In this post, we are focusing on hiring International Contractors, not employees. Also know, that as always with hiring, we recommend working with a few different professionals to ensure that you have categorized everything properly and don’t find yourself subject to any unnecessary penalties. An Employment Attorney or Human Resource Firm with experience in International Contractors would be great to have a conversation with. Depending on your situation, the team at Employ and Relate may be able to help with your HR needs.
Hiring internationally can carry a little more of a risk because of the complexity of the different laws and the variation in the laws in different countries, which can impact your responsibilities as the business owner, but it’s totally doable!
At the most basic level, an international contractor is an individual who is a consultant, freelancer, or service provider that resides in/is a citizen of a different country than the company or customer to which they are providing their services. Since they are operating as a contractor, there are no taxes withheld from their checks, like you would have with an employee.
You can read more details here about how the US Law treats U.S. Persons and Foreign Persons and the categories they fall into to see how it applies to your specific situation.
If you are a “U.S Person” and live outside of the US, then your tax professional would need to determine how your income will be taxed, based on where you performed the work, and the length of time of your residence there. There are foreign income exclusions available if certain requirements are met.
Many people hire internationally because they believe the cost could be lower. However, there are other costs to keep in mind, like a possible slowdown of the project while you communicate over different (sometimes opposite) timezones. You will also incur additional administrative costs to ensure you are handling the employment/legal/tax issues properly.
Every country is different. Some countries even require companies to provide Independent Contractors with time off and benefits, so make sure to do your research before hiring a worker.
And, it’s ok to hire someone who is an international contractor if they have a specific skill that you are looking for – but don’t do it to save money. In the long run, it may not equate to actual savings.
No, this form is for US contractors only. However, there are a few things you will need to complete with your foreign contractor.
You will need to collect a W-8 BEN Form from every single foreign contractor, this IRS tax form is used to determine the foreign status of non-resident aliens for the purposes of taxation. You can access it here.
An important reminder: if you have a Contractor who is a US citizens (regardless of where they live) you will issue them a 1099 if they need one, based on the normal 1099 rules. You can read more about those here in our blog post about 1099s.
A great contractor onboarding process can be the key to avoiding any misunderstanding in the relationship and helping to make sure your business is covered from any possible additional costs, fees or penalties.
The first step that we recommend is gathering the information about your contractor’s citizenship & location, and researching the different requirements you will have as an employer in that location. Your HR team/Employment attorneys are a great resource for this.
It’s not enough to just ask the Contractor what you need to do – you need to do your own research and document what your responsibilities are.
With any contractor relationship, you will want to have a clear, written agreement. This should state the specific services to be provided, terms and length of project, payment details (amount, frequency, method of payment and currency), and any confidentiality, cancellation, or resolution management that your legal team might recommend. You will also need to ensure that any local requirements are included so your agreement is congruent with the contractor’s local employment/contracting laws.
You also need to collect the proper paperwork from them. If International, this will be the W-8BEN for. If Domestic, then it will be the W9 form.
Then, you will want to determine the best way to pay them.
You have a number of options to use when issuing payments to your International Contractor. Before you issue any payments, you want to be sure that you have followed the steps above and are in compliance with the laws.
In the ‘old days’ the best way to issue payments was through a Wire Transfer from your bank to their bank directly. You can still do this, it’s relatively easy, but can take a few days to process and has fees associated with it on both sides.
There are now also a number of online options that can be used for these transfers, like PayPal. Of course, you will need to be using the ‘business’ version of any of these payment options, not personal (and that’s true whether you are hiring internal contractor or not!). And not all of them are accepted in all countries. If your contractor works with multiple companies, they may have a preferred method of receiving payment, so that’s great to work with them to determine the best way for them to receive the funds.
Hiring internationally could be a great decision for your business, and maybe it’s not for you. You don’t have to do it just because folks are out there talking about how great it is.
Just like with any business relationship you enter into, or any hiring you do, there are potential risks. Weigh the pros and cons for your business specifically to make an informed decision, talk to your team of trusted experts, and listen to them!
If you need great accounting support to your trusted team of experts to walk you through situations like this, we need to chat! We’d love to share more about how we work with our clients with you.
This is provided as information only and as a starting point for a conversation with your own legal and accounting team, this should not be considered legal or financial advice.
All of these decisions are based on a number of factors and we cannot guarantee that you will experience any specific results based on any information provided. Please speak with your own retained professionals to ensure that you are making the best decisions for your business & personal situation.
Please speak with your own retained professionals to ensure that you are making the best decisions for your business & personal situation.