this writing, Form W-8BEN does not need to be filed with the IRS, but does need to be submitted to and retained by the employer in the event of an audit as a means of explaining why no 1099 was filed, why a W-8BEN was issued, and why no tax was withheld.

In Australia, a business may need to withhold taxes from payments made to foreign contractors if the payments made are for interest, unfranked dividends, or royalties, with the following exceptions. 

You usually will need to withhold tax from payments made to international workers if they are:

• promoting or operating casino gaming junket arrangements in Australia
• promoting or operating entertainment or sports activities in Australia
• promoting or operating construction, installation, or upgrading of buildings, plants, and fixtures in Australia.²

If your foreign contractors do fall under any of these categories listed above, you may be required to withhold 3% of the total payment you make. If you choose to make the payment in a foreign currency, you should usually report and pay your tax obligations in Australian dollars. Again, these taxes are at the federal level and individual state taxes may be very different.

Additionally, if the foreign worker is unable to provide an Australian Business Number (ABN), your business may be required by law to withhold the maximum allowable tax rate, which is 49% in 2017. Also, if the employee lives in a country with which Australia currently has special tax treaties, they may be able to apply for a variation that allows them to pay a reduced rate.

Better exchange rates make an enormous difference in your bottom line and operating expenses, especially when you're talking about making recurring payments to contractors, and making payments to dozens or hundreds of contractors. Overpaying once isn't a huge deal; overpaying thousands of times is. OFX is proud to offer superior exchange rates to those offered by most large banks.

Consistent service is more than just a successful one-time transfer. With something as sensitive and mission-critical as money transfers and payments, it is important to do your research and choose the right company, not just a company.

If you are going to make regular, recurring payments to employees – as you likely are – you should choose a company that is capable of providing superior customer service. Your provider should be flexible, responsive, and receptive to your specific needs, and should demonstrate via their actions how important your business is to them.

You should be able to tailor your experience to your business needs. Choose a provider that allows you to do so. OFX can mirror your internal verification processes and gives you 24/7 access to our robust platform, so the boss can easily approve the transfer even while working overseas.

Speed matters when paying employees. Your money should move quickly, just like your business. Major currency conversions can often be processed within one business day once OFX receives your funds. That way your money moves on your schedule and not your bank’s. When you use OFX, you may be able to speed up your supply chain by avoiding your bank’s arbitrary cutoff times and frequent bank holidays.

What's more, speedy money transfers are important for both your operations and accounting departments, as well as your employees. With quick, competent money transfer services, you don't need to worry about the logistics of your payments. You can forecast and plan for when funds should arrive, be received, and leave your accounts, allowing for much more precise and reliable financial planning and accounting. International payments do not need to be nebulous mysteries any more, because you can track each transfer on our mobile app.

There are some affordable peer-to-peer payment options available on the market, but these platforms are much less robust, reliable, and consistent than OFX. They can’t handle market volatility like Brexit, so your business may be better off with a provider like OFX who can move your money even during massive market turmoil. With peer-to-peer options, your funds could be waiting in limbo for days or weeks; meanwhile, your employees are growing dissatisfied with their non-payment, and you are wondering where in the world – literally – your money is. (Not to mention the fact that some peer-to-peer services cancel your transfer entirely if the rate changes by more than 3%.⁴)

You should have options. Currency volatility is a reality in the currency exchange market, and as with any strategic business risk, you should take all the steps available to you to minimize and mitigate it. To insulate your business from undue risk, choose a provider that gives you the flexibility to match your business strategy and goals to a proper risk management strategy.

At OFX, you get several options. Services like Limit Orders allows you to dictate an exchange rate with which you are comfortable, and only confirm payments when that rate is reached. Additionally, OFX provides Forward Contracts, which allow businesses to lock in favorable exchange rates for up to twelve months if they fear future volatility and are comfortable with the current market rate.

Plus, OFX Multipay gives you one-click efficiency to pay up to 500 workers at once, so your business can scale quickly and confidently without many of the common operational growing pains associated with expansion.
Reliability is the bottom line. Professionalism is everything, and your business' reputation shouldn't be held hostage by unreliable peer-to-peer transfer services that may be unavailable during high-traffic events like Brexit and major elections. Your funds need to arrive on time, every time.

Foreign contractors are changing the way the world works today. Thanks to the internet, nearly every business on the planet has the spectacular opportunity to go global and expand into emerging markets in every corner of the globe.

These international contractors need to get paid just the same as your domestic workers: predictably, reliably, and without delay. Foreign currency exchanges like OFX are a valuable solution to enable your global strategy. Powerful tools like automated payments and transfer tracking give your business the visibility and flexibility to manage these payments with the same level of granular control as any of your other mission-critical workflows.

Companies employing foreign contractors must take all necessary steps to ensure they comply with all relevant local tax withholding laws, including any tax agreements and/or treaties between your company's registered home country and your foreign contractor's home country.

By staying mindful of these laws and employing a trusted foreign currency exchange service like OFX, businesses all across the globe can continue to harness the power of contract work, continue to expand their global footprint wherever the market takes them, and continue to operate with the streamlined efficiency and prowess that brought them success in the first place.

So go ahead: onboard those new contractors! Expand into new markets and bring on foreign employees! Aim big and broad! See for yourself: At OFX, the right currency exchange service makes a world of difference.

IMPORTANT: The contents of this blog do not constitute financial advice and are provided for general information purposes only without taking into account the investment objectives, financial situation and particular needs of any particular person. UKForex Limited (trading as “OFX”) and its affiliates make no recommendation as to the merits of any financial strategy or product referred to in the blog. OFX makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this blog.