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Top 5 Challenges with cross-border freelancers

Pavel Shynkarenko, Co-Founder and CEO of Solar Staff

Companies in the United States face a severe talent shortage; many are turning to remote freelance workers to fill the gap. According to a recent report*, from 2020-2021, international hiring shot up from 8% to 60% of firms. Studies have shown that companies can expect to save at least 20% annually with a freelancer instead of hiring full-time, so turning to contract workers makes sense.

There are vast pools of highly talented workers in Eastern Europe, Latin America and Asia, particularly in the marketing, edtech, e-commerce and technology spheres. Still, local financial regulations often make it difficult for businesses to connect with these contractors. Only 1 in 5 companies said they hadn’t experienced issues around the payment.

Working with international freelancers is undoubtedly the future of the workforce, but there are a few obstacles to consider before extending your first contract.

1. Non-transparent payment processes

When working with a remote contractor, it’s reasonable to think that the process is clear: find workers, set goals, receive an invoice and remit payment. However, businesses are often blindsided by how much extra they must pay in fees and banking commissions. Sometimes $300 payments cost $60 in commissions.

Besides commissions, timely payments are also an issue. They can take 24 hours or more to process, and, if the sum is big, freelancers get worried about fraud or non-payment. 

Additionally, contractors in other countries often use local solutions that U.S. companies are not familiar with. This means they have to spend a lot of time and resources figuring out these new processors.

2. Country-specific documentation requirements

Most countries have particular requirements for business documents like invoices and contracts. For example, when working with Latvian or Indonesian contractors, all documents must be processed in the local language. Or, when hiring an Indian freelancer, the invoices they send cannot always be used as payroll expenses in the USA. 

Navigating these regional quirks can cost more time, money and resources than expected. Besides requirements themselves companies spend a lot of time researching them and finding out what you can or can’t do – you need to study huge amounts of legislation for that and still may not understand everything.

3. Onboarding and KYC procedures

Labor laws vary widely from one country to another, and it can be challenging for businesses to keep track of the rules for each region. 

For instance, the legal working age is 14 in India, but it’s 18 in Indonesia. In Germany, the laws are very strict about what young workers are permitted to do, and in Mexico, freelancers may only be hired for a limited range of jobs. 

To minimize the risk of violating regional laws, it’s often best to outsource onboarding and KYC checks to companies that specialize in keeping up with international work laws and high-security verification procedures.

4. Double-tax and residency regulations

Just as the U.S. has complicated tax laws that American freelancers must follow, so do most other countries. 

For example, U.S. freelancers pay taxes based on their income. In other cases, a contractor may have tax residency in one country but be working in another, and these two countries do not have a dual residency law between them. These laws change quite frequently, and someone has to monitor these changes, which takes considerable resources.

If a company doesn’t know how to stay compliant in each hiring region, it can hurt the business and the freelancer in the long run. This is especially true because companies can quickly gain a negative reputation if freelancers are unexpectedly hit with extra tax expenses.

5. Cross-country limitations

Did you know that all deals between Israel and Malaysia are prohibited on a federal level? Or, in China, freelancers are forbidden to work in certain sectors for specific countries? 

These are nuances that most businesses don’t think about, often wasting time and effort when trying to recruit qualified talent. 

Hiring Freelancers Doesn’t Have to be Hard: Here are 3 Simple Solutions 

Reading the challenges outlined above might make hiring international workers seem daunting. However, companies can employ several simple solutions to streamline the process.

1. Partner with local payment processors

In some cases, it’s worth the company resource investment to build a relationship with local payment processors in your hiring region. For example, PayTM is popular in India, and WebMoney wallets are common in Eastern Europe. 

Researching and utilizing these local payment platforms can save your business time and money, despite the upfront resource cost. This is because local payment companies have already devoted resources to comply with local requirements, so you don’t have to worry about it on your end.

2. Use freelancer-optimized fintech solutions

Many online platforms are now specifically devoted to helping businesses of all sizes connect with and compensate freelance workers worldwide. 

These fintech services often provide an all-in-one solution that rolls up task management, legal compliance and payment optimization into a single package, which takes the complication and time-intensive research out of the equation. 

Fintech solutions are also helpful if your company needs arbitration over a contract or payment dispute. Some of them provide escrow and mediation services to protect your business assets and freelancer rights, which helps build a trusting relationship.

3. Find a local assignee to handle regional business

For certain companies, the best and simplest solution is to hire a local assignee for hiring in that region. Choosing a qualified representative to act on behalf of your business can be a worthwhile investment, particularly if you plan to have long-term contracts in the area or hope to make multiple hires over a while. 

A local can more easily navigate regional rules and regulations while handling important tasks like hiring contract workers, performing background checks, processing the necessary local documents and working with local finance firms to make the payment process smooth and straightforward. 

A Global Workforce is on the Horizon 

As the U.S. workforce continues to shrink and fewer qualified candidates are available, the ever-widening skills gap looms over corporations. It’s true that there are serious challenges when it comes to hiring cross-border freelancers, but the process doesn’t have to be overwhelming. 

Companies that bear these complications in mind and set up solutions early will be able to stay ahead of the curve and attract top talent more reliably, positioning them as global workforce leaders.

Research by PYMNTS

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