Paying contractors in Latin America

Margaret Nguyen
3 minutes
Paying contractors in Latin America
In this article

Latin America is one of the fastest-growing outsourcing destinations in the world for contractors. 

Latin American countries are in close proximity to major businesses in the United States and Europe, they operate in similar time zones and they do not present the same language barrier due to a high Spanish-speaking population in the US. 

Moreover, workers are skilled, experienced and highly effective. This makes outsourcing an extremely cost-effective option for businesses not just in the United States and Europe but across the globe. 

Two main ways a business in the United States, for example, can outsource are to hire individual contractors or service providers (aka vendors) who offer the particular services required. Businesses across the US outsource to Latin America for a variety of reasons: 

  • Administrative skills

  • Customer service skills (especially in the Spanish and Portuguese languages)

  • Manufacturing

Quick, easy and timely payment structures need to be put in place to keep in good standing with partners and contractors in Latin America. For businesses in the United States and Europe, however, cross-border payments can often mean unnecessarily high international fees, issues with clearance and uncertainties. 

So, as a business owner working with a contractor in Latin America, you might be wondering, what’s the best way to pay them? But first, consider these important aspects of working with Latin American contractors.

Three considerations with paying contractors 

For American businesses outsourcing their services in areas like Latin America, there are a few considerations to keep in mind when dealing with foreign transactions and payments:

  • Local labor laws

  • IRS criteria

  • Taxes  

Local labor laws

Even though your business might be owned and operated in the United States, when you outsource services to another country, you need to take that country’s labor laws into consideration. Labor laws are put into place to protect employees, and each country has its own set of rules. 

These rules cover a wide range of topics and obligations that an employer must comply with, one of these being payment specifics. This is also something you’ll want to discuss with other departments in your company if your business has a larger accounting, finance and/or HR setup.  

[Related: Complete guide: the consumer goods expansion accounting checklist]

IRS criteria

As a business in the United States, you should note that the IRS will take all of your employees into consideration, regardless of whether they live and work in the US or in a Latin American country. There are specific requirements for a full-time employee vs. a contract employee. In some cases, the employee is actually classified as an “international employee.” 

The IRS expects American businesses to classify their international contractors and/or employees correctly. In addition to criteria specifics, it’s important for businesses to understand things like overtime payment requirements, back tax withholding, and more for the specific country in question.  

[Related: 9 actionable tips to set up your eCommerce financials for success]

Taxes

If a United States business outsources and pays a contractor in Latin America, they are subject to a new set of tax forms and conditions. 

Payments to international contractors are reported using Form 1042 and Form 1042-S. The IRS is clear that the contractor’s address must be in the country of business (they also prefer a business or office address located physically in that country). 

For tax purposes and the other two considerations above, it’s also important for US businesses to understand how many hours and how much money a contractor is receiving. Contractors are defined by a specific amount of money, typically around $3,000, so anything more than that classifies them as a different type of employee. 

Important Note:While we wrote this section specifically for businesses in the United States, similar considerations are applicable for a business in any country wanting to outsource its services. You need to be aware of how your international business operations will affect your business at large, so do your research and remember you are not interacting in the same country. Things are going to be different, so proactive planning is key to navigating some of these international hurdles. 

[Related: 9 top trends for international accounting in 2022]

Two ways to pay contractors in Latin America

You have many options when it comes to paying contractors in a Latin American country, but we recommend two main ways.

1. Use Airwallex’s low-cost transfers

Not only do Airwallex’s international transfers help businesses transfer money for payments in over 30 currencies, but we also strive to beat any current market foreign exchange rate. 

This gives our clients access to the best rates no matter what the total transaction is with transparent fees (if any). Our international transfers also allow businesses to pay their Latin American contractors in their own preferred local currency. Depending on the country of the contractor, we are upfront and only charge a small fee of 0.4%, 0.6% or 1%. 

Businesses can trust that our transfer service is protected, and we use two-factor authentication for greater security. In addition, our system is PCI Level 1 compliant, and we are registered as a Money Service Business with FinCEN. 

If you are interested in learning more about Airwallex’s international transfers, we have produced a series of three-minute demo videos for your convenience. 

[Related: Managing foreign exchange risk in times of high volatility]

2. Open up a Global Account through Airwallex

The days of businesses needing to work with a traditional bank are over. 

Airwallex’s Global Accounts allow businesses to create and open local currency accounts via our online portal all from the comfort of their homes or offices. This makes setting up an international bank account easy, and you do not even need to step foot in the country of the contractors you need to pay. 

Opening an account with us is fee-free for up to eleven currencies, meaning you will not get hit with any additional monthly fees. We also do not require any minimum transaction amounts. 

Airwallex’s Global Accounts are protected just like our international transfers, with the same level of security and compliance protocols. 

Airwallex’s international transfers and Global Accounts are safe, streamlined and simple choices for businesses outsourcing to contractors abroad. They also make things a lot easier on the side of the person receiving payment. 

Building relationships and trust with your contractors in Latin America is important. Knowing they will be paid in full and in their own currency goes a long way. 

[Related: Which eCommerce marketplaces take the least margin from US sellers?]

Use Airwallex for your Latin American accounts payable

At Airwallex, we help businesses set up their financial infrastructure for international success. Through our specially designed platform, tools and resources, we will ensure your contractors in Latin America receive payments quickly and with full transparency. 

We know what it takes to operate a business on a global scale, so let us help your business be more efficient in paying your outsourced employees and/or contractors. 

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Margaret Nguyen
Marketing Manager

Margaret runs marketing for Airwallex US, working with great companies across eCommerce, consumer goods, consulting, and tech to deliver excellent experiences to shared audiences.

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