how to deal with U.S. compensation for foreign freelance work?

March 19, 2006 6:31 PM

I am a US citizen and resident, contracting with a European organization for a freelance project that won't be over until near the end of the year (we're still fighting over discussing the actual due date, but that's another issue). I requested a certain fee in US$. They agreed to that fee, but they want to pay it in Euros, based on today's exchange rate. Is this common practice?

I would prefer not to sign a contract that locks me into a specific compensation amount in Euros based on today's exchange rate, because of course I don't know what the exchange rate will be at the end of the year (and in the case of significant weakening of the dollar, I could lose quite a bit of money in the exchange). How unusual would it be either to insist on being paid in dollars or to request that the payment in Euros be based on the exchange rate at the time I submit my invoice to them? (I've had one foreign [not EU] freelance gig before, and they had no problem paying me in dollars, though in that case it was for a much smaller fee.)

Any other feedback/tips from other U.S. citizens who've earned money abroad similarly would be helpful, too. This has been a mid-sized nightmare just to get to this point in contract negotiations, so I guess I won't fight it if it's actually common practice. (I still need to duke it out over the due date as well as get clarification regarding whether or not I will be liable for European taxes -- from what I understand of the contract, I won't be, but it's still not entirely clear.) Thanks!

posted by scody to work & money (17 comments total)

For some reason, my bank charges a much lower fee to send Euros to a contractor in France than US$. It could have to do with that, but I don't understand the mechanics.
posted by neustile at 6:46 PM on March 19, 2006

They don't want to be exposed to the risk of currency fluctuations. If it's a significant enough amount of money, ask them to hedge it, or ask for half up front. The euro/dollar rate is unlikely to fluctuate enough for it to matter (no more than 5-7% between now and then, for instance), however. Basically, they have no knowledge of future exchange rates; nor do you. They need to have a specific number to budget for; they can't accept the risk of having to pay you more than they budgeted. It is not an uncommon situation, and most people deal with it by hedging if the risk is large enough, so ask them if they would consider hedging so you can get a guaranteed dollar amount paycheck.
posted by evariste at 6:58 PM on March 19, 2006

It seems perfectly reasonable to request payment in USD. People auctioning stuff on ebay do it all the time.
posted by odinsdream at 6:58 PM on March 19, 2006

I've never done this.

But I'd disagree, sort of, with evariste. Assuming you're dealing with a company or other large organization, it is more capable of dealing with the risk than you are. They run the risk of paying you an embarrassingly high salary or running slightly overbudget on the project, but you run the risk of homelessness or starvation if the exchange rate shifts against you. You both face the same monetary risk, but you face a substantially higher risk in real-life terms.

You know your bargaining position better than any of us do. But it wouldn't be crazy to argue pretty strenuously about this.

Another option is to insist on payment in USD, and to point out to them that if they want to eliminate the risks of currency fluctuations they should be able to buy futures / options for the end of the year.

If they really won't play ball, you should also be able to get futures / options on dollars.
posted by ROU_Xenophobe at 7:09 PM on March 19, 2006

It seems perfectly reasonable to request payment in USD. People auctioning stuff on ebay do it all the time.

If the European company does its accounting in Euros, then you have to fix a date at which point the EUR gets changed in to USD. If the company wants to fix that day today, but you want to exchange later, then take delivery in EUR. Then you can decide when to make the trade.

If this is a large transaction (over $150k or so), you might want to hedge your position with some Eurodollar futures.
posted by b1tr0t at 7:15 PM on March 19, 2006

Thanks for the feedback so far! Just for clarification: the institution is actually a public one, not a private company. And the amount is definitely nowhere near $150k (it's not even $15k).
posted by scody at 7:28 PM on March 19, 2006

Smaller businesses do their business in one currency only. Adding another currency opens a can of worms in their accounting department. It's not really reasonable to insist that they pay you in Swahili Zlotniks when the company does all its business in another currency.

You have it backwards - in case of a strengthening of the U.S. dollar, you stand to make less dollars. How to mitigate that risk? Well, ask for a bit more Euros to mitigate against currency fluctuations? How about a third up front - that cuts a third of your risk? If it's enough money - which I doubt it is - you could buy Euro futures to hedge your risk.

Asking for a bit more money (but giving them a fixed price in Euros that they can write into their budget) is more likely to be successful than asking for any kind of variable rate based on the exchange rate.
posted by jellicle at 7:42 PM on March 19, 2006

If they insist on paying in Euros, I might try to raise my rate to cover the cost of currency conversion and risk. Of course, it depends on your negotiations... without knowing anything else about the situation, I'd shoot for a 10% premium and settle for 5%. The currency risk wouldn't go away, but at least you'd be compensated for accepting it. And if the dollar does weaken instead of strengthen, you're doing very well.
posted by blue mustard at 7:48 PM on March 19, 2006

(Because, as jellicle said, you should be worried about a strengthening dollar, not a weakening one. A weakened dollar would mean your Euros buy more greenbacks.)
posted by blue mustard at 7:49 PM on March 19, 2006

thanks, too, for the weakening vs. strengthening dollar clarification! I was thinking with my traveler's hat on -- i.e, how much currency can I buy with dollars (which is irrelevant in this case), rather than how many dollars a given currency will buy here. So....go Euro! Beat Dollar!
posted by scody at 7:57 PM on March 19, 2006

From watching currency rates as a US-resident ex-pat European for 20+ years, my advice would be to go for Euros.

It's only mho but the dollar has had its day. Look at all the global transactions that used to be in USD that are converting to the Euro; look at all the US debt and who holds it, and what their just-announced fiscal plans are! The dollar (it seems to me) is a really really poor currency to base your remuneration on.

Good luck!
posted by anadem at 8:08 PM on March 19, 2006

At values of under $15K, exchange costs for converting your payments from Euros to dollars will perhaps be significant to you, and the costs of buying currency futures will be practically prohibitive, if such a small contract is even available at all. What it will cost you to change euros to dollars will depend on who does the exchange for you, what quantities of currency you change, and to a very minor degree, the international situation and interbank exchange rates on the day you exchange. As a small business owner, or retail customer of a U.S. bank, I think you'll be surprised to find that it is pretty expensive to exchange small amounts of money, in even a form as liquid as wire transfer, bank draft, or money order. Call your bank, but it is not unusual for amounts under $10,000 to result in a transaction fee of $25 to $50, an exchange fee of 1/2 to 3 %, all on top of a pretty poor exchange rate, particularly if the bank in question is a state chartered bank, without a significant international operation in house. If that is the kind of bank you have mainly used, you may do better shopping around, but your total exchange costs on small transactions such as this can easily run to 4 to 7% if you don't manage them carefully.

Your client simply doesn't want to be responsible for these costs, if they do not have ready sources of USD$ themselves, and they do not want the accounting hassles of currency conversion, since they have probably just gone through a euro accounting conversion in the last several years in order to avoid these very situations. You can show some sensitivity to their desire to pay in euros, but it would not be at all unreasonable to include exchange allowances in your billings, to cover your exchange costs for doing so. You can take your chances with exchange rate risk, which many think will work in your favor over the next 7 to 10 months, with the dollar weakening, and not charge them for absorbing this risk, yourself.

But you also ought to think about whether you need to exchange all the money you are getting from them. If there is any reason for you to be in Europe in the next several months, it would be in your interest to have euros to spend, and perhaps not to have had to rebuy them with dollars you've already paid to exchange, and probably paid taxes on as ordinary income.

Talk to an accountant who has some international savvy. You may be able to open foreign accounts which could help you earn an spend money abroad in tax advantaged ways, which will also reduce your currency risks and exchange costs, if more of your business will be coming from international sources.
posted by paulsc at 8:50 PM on March 19, 2006

Well, I'm on the other side. We provide services to US-based clients from Europe, and while we would usually ask them to pay in Sterling, we have agreed before to bill in US$. In this case we bill the equivalent of our £ rate at the prevailing exchange rate on the day the invoice is issued.

You might have trouble with a public institution though - particularly if it's the EC. They're notoriously inflexible.
posted by bifter at 3:44 AM on March 20, 2006

Go for the Euros - the dollar is falling.
Public institutions in Europe only tend to bill in Euros. They are not going to change their whole accounting system just to accomodate you.
They will want to have a fixed contract price so that they can close their budget for this project.
Good luck.
posted by adamvasco at 4:09 AM on March 20, 2006

I agree that the dollar is falling like a rock - has been for the past two years - and that you're not likely to be harmed by this agreement; your employer isn't trying to screw you over, but instead has their own reasons for doing this as detailed above.

I'd definitely turn their proposal around with a counterproposal that if they're going to do this, they're going to have to throw in an extra hundred bucks or so (whatever makes sense for the total sum) for the currency conversion costs. I doubt they'll balk, as it doesn't sound like they're trying to wring every last dime out of you.
posted by ikkyu2 at 8:43 AM on March 20, 2006

thanks everyone! Looks like I'll take the euros and run.
posted by scody at 9:02 AM on March 20, 2006

adamvasco: the dollar is falling
ikkyu2: I agree that the dollar is falling like a rock - has been for the past two years

Incorrect.

The dollar has fallen far over the past 5 years, but most of the fall came in the years 2001-2004. Last year was a good year for the dollar, and the dollar is worth more today than it was 2 years ago (although only slightly).

The worst dollar year (on that chart) was 2002, when the dollar lost around 15% of its value against the Euro. Scody, you might take that into account when negotiating your prices (as a sort of maximum historical one-year swing).

As an American expat living in Europe, I keep a pretty close eye on the $ to € ratio. I've fortunately come out well - negotiating a salary in dollars when the dollar was strengthening (I was already in Europe) and switching to a salary in Euros just around the time the dollar started to weaken.
posted by syzygy at 12:48 PM on March 20, 2006