How to hire international contractors

The global talent pool has experienced consistent growth since the COVID pandemic of the 2000s. Despite “return-to-office” orders from several major companies, the data shows that freelance work is here to stay: 

Freelancers in the global market, 2020-2025 (est)

Sources: Source 1 | Source 2 | Source 3 

It’s more important now than ever to understand how to hire international contractors and take advantage of excellent talent. This is easier said than done, however, as the process of hiring international contractors varies significantly based on the country in which you are hiring. 

As a result, our team created a simple guide to provide business owners with an overview of how to hire international contractors, as well as a few pieces of country-specific advice to get you started.

How to hire international contractors, step-by-step

One of the central challenges of hiring an international contractor is the risk of misclassification; contractors are subject to different regulations for payment, benefits, and taxes, so there are significant penalties for inaccurately registering them as employees. 

This means before you get started, you should be sure the role fits the requirements of a contractor, not an employee. So how do you know the difference? 

International Contractor vs Employee: A Primer

	Contractor	Employee
Control	The contractor determines where and how the work is completed	The employer determines where and how the work is completed
Training	No training is provided	The employer provides necessary training to complete the work
Profit/Loss	A contractor cannot make a profit or incur a loss from the project	An employee cannot make a profit or incur a loss from the project
Payment	Payment is project-based, typically in milestones. Paid via invoice	Payment is hourly or salaried, paid via check or direct deposit
Tools & Materials	The contractor provides any tools and materials to perform the work	The employer provides any tools and materials to perform the work

If you are still unsure if the worker would qualify as a contractor, consult our IRS 20-point checklist for a more detailed breakdown of the distinctions.

From here, there are some standard steps to hiring an independent contractor. We’ve covered these steps in further detail before, but here are the broad strokes: 

• Determine your budget. Freelancers are typically paid hourly, by project, or in milestones. Evaluate your needs and select the option that best fits your contract. 
• Vet Applicants. You will need to collect a slew of documents like State ID/passport, business registration, W-88EN form, and background check materials (check with the agency performing your background check) to verify the applicant’s credentials. 
•  Draft a contract. It’s here that your legal representatives are essential; contracts need to include the project scope, payment terms, IP ownership, exit agreements, tax filing responsibilities, NDA clauses, and any subsections pertaining to local law.
• Onboard the new hire. Set up payment and invoicing, approve security & access clearance, and manage the contractor’s preferred communication channels.

What do I need to legally hire international contractors?

The previous steps are standard, no matter where you are hiring intentional contractors. When hiring internationally, however, you will need to make a few additional considerations: 

Currency conversion	Local entities
It’s probable, if not likely, that your contractor will require payment in a different currency than you currently use. A multi-currency wallet is ideal for navigating payments while reducing conversion fees, but may be difficult to come by if you are hiring manually.	Unfortunately, you can’t just hire anyone, anywhere, anytime; companies hiring in a new country may have to set up a local entity, a subsidiary of your company in the contractor’s country, depending on local labor laws in order to begin hiring. This means setting up financial infrastructure and registering your business with the local government.

Unless you plan on using some kind of contractor management system, this process gets very time-consuming, not to mention expensive. Between the massive amounts of filing government forms and the hefty currency conversion fees, companies going the manual route should expect several months and thousands of dollars before their contractor is able to begin.

How does hiring differ from country to country?

The single greatest challenge of hiring international contractors is compliance with local labor laws. To illustrate this, the table below provides key statistics for businesses considering hiring abroad:

Country	Mis- classification Risk (1-10)	Average Setup Time	Gov. Agencies Involved	Notes
UK	8.5	1-2 Weeks	HMRC	IR35 rules may deem contractors “employees” for tax purposes if they are essentially working as an employee
India	7.8	4-6 Weeks	MCA PAN GST EPFO	India does not have “at-will employment.” Contractors operate strictly on contract terms
Mexico	9.1	4-6 Weeks	SATIMSSINFONAVIT	Misclassification qualifies as tax fraud and can result in a company being banned from operating in Mexico.
Philippines	7.3	1-2 Months	SEC BIR SSSPhilHealth	Contractors need to be registered with the BIR to pay SSS/income tax if they make >₱1,000 per month.
Germany	10	4-8 Weeks	Trade OfficeFinanzamtSocial Insurers	IP laws in Germany state that contractors maintain ownership of the works they create. Stipulate otherwise in your contract if you wish to maintain IP ownership.

These are just a few examples of different labor laws business owners may run into as they begin hiring on an international scale. If you plan on doing this without the use of an AOR platform, be sure to have a talented legal/HR representative who is up-to-date on the local laws to avoid the potential for misclassification.

What is the safest way to pay international contractors?

When determining how to hire international contractors, you likely have several options in front of you. Contractor management platforms provide the greatest degree of utility. However, different contracts may involve different levels of need.

The table below outlines the four central payment options for paying international contractors (e.g., contractor management platforms, freelancer marketplaces, bank transfers, and digital wallets), comparing them across several key tools for hiring and managing contracts.

Tool	Contractor Management Platform	Freelancer Marketplace	Digital Wallet	Bank Transfer
Multi-currency wallet	✅	❌	✅	❌
Localized payment	✅	✅	❌	✅
Bulk payments	✅	❌	✅	❌
Invoicing	✅	✅	❌	❌
Compliance Support	✅	✅	❌	❌
Tax form collection & reporting	✅	✅	✅	❌
Onboarding tools	✅	✅	❌	❌

As this table might suggest, each of these options is best for a specific use case: 

• Contractor management platforms are the best fit for companies seeking an end-to-end solution for international hiring. This could be companies seeking to shore up their compliance as they enter new markets for talent, smaller companies seeking to reduce costs by keeping staff to a minimum, or mid-market companies looking to expand their payment capabilities.

• Freelancer marketplaces are best for companies working with a few freelancers in a few countries. They provide compliance options to reduce misclassification risks, but they lack more robust payment options that support a larger workforce. 

• Digital wallets are ideal for companies with an in-house legal team to handle compliance, since these options are limited to payment and tax services alone. 

• Bank transfers are the best choice for companies handling one-off projects that don’t require consistent distribution. They eliminate monthly costs and reduce transaction fees to a single/limited payment.

Still have questions? 

If you are still unsure how to hire international contractors in 2025, we understand. The process is difficult because it is rarely, if ever, the same due to local labor laws. Working with a contractor management platform like Payoneer Workforce Management can help you manage those difficulties with an industry-leading AOR and reduce expenses while streamlining the international hiring process.

FAQs

1. How can a U.S. company legally hire international contractors?

To legally hire international contractors, draft a compliant contract that outlines the scope of work, payment terms, and intellectual property rights. Confirm their legal status in their country, collect the correct tax form (usually a W-8BEN), and ensure you’re not treating them like an employee. Using a contractor management platform or an Agent of Record (AOR) can help with compliance and payments.

2. Do I need to issue a 1099 to a foreign contractor?

No, you do not need to issue a 1099 to a foreign contractor. Instead, you should collect Form W-8BEN from them, which confirms they are a non-U.S. person for tax purposes.

3. How do I pay an international contractor?

You can pay international contractors through secure methods like wire transfers, global payment platforms, or contractor management platforms. Choose a method that supports compliance, tracks payments, and handles currency conversion efficiently.