Salary Transfers for Contractors
– I work overseas and continually need to transfer money home. What things do I need to consider?
– Is it worth using a specialist Foreign Exchange company, and how are they different from using a bank?
– What is the process of registering and using a foreign exchange company?
– What costs do I need to look out for?
– I’m concerned the exchange rates might move against me through the year and eat into my salary.
– How quickly can my money be transferred?
– Would I need to call my broker each month to book my transfer?
– Is it just Salary transfers foreign exchange companies assist with?
– What are the risks involved with using a broker? How do I identify a reputable company to use?
– My requirements are different to most people, is the service available to everyone?
I work overseas and continually need to transfer money home. What things do I need to consider?
There’s a lot to think about when you are working overseas, from visas, accommodation, insurance, your contract length…. The list is endless. Many contractors working overseas have an added concern, which is often overlooked: how do I ensure the maximum amount of my salary gets back home to my family?
In most cases an overseas employer will pay you an agreed amount of money in the local currency where you will be working. If you request that a certain amount be sent back home each month, they will convert your money using whatever exchange rate their bank offers, or worse still they send your salary straight into your home account in the wrong currency, at which point it is automatically converted into the correct currency using a hugely uncompetitive exchange rate.
In addition to wide margins and high transfer fees, you also need to consider exchange rate volatility during the term of your contract. For example if you are being paid in US Dollars for a six month contract, how will it affect you if the US Dollar loses strength against your home currency during that time. The answer is that you will receive less and less money back home for the same amount of US Dollars each month.
You are therefore looking for three things:
- Tighter margins to achieve the best possible exchange rate
- Minimal transfer fees, if any
- The ability to protect your exchange rate from ongoing market movements
Is it worth using a specialist Foreign Exchange company, and how are they different from using a bank?
In short, yes it is worth speaking with a reputable foreign exchange company about your ongoing requirements as it could save you a huge amount of money through the year.
The volumes these companies transfer through the banks is likely to be larger than your employer transfers, allowing them to achieve a significantly better exchange rate for their transfers. They will factor in a margin when working out your exchange rate, however this is worked out from the Live interbank rate (not an uncompetitive Day rate), and their margin is often between 0.5% and 4% tighter than the bank, meaning you end up with up to 4% more money back home.
In addition, the transfer fee is usually far smaller, or removed altogether.
The other key difference is the level of service you receive. As these brokers focus on nothing but currency, they tend to offer clients a far wider range of products and solutions, which would otherwise be unavailable to you, such as protecting your exchange rate for an entire six/twelve month contract, or contacting you when a desired exchange rate is achievable in the market.
With many foreign exchange companies you are given a personal consultant to look after all ongoing requirements and they can make the entire monthly process automated for you.
What is the process of registering and using a foreign exchange company?
Most foreign exchange companies will need you to open an account with them before you are able to use the service. This is not a bank account, it is a trading account which allows you to book the transfer of funds from one currency to another.
There is usually no cost to opening or having an account with a broker and most will prompt you to open an account online through their website. They will usually require a passport number or driving license number, and it usually doesn’t take more than five minutes to submit your details.
Some companies will have your account set up within an hour and many also provide you with a personal consultant to look after your ongoing requirements.
In some cases brokers may request you send them a photocopy of your passport and a copy of a recent utility bill if the above information has not been enough for them to verify you.
What costs do I need to look out for?
There is usually no cost to opening or having an account with a foreign exchange company. They make their money every time they perform a currency transfer on your behalf. The exchange rate they offer you will be slightly slightly different from the exchange rate they receive from their bank. This is know as the exchange rate margin or spread. That said, the margin used when working out your exchange rate should be far tighter than you would have received from your bank.
There may also be a Transfer Fee on the transfer. This too should be smaller than with the bank, and in many cases they waive the transfer fee altogether. For example, in addition to the exchange rate margin, a bank may charge up to a £40 transfer fee. Many of the brokers will charge nothing on transfers above £5,000, and a far smaller fee of up to £15 on smaller amounts.
I’m concerned the exchange rates might move against me through the year and eat into my salary.
Your concerns are not without reason. The currency market is extremely volatile and during a 6 month contract it is easily possible that you will see considerable movement in this time. For example in early March sterling was at 1.49 against the US dollar; within 3 months sterling has strengthened to 1.55. This is a difference of over 4% and consequently someone earning US Dollars would then receive 4% less Sterling than they would have 3 months earlier.
The market can of course just as easily move in your favour, but the concern is that you are completely exposed to the extreme volatility that the currency market holds. Many contractors simply want to know how much their family will end up with each month and therefore want to look at ways of protecting themselves from these movements.
Unlike most banks, brokers will often allow individuals to pre fix their exchange rate for future salary transfers. You may miss out if the rates then move in your favour, but for people seeking peace of mind and certainty, this can be a worthwhile solution to consider.
How quickly can my money be transferred?
It depends which currencies are involved and the speed at which your employer’s bank can get your funds to the foreign exchange company. When they receive your funds, on major currency pairings they should be able to make onward payment the next day. Other currencies can take a few working days.
Would I need to call my broker each month to book my transfer?
Not necessarily. Many brokers offer a Regular Transfer order and some can fully automate the monthly process for you. You can instruct them to automatically convert you funds at the prevailing rate each month when your employer sends your funds to them. Alternatively you can pre-fix a rate for say 6 months worth of transfers, and each time they receive your funds they will convert them at the pre-agreed rate and make onward payment to your account back home.
Therefore you would simply need to open an account with the broker, instruct them on what you would like them to do with your funds each time, and instruct your employer to send your salary to the broker’s specified account on each occasion accompanied by the broker’s requested reference number for you.
When this is set up, your money should be transferred each month without you lifting a finger, and now in a far more financially efficient manner.
Is it just Salary transfers foreign exchange companies assist with?
Absolutely not. Most foreign exchange companies can assist with any international transfer requirement where you are sending funds from one bank account to another. This includes international property purchases, moving your savings, paying for overseas accommodation, pension transfers, international investments and so on.
What are the risks involved with using a broker? How do I identify a reputable company to use?
It is important to use a reputable foreign exchange company. There are many currency companies out there and you want to ensure you are working with one that has a strong track record, is FCA Authorised (if in the UK) and that they hold client money in segregated accounts. Should anything happen to the company financially, your money should be safeguarded from creditors and therefore returned to you.
Ask what their credit rating is. A poor credit rating is an indication that the firm is deemed to be a risky company to lend money to. For peace of mind it’s good to find a firm that is in sound financial condition, not heavily geared and one that holds plenty of collateral with the banks.
My requirements are different to most people, is the service available to everyone?
There is a huge range of requirements across private and corporate clients, and it is always worth discussing your requirements to find out what options are available to you. Whether you are transferring your pension or salary, buying overseas property or paying international suppliers, currency companies are usually able to increase the financial efficiency of your transfers. There are certain currencies and territories which are restricted, but it doesn’t cost you to ask and you could find a solution which suits you perfectly and saves you a considerable amount of money in the process.
Most companies will be happy to discuss your personal requirements and a short conversation can make all the difference. World First one of the UK’s leading currency companies, providing automated salary transfers and award-winning customer service. For more information or to discuss your requirements please contact World First.