Looking for Best Ways to Make Payments to Foreign Contractors? Read Here 2023
If you’re running a Singapore based business and need some external support for a one off project, or longer term partnership, you may be considering hiring foreign contractors to meet your needs. Hiring overseas contractors is more and more common now, as remote working has become so popular. It can also be a good way to have someone representing your business overseas without needing to commit to a permanent arrangement at first.
However, hiring foreign contractors means working out how to run payroll for people living overseas. That can prove expensive and frustrating if you don’t find the right payment method for your needs. This guide gives some ideas to think about, including:
There’s no one perfect way to pay foreign contractors. The right one for you will depend on your preferences, the types of payments you need to make and where in the world your contractor is.
Each option has its own pros and cons - we’ll look in more detail in a moment, but here are the key points to start us off:
Pay with an international telegraphic transfer - bank telegraphic transfers can often be sent all over the world, but can be expensive and slow
Get an online multi-currency account - multi-currency accounts are handy to pay contractors internationally, and can also be used to receive customer payments, hold and exchange a range of foreign currencies
Use a service like PayPal - PayPal is a global leader in digital payments, commonly used to pay contractors - but currency exchange fees can push up costs when sending money overseas
Foreign payments through a bank account
Singapore’s major banks all have business bank accounts which can be used to send international telegraphic transfers. However, the costs can be a bit confusing - and pretty expensive, too. In fact, when you pay for a telegraphic transfer from Singapore you’ll pay any of up to 4 different charges:
Upfront transfer fee
Exchange rate markup
Third party fees
Here’s the fee for sending a telegraphic transfer from a DBS business account, as an example:
1/8% transfer fee (from 10 SGD to 120 SGD) + cable charges of 20 SGD to 35 SGD + exchange rate markup + agent charges if applicable
As you can see, that can end up pretty complex. Let’s break it down.
The transfer fee is quite simple - a percentage of the transfer value, paid to the bank itself. The cable charge is the cost of initiating the transfer from the bank’s end, and may vary based on whether you arrange your transfer online or in a branch.
Then there’s an exchange rate markup, which is wrapped up in the exchange rate used to convert your funds from SGD to the currency you need. This is tricky to spot and you’ll only be able to work out what you’re paying by comparing the bank’s rate against the mid-market rate you can get from Google.
Finally you or your contractor may pay third party fees if the transfer is processed through the SWIFT network. These charges go to other banks involved in the payment, and aren’t always visible in advance of the transfer.
Pros and cons of using a bank transfer for international payments
You can usually make your payment online or in a branch
Send money all over the world
Safe and reliable
Fees are often complicated and on the high side
SWIFT payments may take 3 - 5 days to arrive
One way to make it more convenient and cheaper to pay foreign contractors from Singapore, is to open an online multi-currency account. Multi-currency accounts let you make international payments, often with lower fees and a better exchange rate compared to a regular bank. They’re also handy for receiving money from international customers, which can help you grow your company overseas.
If you’re looking for a low cost way to pay contractors overseas, check out the Wise Business Account. With Wise you’ll pay a one time low fee of 54 SGD, to get a full feature international account which lets you hold and exchange 50+ currencies, get paid in up to 10 currencies like a local, and send money to 80+ countries. That makes paying foreign contractors easy. And because Wise currency exchange always uses the mid-market exchange rate with low, transparent fees, it can make it far cheaper than using your bank, too.
Wise accounts have no minimum balance and no monthly fees, so you can open one and use it alongside your regular business bank account whenever you need to manage across currencies, with no extra fees to worry about.
Pros and cons of the Wise multi-currency account
Pay contractors in 80+ countries, often instantly
Hold and exchange 50+ currencies with the mid-market exchange rate
Low transaction fees, plus no ongoing fees or minimum balance
No branch network
No interest is paid on funds held
PayPal to pay foreign contractors abroad
Because PayPal is so convenient to use it can seem like a great way to pay foreign contractors from Singapore. It’s true that PayPal has some big advantages - like the fact you don’t even need to know your contractor’s bank details to send them money. But there are also some pretty hefty fees when you’re using PayPal internationally, which can mean this is more expensive than you expect.
The key issue here is the PayPal currency conversion charge. In Singapore this is usually 4%, which is added onto the exchange rate used whenever you convert funds. That pushes up the overall costs significantly, and mounts up fast if you’re sending a high value payment.
As an alternative, you can just send your payment to the contractor in Singapore dollars. In most cases they’ll be able to receive the money into their PayPal account - but if they want to convert it to their home currency to withdraw or spend, they’ll need to pay the PayPal currency conversion fee, which means they lose out in the end.
Pros and cons of using PayPal
Pay with just an email address
Transfers are instant
PayPal is available in almost every country in the world
Exchange rates will include a currency conversion fee which can run to 4%
There may be extra fees for the contractor to withdraw the funds at their end
What to consider before paying independent contractors
Working with contractors can make your business more agile. But there are a few important considerations before you leap in.
Firstly, make sure you’re clear on your employment and tax obligations both here in Singapore, and in the contractor’s home country. In Singapore, it’s important to establish whether you’re offering a contract of service - which would mean you’re bringing in an employee - or a contract for service, which is more commonly used for contractors. There’s guidance covering this on the MOM website. Whether you’re hiring an employee or working with a contractor - in a legal sense - will also dictate how you tackle tax and other obligations, so it’s crucial to get this right from the outset. Get in touch with MOM and IRAS if you need advice - or hire a professional to guide you through the process.
Once you’ve navigated that first hurdle, you’ll need to think about the agreement you have with your contractor, and how you set out in writing the payment arrangement you come to. Having a written contract is essential and can help prevent misunderstandings down the line. You’ll want your contract to cover when payment will be made, how, in what currency, and what happens if things go wrong - if the contractor is sick or fails to deliver for example.
Finally, after getting all the paperwork in order, it’s time to make a decision on how you want to pay your foreign contractor. Think about the costs of different methods, how convenient they are, the exchange rates available, and how quickly they’ll get the money where it needs to be. That way you can relax, knowing that you’ll easily be able to uphold your side of the bargain.
Benefits of hiring international contractors
Before we wrap up, let’s summarise a few of the main reasons people choose to hire international contractors to support their business and help them grow:
Flex your company size and skillset by bringing in contractors for short term projects
Have people work remotely, so you don’t have to pay for office space - plus make sure you cover different time zones to offer customer support
You’ll have a better chance of finding the right person and skillset by looking globally for your contractors
Foreign contractors can be very cost effective
Whether you’re a new business or already established, there are plenty of times that using foreign contractors may make sense. From finding the perfect fit for your business, to allowing you to have a presence in a new international market, foreign contractors can really help your business grow.
Use this guide as a starting point to understand some of your options to pay foreign contractors from Singapore, and to make sure you get the cheapest, fastest and easiest method for your business.
You might pay your foreign contractors through telegraphic transfers from your normal bank, online multi-currency accounts or a payment gateway like PayPal. Compare a few options to see which works best for you.
Yes. However, there may be tax implications at home or in the contractor’s own country - take professional advice if you’re unsure.
Generally contractors are responsible for most of their own tax matters, however as with anything to do with tax, it's complex, and penalties apply if you get it wrong. Get professional advice before you start employing overseas contractors to check how the law applies in your specific situation.
Yes. In fact this is pretty common and can be a good way to grow your business overseas.