Remote working continues to rise and many UK companies are hiring from South Africa. Here are factors to consider when paying your employees in a foreign currency, such as the Rand.
One aspect of remote working that causes headaches for business owners who need to pay their employees in different countries is global money transfers and the associated exchange rate risk.
Do I hire a remote contractor or a full-time employee?
Most UK companies prefer to hire overseas candidates on a remote contractor basis. This is more efficient from a tax and money transfer perspective.
When you hire a full-time employee based in another country, different labour laws are triggered. In South Africa this would mean that the UK employer is responsible for:
- Unemployment Insurance Fund (UIF) payments
- Tax registration
Exchange rate risks and fluctuations
A contractor in South Africa may wish to invoice in a Rand amount so that the earnings are not subject to exchange rate fluctuations. However, this puts your company in the position of having to deal with these fluctuations. You’ll pay fewer Pounds if the exchange rate is favourable, but if the Rand strengthens, you will effectively pay them more.
Your company will need to make sure that the correct amount is paid in Pounds, for it to be cleared as the exact amount in Rands. For example, if a consultant invoices R20,000, the consultant should get R20,000 free of any bank charges or exchange rate fees.
Using a forex partner, you can be strategic about how you manage payments and payroll to reduce the risk to your bottom line, while also ensuring that your offshore employees and contractors get paid the correct amount.
Currency forwards
A currency forward is a forex currency tool that fixes the exchange rate for the purchase of a currency at a future date. It allows you to manage your future expenses based on a fixed cost instead of paying a variable amount month after month.
For example, if you know that you’ll be hiring a South African employee for the next 12 months, a currency forward will help you determine the cost to the company.
Flexible forward contracts
Flexible forward contracts (FFC) allow you to fix the buy or sell price of a currency pair at a specific time, between two fixed dates, for a specified amount. In addition, you can either exchange all or part of the amount at the pre-agreed rate at any time during the contract.
A flexible forward is more advantageous if you work with larger sums and have more than one foreign employee on your payroll. For example, you have a UK company and an office with 50 employees and a monthly payroll of R1 million. To flexible forward the given exchange rate for this sum, you can fix one part fixed and one part variable.
Streamline your global payroll
If your remote candidate is an independent contractor, you would pay their salary directly into their account, without any intermediaries. A forex provider can help with this.
Sable International’s forex service offers:
- Bank-beating fees – spread varies (average of 2.5% with UK banks while our maximum is 1%)
- A quicker transfer process – no hold up of funds
- Guaranteed fund clearance – the exact amount will clear in the beneficiary’s account
- Local facilities and a great platform to get funds into SA
Need assistance with your global payroll? Sable International is a fully regulated andregistered financial services provider in South Africa and the UK. If you’d like to transfer money globally, we can help. We’re online and always available for a chat if you have any questions. Email forex@sableinternational.com or call +44 (0) 20 7759 7554
