How to pay independent contractors

Both the need for independent contractors and the popularity of remote work have increased recently. The ability to tap into the global labor pool has become a massive boon as companies broaden their worldwide reach.

That said, successfully utilizing this workforce requires understanding how to pay independent contractors. Errors in currency exchange, payment methods, or compliance might result in needless expenses and damaged relationships.

To help businesses navigate this process, our team has created a practical, easy-to-follow guide that explains how to pay international contractors. It also includes country-specific insights for some of the most popular regions for hiring global talent.

How to pay independent contractors: A simple guide

Here is a step-by-step guide on how to pay independent contractors. When hiring across borders, it’s critical to follow the right processes to stay compliant and efficient. 

Step 1: Make sure the role qualifies as an independent contractor

Before onboarding or paying a contractor, you need to ensure they’re legally classified as such and not employees. Misclassification can trigger penalties, tax issues, and regulatory consequences, especially when hiring across borders.

With Payoneer Workforce Management: Our trusted global partner network includes Agent of Record (AOR) services that make it easier to classify and hire international talent, all while staying compliant, even in countries where establishing a local entity is required.

Step 2: Establish payment terms and budget

You need to be able to identify if you are paying hourly, per project, or by milestones. Defining how and when a contractor is paid ensures alignment from day one and prevents disputes. 

Be clear about your budget and how changes in scope will be handled. This will help avoid miscommunication later and give your contractor clear expectations. 

With Payoneer Workforce Management: You can pay contractors in over 70 currencies worldwide. With flexible options, be they one-time, milestone-based, or recurring, our multi-currency wallet simplifies payouts across hundreds of markets without burying you in fees.

Step 3: Collect legal and tax documentation

For compliance, you need to ensure that you collect key documents from your contractor, such as:

• W-8BEN or W-9 form (depending on their location)
• Valid government-issued ID or passport
• Business registration (if applicable)
• Any certifications or licensing required for the role

These documents help verify legitimacy and support tax reporting obligations.

With Payoneer Workforce Management: You gain access to built-in onboarding tools that make it a cinch to collect and store contractor tax documents in one place–no spreadsheets or fumbling around for paperwork.

Step 4: Draft and sign a contractor agreement

Contracts should clearly outline project terms, IP ownership, deliverables, payment schedule, and local labor and tax laws/codes compliance. A strong independent contractor agreement will outline:

• Project scope and deliverables
• Timeline and milestones
• Payment structure and currency
• Tax responsibility (clearly defined)
• Intellectual property ownership
• Confidentiality/NDA terms
• Dispute resolution and exit terms
• Any clauses required by local law

With Payoneer Workforce Management: Our global partner network includes legal experts and AOR providers that help you create region-specific, enforceable, and compliant contracts.

Step 5: Set up payment infrastructure

You’ll need to establish how payments will be sent. 

• Bank wire transfers (reliable but expensive)
• Digital wallets like Payoneer (global support, currency flexibility, lower fees)
• Direct deposits (limited for international contractors)
• Mass payout systems for scale

Think about this: Do you send international wire transfers by hand? Be ready for hassles with foreign currencies, expensive fees, and delays. Independent contractors should be paid quickly, securely, and affordably.

With Payoneer Workforce Management: Send money to over 160 countries with competitive exchange rates and transparent fees. Your contracts can easily withdraw from their local bank or digital wallet—whichever they prefer.

Step 6: Navigate currency and compliance for international hires

When hiring globally, a few additional pieces come into play that you don’t need to worry about when hiring domestically.

Currency Conversion	Contractors overwhelmingly prefer to be paid in their local currency. Using a multi-currency platform helps reduce foreign exchange fees and ensures smoother transactions.
Local Entity Requirements	Depending on the country, you may need to register a local entity (i.e., a legal business presence) before legally hiring or paying international contractors there. This adds time, legal complexity, and further administrative burden.

Hiring overseas often means dealing with complex local labor laws, tax treaties, and compliance hurdles.

With Payoneer Workforce Management: Whether working with direct contractors or leveraging our AOR service, Payoneer WFM helps you comply with local regulations without needing to establish a legal entity.

Step 7: Use a contractor management platform

Managing this internally can be extremely time-consuming and error-prone, especially if you’re simultaneously hiring across multiple countries.

Contractor management platforms like Payoneer WFM streamline the entire process, removing the hassle and guesswork associated with paying independent contractors while ensuring that your company is legally compliant.

What You Get When You Pay Independent Contractors with Payoneer WFM

Automate tax form collection	Handle currency conversion and global payments
Ensure compliance with local labor laws	Provide payment tracking and reporting tools

Ready to simplify how you pay independent contractors?

You’re not alone if you’re still unsure how to pay independent contractors, especially across borders. The process can be complex, confusing, and time-consuming, often hindering your business’s global expansion.

That’s where a contractor management platform like Payoneer Workforce Management comes in.

With effective compliance tools, flexible global payment options, and support for hiring through AOR partners, Payoneer WFM lowers the barriers to international contracting. You get peace of mind and streamlined operations, so you can focus on what matters: growing your business.

Start hiring and paying contractors with confidence.

FAQs

1. How are independent contractors typically paid?

Independent contractors are usually paid per project, hourly, or on a milestone basis. Payments are made after invoices are submitted and approved. Common payment methods include bank transfers, digital payment platforms, and contractor management platforms.

2. Do I need to issue a 1099 to an independent contractor?

Yes, if you pay a U.S.-based contractor $600 or more in a calendar year, you must issue them a Form 1099-NEC. This does not apply to most foreign contractors, but you should still collect appropriate documentation like Form W-8BEN.

3. How do I structure a contractor payment?

To structure a contractor payment, start with a clear agreement that outlines the payment terms. Decide whether you’ll pay hourly, per project, or by milestone. Include payment amounts, due dates, invoicing procedures, and accepted payment methods. Make sure both parties agree in writing before work begins.