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Paying overseas freelancers timely, using their preferred cost-effective payment method and local currency are some issues to consider. Freelancers are also called gig economy workers and independent contractors.
The Challenges of Global Freelancer Payments
Global freelancer payments present challenges. Freelancers reside in different countries with unique banking and regulatory environments. They prefer to receive payments in their local currency. International wire transfers are too expensive to use for small payment transactions, creating a need to substitute cost-effective payment methods. Global freelancers need certainty that they will be paid on time. The international payments must comply with local laws.
Businesses contract with self-employed freelancers to avoid employer-employee status misclassification according to labor laws.
Another challenge for global freelancer payments is collecting W-8 forms before the first payment. Your business must use them to satisfy IRS rules for filing and distributing copies of Form 1099 and Form 1042-S information returns after each calendar year.
And your company needs a global payments system that can validate each freelancer’s identity to prevent fraudulent payments. TIN number matching is the first step for validating the authenticity of payees.
To overcome these challenges, your business needs an efficient payment solution that can handle the requirements for effectively paying your overseas freelancers on time. Decide which of the following payment solutions best meets your business needs.
Freelancer Marketplace Platforms
Freelancer marketplace platforms include Fiverr, Upwork, TaskRabbit, and others. These freelancer platforms are global non-employee labor marketplaces that either pay freelancers and gig economy workers directly or through designated third-party payment solutions integrated into their platform for paying freelancers.
The business model for freelancer platforms is to charge a fee, based on invoice amounts, to both freelancers and hiring companies that use the platform for one-time or ongoing project-matching services.
Payment is scheduled for days after approval by the client—either a certain number of days after completion of a project milestone or complete project, or on a recurring billing cycle for ongoing hourly projects.
How to Perform Freelancer Platforms
The hirers of independent contractors pay the freelancing platform, which in turn pays the freelancer after deducting their fee for the transaction. The deducted fee is the freelancing platform’s revenue share percentage, which is approximately 10%.
These hirers provide payment information on the freelancer platform for a credit card or another type of verified payment method like PayPal. For hirers, the credit card or debit card billing may be designated in USD or local currency after applying a foreign exchange rate.
Foreign contractors provide the required information for their preferred payment method. Choices of international payment methods may include Direct to a Local Bank outside the U.S. for a small fee or a wire transfer for a hefty fee like $30. Other payment choices may include using a third-party payment solution provider that works with the freelancing platform.
Pros & Cons
The pros of freelancer platforms are:
- Payment is easy to set up on the platform
- The freelancing platform creates the invoices and presents them to the client
- Payment timing is predictable
- Platform deals with any international payment issues
The cons of freelancer platforms are:
- High costs of revenue sharing with the freelancing platform
- Time dealing with problems, including payment verification and other issues
- Fraudsters may be present on freelancer platforms
Best Time to Use Freelancer Platforms
The best time to use freelancer platforms is when you or your business is willing to pay percentage fees to get matched with freelancers in exchange for shifting overseas freelancer payment concerns to the freelancing platform.
How can your business improve paying overseas freelancers?
Download our eBook, “Are You Struggling with Contractor Payments?”
to learn how your growing business can best pay its global freelancers.
Use global partner payments software to quickly pay global freelance independent contractors in 196 countries on time in batches, with a choice of over 120 currencies and country-available payment methods, then receive an automatic real-time payment reconciliation.
PayPal Business has many functions. One is to pay overseas freelancers with a PayPal account.
How to Use PayPal
International freelancers can either create an invoice with a payment button on the PayPal Business platform or create an invoice offline for an even lower transaction fee. The PayPal payment is a digital wallet solution. The payee can transfer these digital wallet funds to their bank account via an established link between the bank account and the digital wallet.
Pros & Cons
The pros of PayPal are:
- PayPal is available in many countries and currencies
- PayPal is a reliable form of payment
- PayPal payments are quick
The cons of PayPal are:
- High PayPal international transaction fees
- Needing to transfer funds from the digital wallet later
Best Time to Use PayPal
The best time to use PayPal for international freelancer payments is when your business wants to use a quick payment solution and you don’t mind paying the PayPal international transaction fees and currency exchange fees.
Tipalti provides add-on software for global partner payments that integrates with your ERP system or accounting software. It’s an excellent solution for efficiently making payments to overseas freelancers and other partners in 196 countries with a choice of 120 currencies. Tipalti also offers software products for Procurement, AP automation and Expenses (for employee expense reimbursement).
How to Use Tipalti
To pay overseas freelancers with Tipalti global partner payments software, use the self-service onboarding portal to collect W-8 forms for foreign freelancers and information required for making payments with the freelancer’s preferred payment method available in their country. Tipalti offers some advanced FX features. Tipalti will automatically reconcile large payment batches with a variety of payment methods in real-time.
Tipalti offers these global payment methods for international freelancer payments, if available in an overseas freelancer’s country:
- Global ACH
- Prepaid debit card
- Wire transfers
- Paper checks
International wire transfers are sent as SWIFT payments, using a SWIFT code, or through another international payments network. Each of the Tipalti payment method choices, except for paper checks, is a type of international EFT (electronic funds transfer).
Pros & Cons
The pros of Tipalti are:
- Validating vendors for reduced fraud risk and screening plus automated tax and global regulatory compliance
- Efficient invoice electronic capture and processing for payments, including approvals
- Error reduction through the application of over 26,000 automated payment rules
- Ability to make timely online payments to freelancers in their preferred currency and country-available payment method, complying with their payment terms
- Automatic real-time payment reconciliation and payment status for payer and freelancers
- Ability to choose cost-effective payment options and if desired, shift some transaction fees to payees or split them
The cons (disadvantages) of Tipalti are:
- Need to plan ahead, with a short time needed for software implementation before making payments
- Needs simple integration with any ERP system or accounting software
- Need for freelancers to prepare and submit invoices for payment
Best Time to Use Tipalti
The best time to use Tipalti global partner payments is when your business needs a solution that will let it pay freelancers efficiently and timely in many domestic or foreign countries and currencies, using batches, and you’re interested in tax and global regulatory compliance and reduced fraud risk.
Customer Case Study
Art of Problem Solving is an online education and services company that helps build creativity and problem-solving skills and also offers physics, programming, and language arts courses. Art of Problem Solving has been a Tipalti automation software customer since 2000.
With Tipalti global partner payments software, Art of Problem Solving is:
- Significantly improving global contractor payments efficiency and timeliness
- Efficiently collecting and managing IRS W-8BEN for tax compliance and updating contractor payment information
- Avoiding payments to inactive freelancers and independent contractors
- Making their freelancers and other contractors happy with timely payments
- Speeding up the company’s monthly close
“Our monthly close was slow because we couldn’t record contractor expenses until we could figure out the payments. That was a 20-day process. At the same time, if we wanted to offboard a contractor, there wasn’t a good way to ensure they didn’t submit and get paid. Now, with Tipalti, payments flow smoothly. It took four to five business days for one person to take care of all the contractor payments. And now it takes me an hour.”
—Jessica Hardy, VP of Finance, Art of Problem Solving
Skrill is a payment solution that offers a digital wallet, cards, instant bank payments, and alternative methods for money transfers and business payments in over 130 countries using 40 currencies. Businesses can integrate Skrill Business into their website to enable customer payments. Skrill’s money transfer service is also available as an app.
Skrill doesn’t issue money orders like other money transfer services such as Western Union or MoneyGram.
How to Use Skrill
To pay international contractors, as a business customer, you can choose to use Skrill to enable over 100 local payment methods. These local payment methods vary by region.
Pros & Cons
The pros of Skrill are:
- Available in numerous countries
- Choice of many local currency payment methods
- Includes instant payments
- Secure payment method
- Low fees
- Multilanguage platform
The cons of Skrill are:
- Limited to only 40 currencies
- You need documents to register a Skrill business account first
- Exchange rates may not be competitive
Best Time to Use Skrill
The best time to use Skrill is when you want to make quick payments to overseas freelancers and the number of available currencies is sufficient.
Payoneer is a global payment platform used to pay international freelancers and make other cross-border payments.
How to Use Payoneer
Payoneer payment methods, for payments to freelancers, include:
- Payoneer Account transfers with a choice of 7 supported currencies, including EUR, GPB, USD, CAD, AUD, JPY, and CNH
- Credit cards and debit cards
- Local bank transfers
If both the payer and receiver of the funds have a Payoneer account, then the Payoneer transfer is free to the recipient.
Pros & Cons
The pros of Payoneer are:
- One single payment platform
- Eliminates need to use costly wire transfers
- Transfers to bank account are in the local currency
- Fast currency conversions
The cons of Payoneer are:
- Limited number of currencies for receiving payments
- May need to transfer funds from Payoneer Account to local bank account
- Payoneer charges fund recipients a 0.5% fee to convert from one currency to another to make payments in a different currency
Best Time to Use Payoneer
The best time to use Payoneer is when your company and freelancers both have a Payoneer Account. Your overseas freelancers find free funds transfers to a digital wallet-receiving account acceptable.
Wise (formerly Transferwise)
Wise (formerly Transferwise) is a payment platform for making overseas transfers to freelancers and other payees.
How to Use Wise
Set up a Wise Business account to make Wise Account or bank-to-bank transfers.
Pros & Cons
The pros of Wise are:
- Available in 170 countries and 50 currencies
- Low transfer fees for international transfers
- Payments from the payer’s Wise account or bank transfer to the recipient’s local bank account with recipient’s bank account number or email
- Exchange rates don’t have foreign currency exchange markups as additional fees
- Handles mass payouts or single invoices
- Integrates with some accounting software like QuickBooks and Xero
The cons of Wise are:
- Payer needs to set up Wise account
- Pricing is based on volume
Best Time to Use Wise
The best time to use Wise is when you’re looking for a simple solution for overseas payments and don’t need the benefits of end-to-end payables automation and global payments software.
OFX, based in Australia, is a payment method that can be used to make international freelancer payments to international bank accounts. OFX has eight global offices, including Australia, the United States, and Canada.
How to Use OFX
Use OFX for Business to pay your overseas freelancers with international money transfers between bank accounts.
Pros & Cons
The pros of OFX are:
- Fraud monitoring and security
- Regulated by FinCEN and states
- Favorable exchange rates
- Transparent pricing
- Available in over 170 countries and 50 currencies
- Mass payments for up to 500 payees
The cons of OFX are:
- Payment method is only bank-to-bank transfers
- Minimum transfer amount is $1,000
- Payer must enter the recipient’s payment information details
Best Time to Use OFX
The best time to use OFX is when you want to send bank-to-bank transfers to pay overseas freelancers and all payments exceed the minimum transfer amount of $1,000.
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Which Overseas Payment Method is Right for Your Business?
As your business decides the best ways to pay independent contractors and freelancers, give extra consideration to payment methods for making overseas payments. You have choices when making payments to self-employed overseas freelancers that may be conducting remote work for your company. Compare the features and benefits of Tipalti global partner payments software to the other payment methods covered in this guide.
It makes sense to plan ahead with Tipalti global payments software to achieve efficiency and cost savings when making your contractor payments. U.S. companies will simply achieve supplier income tax compliance when they use Tipalti. Download our eBook, “Top Strategies for Online Marketplaces”.