From Payment Software to Checks: Choosing Contractor Payments

Maybe you’ve hired a contractor across the world or in another state and are now wondering how to pay them. As contract work is often unpredictable and diverse, it’s a common dilemma that many employers face.

This article will offer you a clear guide on the best way to pay contractors, whether you’re a startup or an established business. Ready to transform the way you pay? Let’s get started.

Table of contents

Contractor Payments: Ways to Pay 1. Wise 2. Wire Transfers 3. ACH Payment 4. Online Payments (P2P Payments) 5. Credit Cards How much will you pay with Wise Business across currencies? 6. Checks 7. Payroll, Accounting, and Other Mass Payment Software 8. Freelancer Platforms Contractor Payments: Are you paying domestic or international contractors? International Payments Domestic Payments Wise Business for Domestic and International Contractor Payments Contractor Payments FAQ

Contractor Payments: Ways to Pay

When it comes to reimbursing your contractors, there are countless methods to choose from. You could pay contractors online, use traditional methods, or even go for a specialized platform – and all have their own pros and cons. Here’s a list of the most popular options:

1. Wise

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Save Time and Money On Overseas Payments With Wise Business

Wise Business can help you save big time on international payments.

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in currencies.

Signing up to Wise Business allows access to BatchTransfer which you can use to pay up to 1000 invoices in one go. This is perfect for small businesses that are managing a global team, saving a ton of time and hassle when making payments.

Some key features of Wise Business include:

• Mid-market rate: Get the mid-market exchange rate with no hidden fees on international transfers

• Global Account: Send money to countries and hold multiple currencies, all in one place. You can also get major currency account details for a one-off fee to receive overseas payments like a local

• Access to BatchTransfer: Pay up to 1000 invoices in one click. Save time, money, and stress when you make 1000 payments in one click with BatchTransfer payments. Access to BatchTransfer is free with a Wise Business account

• Auto-conversions: Don't like the current currency exchange rate? Set your desired rate, and Wise sends the transfer the moment the rate is met

• Free invoicing tool: Generate and send professional invoices

• No minimum balance requirements or monthly fees: US-based businesses can open an account for free. Learn more about fees here

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2. Wire Transfers

Wire transfers have long been one of the most common methods of paying contractors, thanks to their speed and security. Many financial institutions, like traditional banks and online banks, provide these services, requiring just the contractor’s bank details and an IBAN or SWIFT code for international transfers.

Pricing and Fees

Wire transfers are known to be quite costly but vary depending on whether you’re making a domestic or international transfer and what financial institution you’re with. Domestic wire transfers could cost anywhere between $15 to $30, while international transfers will be more costly at around $30 to $50.³ Bear in mind that international wires will also incur a currency conversion fee.

3. ACH Payment

ACH (Automated Clearing House) payments are quite similar to wire transfers in that they involve an online transfer of funds from one bank account to another. To initiate a payment, you’ll need the contractor’s bank account number and bank routing number. Lots of businesses use payroll services or online banking platforms to set up and schedule these payments.

Pricing and Fees

The biggest appeal of ACH payments compared to wire transfers is their affordability. Many banks even offer them for free, especially for domestic transactions. Otherwise, they typically cost up to $3 per transaction. International transactions will come with higher fees and foreign exchange rates.

See the Best Banks for Small Businesses >>

4. Online Payments (P2P Payments)

Paying contractors through PayPal, Venmo, and Zelle (peer-to-peer payment platforms) provides an easy way to send money directly to someone else through just an email address or phone number. In this case, both the sender and receiver need to have an account on the platform and a linked bank account or credit card.

Pricing and Fees

Costs associated with P2P payments will vary by platform. For example, PayPal charges a fee of 2% + 1 USD per transaction for PayPal Payouts and more for international transfers.⁵ Meanwhile, Venmo charges $0 when using your balance, bank, or debit card but doesn’t have international transfer capabilities.⁶

5. Credit Cards

Paying contractors with a credit card can have some advantages. Certain credit cards offer rewards, cash back, or points for each dollar spent, which can add up, especially if you make large payments. Several platforms like Stripe make it easy to pay by credit card online.

Pricing and Fees

With this method, however, there’s also a fee associated with every transaction. It’ll generally be a percentage of the amount you’re paying, potential fees from the credit card merchant, and, if you’re making an international payment, hefty conversion costs.

How much will you pay with Wise Business across currencies?

6. Checks

If the digital world is a little much for you and you’re looking for an old-fashioned method. Checks are still a viable method for paying contractors, especially for domestic transactions. As long as you have a checkbook on hand, you’ll simply need to write down the payment amount, the payee’s name, and the date, and add your signature to it. You can then mail the check to your contractor, and they can deposit it into their bank account.

However, checks can get lost in the mail and won’t have the same security and speed offered with digital transactions.

Pricing and Fees

Checks might seem outdated, but their primary advantage is that they’re free. Most banks provide free checkbooks, so you’ll simply have to pay the small fee for the stamps required for mailing.

7. Payroll, Accounting, and Other Mass Payment Software

Payment software offers a robust, integrated solution for paying contractors. They streamline the payment process, automate tax calculations, and maintain records for tracking and reporting purposes.

These software require detailed information about your contractors, including tax IDs and bank account numbers, but after inputting this information, they’ll take care of the rest.

Pricing and Fees

QuickBooks, for instance, has a specific plan for contractor payments that is priced at just $15/month. The plan includes 20 contractors, and it costs $2 for each additional contractor.⁷ Meanwhile, other types of software offer tailored pricing based on your business size.

8. Freelancer Platforms

Freelancer platforms like Upwork and Fiverr have integrated payment systems, which means you won’t have to venture outside of them to deal with payments.

Although they’re known as job marketplaces, they facilitate the entire project lifecycle. Payments are typically made on a weekly, hourly basis or through an escrow system where you deposit funds, and the payment is released after work is done.

Pricing and Fees

Using one of these platforms can come with various charges. Fees will depend on which platform you choose, but they’ll usually involve a kind of service charge.

When you hire someone on Upwork, you’ll have to pay a 5% fee on all payments you make to freelancers, as well as a one-time contract initiation fee of $4.95 for Marketplace and Project Catalog contracts.⁸

Contractor Payments: Are you paying domestic or international contractors?

As we’ve uncovered, whether you’re paying domestic or international contractors will have a big impact on which payment method is most appropriate. It’ll have an influence on the fees you pay because of currency exchange rates and added fees and transaction timeframes.

International Payments

International payments require some extra consideration because of the associated costs and potential delays. As methods like sending checks and using wire transfers might be too costly or too slow, choosing online payment options is your best bet.

However, many platforms can come with high fees and marked-up conversion rates, which is why you’ll need to be wary of the one you choose. The smartest idea would be to choose a platform that deals specifically with international payments like Wise.

Domestic Payments

Dealing with domestic payments is much easier, as there’s a simplicity and straightforwardness that you won’t find with their international counterpart. Traditionally, checks and direct deposits are solid methods that will get the funds from A to B.

Alternatively, you could opt for ACH transfers to save time and potentially reduce costs or choose an electronic payment platform like Venmo for more immediate, less formal transfers.

Pay Employees With BatchTransfer

BatchTransfer has an easy-to-use instant payments system that allows you to make multiple payments, for both domestic and international, in one go. Small businesses and enterprises can get access to BatchTransfer with no additional cost after getting a Wise Business account.

BatchTransfer’s core strengths for payroll:

What sets BatchTransfer apart is its commitment to providing the mid-market rate for currency conversions. This means that businesses get a fair and transparent deal when making international payments.

Another perk of using BatchTransfer for international payroll is its extensive coverage of over countries and currencies! With features like automatic payment scheduling and API integration, small businesses can streamline their payroll process, freeing up valuable time and resources for other important tasks.

• How can businesses use BatchTransfer for payroll?: Businesses can send up to 1000 payments with a single click with BatchTransfer. US-based business can access BatchTransfer at no extra charge.

• Connect to your accounting software: You can easily manage and reconcile your mass payments through accounting software integrations such as QuickBooks or Xero.

Start making payments
with BatchTransfer >>

Wise Features	Price
Mid-market exchange rate for currency conversions Payments to countries in currencies Delivery estimator, real-time tracking, pay-to-email & more	Free to sign up for US business accounts, no monthly fees, no minimum balance requirements. Transparent and competitive rates Free access to API, BatchTransfer, and integrations features. You can also get major currency account details for a one-off fee to receive overseas payments.

Contractor Payments FAQ

Still have questions? From questions relating to credit cards to how paying contractors is different from paying employees, we’ll answer a few frequently asked questions right here.

How is paying an independent contractor vs. employee different?

Paying an independent contractor differs from paying an employee, mainly due to tax implications. When employers pay employees, the employer needs to withhold income, Social Security, and Medicare taxes, and contribute to workers’ compensation funds and unemployment insurance. On the other hand, independent contractors are considered self-employed and are responsible for handling their own taxes. This way, you simply pay them the agreed amount reflected through an invoice.

What’s the best way to pay contractors?

The best way to pay contractors depends on several factors, such as the location of your contractor, currency conversion rates, fees, and the way you and your contractor work together. Domestic contractors might prefer direct deposits or payment apps for their convenience and fast processing time, while international contractors might prefer platforms with better exchange rates and lower transfer fees.

Can you pay a contractor with a credit card?

It is possible to pay a contractor with a credit card, although not all contractors may be set up to accept these types of payments. The contractor may need to be set up with certain platforms to allow credit card payments, and the associated fees might not be in the contractor’s favor – which may drive up the total cost of the project.

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Sources:

5 - PayPal - Merchant Fees
6 - Venmo - Fees
7 - QuickBooks - Contractor Payments
8 - Upwork - Client Marketplace
9 - Wise Trustpilot