Article
13 min read
Author
Gabriele Culot
Published
March 06, 2024
Last Update
July 03, 2024
Table of Contents
How to pay international contractors in Africa
Unique challenges of contractor payments in Africa
Solutions for streamlining payments
Managing regulatory and tax obligations
The importance of an independent contractor agreement
Supercharge your contractor management with Deel
Africa’s gig economy is booming, and investments from all over the world are flooding into the continent. With this growth, an increasing number of often remote freelancers is offering businesses worldwide a previously unavailable pool of talent.
Leveraging this workforce effectively requires understanding the continent’s unique payment ecosystems, characterized by a preference for mobile money, the importance of local banking relationships, and the increasing adoption of international digital payment platforms.
This guide will help you navigate the complexities of paying independent contractors in Africa, ensuring seamless, compliant, and efficient payment processes that build trust and long-term relationships with your African contractors.
Across Africa, mobile money services are a cornerstone of the payment landscape, fueled by their unparalleled accessibility and simplicity. They enable real-time transactions directly from mobile devices and effectively circumvent traditional banking hurdles.
M-Pesa is renowned for bringing financial services to the unbanked populations of Africa. It’s a seamless platform for instant money transfers, bill payments, and access to micro-finance.
As part of the MTN Group’s telecommunication services, it caters to millions across Africa, providing financial inclusion beyond the reach of traditional banking.
Airtel Money, by India-based insurance company Airtel, is a digital financing service that allows users to send and receive money, pay bills, and access a variety of financial services directly from their mobile phones.
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For transactions on a larger scale, bank transfers serve as a dependable avenue, with numerous African banks providing tailored online services for direct payments to contractors.
Ecobank offers a broad array of banking services across multiple African countries, making it a prime choice for bank-to-bank transfers, especially for sizable payments requiring secure handling.
Standard Bank, one of Africa’s largest banks, offers comprehensive banking solutions that facilitate smooth cross-continent and international bank transfers.
Suitable for both small and large-scale transactions
Strong focus on secure and regulated banking practices
Western Union enables people and businesses to send and receive money across an impressive network of over 200 countries and territories through physical locations as well as digital platforms
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) offers a network enabling financial institutions worldwide to send and receive information about financial transactions. It’s a standard for international money transfers, including those to and from European countries.
The Pan-African Payment and Settlement System is an initiative by the African Export-Import Bank (Afreximbank) and the African Continental Free Trade Area (AfCFTA) to facilitate payments and settlements for intra-African trade and commerce. It aims to reduce dependency on third currencies for transactions within Africa.
Operated by the Southern African Development Community, the SADC-RTGS facilitates real-time settlement of cross-border transactions within the SADC region, aiming to boost financial integration and reduce transaction times.
EAPS is an initiative by the East African Community (EAC) designed to facilitate cross-border payments within the East African region, aiming to support trade and economic integration.
These platforms outshine traditional banks by offering more competitive rates for currency conversion and cross-border transactions.
A global leader in digital payments, PayPal simplifies cross-border transactions, supporting a diverse range of currencies and facilitating direct deposits.
Specializing in international money transfers with transparent fees, Wise is ideal for businesses and contractors working across borders. It supports multi-currency accounts, making receiving and managing payments in different currencies easier.
Payoneer is a global payment platform that bridges the gap between businesses and professionals by offering a comprehensive solution for effortlessly receiving and managing international payments.
Skrill is a versatile digital wallet designed for personal and business use, offering instant online payments and money transfers. Known for its simplicity and wide range of supported currencies, Skrill caters to a global audience.
As a service owned by PayPal, Xoom makes it easy for US companies to send funds from the United States to over 130 foreign countries. It expands the horizons of conventional banking with digital ease and speed.
Transaction fees can be higher than other services, especially for credit card payments
Exchange rates may include a markup over the mid-market rate
Transfer limits may apply depending on the user’s transaction history and verification status
There are several African platforms that have been tailored to meet the continent’s unique financial and technological landscape.
Is designed to make it easier for African businesses to enter the global economy by simplifying the process of currency exchange and money transfers.
This platform allows businesses to accept payments from local and international customers through credit cards, mobile money, or direct bank payments.
Chipper Cash is a cross-border payments app offering free, instant African-wide money transfers and the ability to buy airtime and data bundles.
DPO Group provides a secure platform for businesses to accept payments in various forms, from credit cards to mobile money and electronic bank transfers, in multiple currencies catering to the African market.
Zoona is known for delivering electronic financial services to the unbanked and underbanked in Southern Africa. It specializes in helping small entrepreneurs manage their money and grow their businesses.
Beyond the options mentioned above, more traditional methods like cash and checks continue to play a role in the African contractor payment landscape. However, depending on the country, their spread and availability may vary. Moreover, these traditional methods may not mesh well with modern compliance requirements, increasing the risk your business may be exposed to.
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Head of Customer Success & Sales, Turing
The landscape of contractor payments in Africa is as diverse as the continent itself. From mobile money services dominating East Africa to more traditional solutions like physical bank branches and post offices in the North and innovative fintech platforms spreading across West Africa, the options are increasingly numerous.
However, while this diversity benefits flexibility, it introduces complexity, particularly for businesses looking to engage with self-employed workers across different African regions or with a global team.
One of the primary challenges in facilitating contractor payments in Africa is ensuring that the chosen payment method is accessible to the contractor. Numerous factors, including geographical location, local infrastructure, and personal preference, influence accessibility.
For instance, while mobile money services like M-Pesa are widely used and accepted in Kenya and Tanzania, their availability and usage might be limited in other regions.
Managing local currency fluctuation and conversion fees poses another significant challenge. Africa comprises countries with varying currencies and economic stability, leading to frequent and sometimes unpredictable fluctuations in exchange rates. Additionally, conversion fees can vary widely depending on the payment method chosen.
Another challenge businesses must face is navigating the complex web of legal compliance related to contractor payments. Misclassification of full-time employees as contractors can lead to severe penalties, including back taxes and legal repercussions.
Moreover, compliance isn’t solely about classification; it extends to understanding and adhering to the tax obligations and employment laws unique to different African countries. These local laws dictate the documentation required, tax withholding responsibilities, and rights and protections afforded to contractors.
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To navigate these challenges effectively and ensure contractor’s work is paid fairly and legally, businesses can adopt several strategies, including the ones listed below.
Partnering with local financial institutions or fintech platforms can provide valuable insights into the most accessible and widely accepted payment methods and currency conversion best practices in a given region. Such collaborations can be instrumental in tailoring payment strategies that align with local practices and preferences.
To mitigate the impact of currency volatility and conversion fees, businesses should explore payment platforms that support multi-currency transactions and offer competitive conversion rates.
Given the complexity of legal and tax considerations in contractor payments, engaging with legal and financial experts specializing in African labor laws can be a game-changer. These professionals can help businesses structure their contractor agreements to comply with local regulations, manage tax obligations properly, and avoid the pitfalls of misclassification. Additionally, they can keep businesses updated on legal changes and developments that may impact contractor relations.
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Hiring contractors in Africa requires adherence to local and international tax laws, including understanding the obligations for correctly classifying workers, withholding taxes and VAT, reporting income tax to authorities, and social security mandates. Engage with a local tax professional or service to navigate these complexities effectively and ensure compliance while avoiding common mistakes.
Misclassification occurs when an employer incorrectly classifies an employee as a contractor. This distinction is crucial because it affects tax obligations, employee benefits eligibility, and labor law compliance.
Having a well-drafted contractor agreement is one of the first steps you should take when beginning a business relationship with self-employed workers in Africa. This document not only defines the scope of the work and the expectations from both parties but also provides a legal framework that can protect the interests of both the hiring company and the contractor. A comprehensive contractor agreement should include the following information:
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In the current landscape of business relations, the adherence to employment laws, the clarity of contractor agreements, and the effective management of contractor pay significantly affect the operational success of businesses in Africa. Whether dealing with direct deposit methods, navigating the complexities of payroll processing, or understanding the functionalities of digital payment platforms, the goal remains to foster seamless, compliant, and mutually beneficial relationships between businesses and their diverse workforce.
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Through Deel, Hero Gaming has provided contractors with a fantastic working experience with a centralized workflow and flexible payment systems.
—Hero Gaming,
By integrating a solid understanding of tax forms, regulatory requirements, and the nuances of labor laws into their global payroll systems, business owners can avoid common pitfalls like a misclassified workforce, ensuring compliance and fostering a productive, efficient, and compliant working environment.
Deel offers solutions to all your contractor management wants and needs. Cut the hassle of contractor onboarding and employee benefits administration, the risk of misclassification, and streamline your payroll services for your entire workforce. From easy contract creation to seamless payments, we can handle it all.
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