There’s no denying that hiring remote employees and contractors has helped businesses around the world to scale quickly and effectively.
But this brings with it a new challenge: paying international contractors.
In this guide, we’ll break down how to pay international contractors in South Africa, including an overview of South African labour laws, understanding currency fluctuations, and payment methods.
South Africa’s Labour Landscape
South Africa’s Labour Relations Act of 1995 points out the difference between employees and independent contractors.
This is important because it means that an international company needs to be careful not to confuse the employment relationship with their employees.
Because employees and independent contractors get paid differently, mixing them up could mean your company is liable to pay:
- A penalty for failing to withhold taxes (with 10% interest)
- A 200% understatement penalty
- Retroactive administrative fees
- And could even land you or the employee behind bars.
There’s a lot that goes into the difference between the two, but the easiest way to understand it is that employees have ongoing relationships, do make use of things like company benefits (healthcare, company equipment, etc), and are liable to pay Pay As You Earn (PAYE) taxes on their income.
On the other hand, contractors are only contracted for the duration of the service, don’t make use of company benefits, and don’t pay PAYE taxes on their income.
This means that contractors earn more money, but employees have better job security.
Whichever way you choose to approach it, though, it’s important to make sure that your employees/contractors are legally allowed to earn an income in South Africa. If you don’t, it doesn’t matter how you define your employment relationship – you’ll still end up in hot water either way.
Payment Methods
If you are planning on working with international contractors in South Africa, you’ll want to make sure that you know the different ways you can pay them.
1. Wire Transfers
If you’re looking at paying international contractors using wire transfers, the process would require you to open a bank account in South Africa and deposit money into that account.
It’s a good way to make sure employees get paid on time, but it means you need to have bank accounts in every country where you have employees.
The other option is to pay from a local bank account to an employee’s international bank account.
However, that means you’ll have to handle service fees and exchange rates.
2. Payment Platforms
This is the most common method for paying international contractors in South Africa, and can be done on platforms such as Wise, Payoneer and PayPal.
Some of these platforms allow for instant transfers, but they all come with vendor fees, and some can be subject to fluctuating exchange rates.
3. International Money Orders
This method isn’t very common, but isn’t unheard of.
International money orders are similar to writing a physical check. It involves sending a physical payment in the mail to contractors living abroad. It’s usually sent to places like Western Unions, banks, or post offices.
Contractors have to take that payment and deposit it at the bank.
It’s a slow process and means that contractors will have to be fine with whatever the exchange rate is at the time of depositing their payment.
4. SWIFT
The Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a network of banks used by financial institutions around the world. It’s similar to a wire transfer, with the main difference being that SWIFT transfers are always international, whilst wire transfers may be local too.
SWIFT payments are a good way to make sure payments are processed quickly and reliably, but these payments are subject to deductions for each transfer.
What To Consider When Paying International Contractors
Paying international contractors in South Africa means more than just understanding the difference between an employee and a contractor and picking a payment method. Here are some other things to keep in mind.
Exchange Rates
Currency fluctuations are the most common issue in the world of international employment relationships.
The first thing to consider is which currency your international contractors prefer to be paid in. This will have an impact on taxes and can impact income stability.
You’ll also need to determine dates and times for payments, as different platforms will offer different exchange rates and payment times.
Forms And Documentation
Depending on the country your business is in, South African contractors may have to fill out forms. For example, in the US, non-American citizens must fill out a W-8BEN form to ensure they don’t get any of their income withheld for tax purposes.
Local Payment Dates & Holidays
In South Africa, it’s common for most employees to get paid by the 25th of the month. If your payments happen later than that, you should let your contractors know, as they may need to move around some monthly expenses to accommodate this change.
Secondly, it’s important to know that public holidays are a big deal in South Africa.
It’s not vital that you as an employer make sure they’re paid for these holidays, but your contractors would definitely appreciate it (and it would go a long way towards maintaining a solid relationship with them) if you ensured they got paid in time for those holidays.
Are International Contractors Better Than Remote Employees?
The answer to this question depends on a bunch of things.
With international contractors, the process can be simpler and doesn’t have as much of an income on your payroll due to things like double taxation. However, South African labour laws state that international contractors don’t have the same notice period as remote employees. That means they could give their notice of resignation and be gone 7 days later, which would impact your output.
Hiring a remote employee would mean that you’d be looking at a slightly higher cost on your payroll, but it would also mean that you have surety that your employees will stick around for the long run.