According to Upwork’s 2025 annual report, 28% of skilled knowledge workers in the U.S. now work independently. They’re choosing autonomy, flexibility, and control over traditional employment. Together, these independent professionals earned $1.5 trillion last year, with many out-earning full-time employees.
For companies, this shift isn’t just a trend. It’s a strategic advantage. From early-stage startups to global enterprises, businesses are tapping into independent contractors to access specialized talent, scale faster, and stay lean.
But with opportunity comes complexity. Misclassify a contractor, miss a tax requirement, or mishandle compliance, and your business could face steep penalties.
That’s where trusted support matters. Solutions like Multiplier’s Contractor of Record (COR) (also known as Agent of Record) make it easy to onboard, pay, and manage global contractors compliantly without the admin burden or legal risk.
Whether you’re a startup looking to scale or an established company managing a global contractor network, this guide breaks down what you need to know to stay compliant, reduce risk, and build a high-performing contingent workforce.
Who are independent contractors?
Independent contractors are self-employed professionals who provide services under a contract but unlike employees, they operate with full autonomy. They choose how and when to work, often serve multiple clients, and are responsible for their own tools, benefits, and taxes.
Unlike full-time employees — whose taxes and benefits are partly covered by the employer — contractors handle everything themselves. That includes:
- Federal and state income taxes (through estimated quarterly payments)
- Self-employment tax, which includes:
In total, that’s 15.3% of their income that contractors pay out of pocket. W-2 employees, on the other hand, share the 15.3% tax burden with their employers, with each party typically responsible for 7.65% of the total.
In short: independent contractors offer flexibility and specialized skills but with that independence comes the responsibility of managing their own taxes, benefits, and compliance.
The difference between employees, freelancers, and independent contractors
Key distinctions are explained below:
Criteria | Employee | Independent contractor | Freelancer |
Control | Employer controls how, when, and where work is done | Contractor controls how and when work is done | Freelancer controls how, when, and who they work with |
Tools and resources | Provided by employer | Typically provided by contractor | Provided by freelancer |
Tax withholding | Employer withholds and remits taxes | Contractor handles their own taxes | Freelancer handles their own taxes |
Benefits | Eligible for company benefits (e.g., PTO, healthcare) | Not eligible for company benefits | Not eligible for company benefits |
Contractual agreement | Often ongoing or indefinite | Time-bound or project-specific contract | Usually short-term, per-project basis |
Client relationship | One employer | One or a few clients at a time | Multiple clients; typically works with several at once |
Legal classification | W-2 employee (U.S.) | 1099 contractor (U.S.) | 1099 contractor (U.S.) |
Understanding the difference between an independent contractor and an employee isn’t just semantics. It has real legal and financial consequences, especially in jurisdictions like California in the U.S., where the ABC Test enforces strict classification standards under Assembly Bill 5 (AB5). Failing even one part of this three-pronged test can result in reclassification, triggering fines, back pay, and benefits obligations.
Independent contractor jobs: Common roles and industries
Independent contractor jobs span nearly every sector. According to Upwork’s latest trends data, demand is highest in knowledge-intensive functions. Companies are turning to independent professionals for skills in:
- Technology and development
- Data and analytics
- Sales and marketing
- Finance and consulting
- Operations and support
Here’s a breakdown of the most common independent contractor jobs and why businesses rely on them:
Sector | Common independent contractor jobs | Why companies hire contractors |
Technology | Software developers, DevOps engineers | Rapid scaling, access to global skill sets |
Marketing | SEO consultants, content strategists | Project-based needs, cost control |
Healthcare | Telehealth nurses, med tech advisors | Licensing flexibility, on-demand staffing |
Construction | Site supervisors, mechanical, electrical, and plumbing (MEP) specialists | Project-based work, union constraints |
Education | Curriculum designers, language instructors | Remote delivery, flexible staffing |
Logistics | Delivery drivers, freight consultants | Seasonal demand, local expertise |
The rise of remote work has made global contracting more accessible, especially when supported by platforms like Multiplier, which allow companies to hire across 150+ countries without setting up local entities.
Why hire an independent contractor?
Independent contractors bring specialized skills that let you quickly plug gaps in your workforce and take on high-impact projects, without the overhead of hiring full-time staff. They’re ideal for seasonal needs, short-term projects, or sudden business surges where agility matters most.
Because they manage their own tools, tech, and infrastructure, you save on setup and onboarding time. Their external networks and niche expertise can unlock capabilities your internal team may not have.
Unlike employees, contractors handle their own taxes, insurance, and benefits. This reduces long-term costs and simplifies your obligations.
In short, the right independent contractor can boost productivity, add agility to your team, and free up internal resources, making them a powerful lever for growth when used strategically.
Pros and cons of hiring an independent contractor
Before hiring for independent contractor jobs, you have to understand the pros and cons. Below is a simplified list of what you can expect when hiring independent contractors.
Pros
- Cost-effective: You only pay for the work done. No benefits, payroll taxes, or long-term commitments.
- Specialized expertise: Contractors bring niche skills that may not exist in-house, ideal for complex or technical projects.
- Speed and flexibility: Quick to onboard and scale, especially helpful during busy seasons or rapid growth phases.
- Reduced overhead: Contractors use their own tools, tech, and workspace, minimizing your operational costs.
- Fresh perspective: External talent often brings new ideas, industry insights, and best practices.
- No training required: Most independent contractors are self-starters who require minimal ramp-up time.
Cons
- Limited control: Legally, you can’t dictate how or when they work; only the outcome.
- Lack of loyalty or continuity: Contractors are typically focused on the project at hand, not long-term company goals.
- Risk of misclassification: Mislabeling an employee as a contractor can lead to audits, penalties, and legal trouble.
- Security and IP concerns: Working with external talent can raise data privacy and intellectual property risks.
- Inconsistent availability: Top contractors often juggle multiple clients and may not always be available when you need them.
- No cultural integration: Since they’re not part of your core team, they may be less aligned with your company’s values or ways of working.
How to hire an independent contractor
Hiring an independent contractor is different from bringing on a full-time employee. There’s more flexibility but also more responsibility when it comes to compliance and clarity. Here’s a step-by-step guide to help you get it right:
Step 1: Define the scope of work
Start by getting clear on what you need.
- What are the specific deliverables or outcomes?
- Are you hiring for a one-time task, or ongoing support?
- What’s the timeline and what does success look like?
The more specific you are here, the less confusion you’ll have later.
Step 2: Set a budget and payment terms
Decide how you’ll pay the contractor:
- Hourly? Per milestone? A fixed-fee project?
- Do you need to manage international payments or currency conversions?
Clear payment terms help build trust and avoid surprises.
Want to skip all the hassle?
The Multiplier platform auto-generates tax documents for your contractors and ensures accurate, on-time filings across borders. We’ve also streamlined global payroll into one sustainable workflow, eliminating the need to juggle local vendors or navigate country-specific compliance on your own. The result? No more admin overload. Just one efficient, compliant payroll system that works at scale.
Step 3: Find the right talent
Now that you know what you’re hiring for, go find them.
- Use platforms like Upwork, Freelancer, or Toptal for vetted talent.
- Ask for referrals from your network or work with specialized agencies if the role is niche.
Think about what matters more: speed, cost, or quality? That’ll help you choose the right source.
Step 4: Interview and evaluate
Yes, contractors need to be vetted too.
- Assess their skills with small test projects or real-world examples.
- Look for communication style, reliability, and cultural fit, especially if they’ll work closely with your team.
Trust your gut, but back it up with evidence.
Step 5: Check classification and legal requirements
Misclassifying a contractor can land you in serious trouble. If you misclassify a worker overseas, you may inadvertently create a permanent establishment (PE) in that country — a taxable presence under local laws. This could expose your business to corporate income tax, VAT registration, and local reporting obligations, even if you don’t have a legal entity in that location.
- Make sure they meet the criteria for independent contractors under local laws (like the IRS test in the U.S. or IR35 in the UK).
- For U.S.-based contractors, you’ll also need them to fill out a Form W-9.
When in doubt, consult a legal or compliance expert.
Step 6: Sign an independent contractor agreement
Put everything in writing. Always. Your contractor agreement should cover:
- Scope of work
- Payment terms
- Ownership of intellectual property
- Non-disclosure and confidentiality
- Termination clauses and dispute resolution
This protects both parties and sets the tone for a professional working relationship.
Check credentials before hiring an independent contractor
As a business owner, every decision involves some level of risk, including hiring independent contractors. Unlike full-time employees, contractors often work independently, with less oversight and fewer formal checkpoints. That’s why checking credentials isn’t just a formality. It’s essential to protect your business from costly mistakes, missed deadlines, or potential compliance issues.
Here’s a general strategy to help you vet contractors before moving forward:
- Ask for details about their educational background and work experience
- Contact previous clients to get honest feedback on reliability, work quality, and communication
- Use third-party background screening providers for deeper checks, including:
- Identity verification
- Education and employment verification
- Criminal record checks
- Watchlist screenings
- If you’re hiring through a freelancing platform, review their ratings, testimonials, and work history
- Request documentation of past contracts or engagements to better understand how they’ve worked with other clients
Why it matters: The more visibility you have upfront, the fewer surprises you’ll encounter down the line. A little due diligence can save you from misaligned expectations, security risks, or even legal exposure and help you hire someone you can trust from day one.
Challenges associated with hiring independent contractors
- Misclassification risks: Misclassifying a contractor as an employee — or vice versa — can result in legal penalties, back taxes, and reputational damage. Using a trusted Contractor of Record solution like Multiplier helps you classify workers correctly and stay compliant across borders.
- No workers’ comp coverage: If a contractor gets injured and isn’t insured, your company could be liable for medical expenses and lost wages.
- Limited control over schedule: Contractors choose how and when they work, which can impact timelines and coordination.
- Unclear work ownership: Without a contract, the independent contractor may retain rights to the work they produce (e.g., IP, designs, code).
- Inconsistent availability: Contractors often juggle multiple clients, making them less available for long-term or urgent needs.
Want to classify workers with clarity and confidence?
Avoid the financial and legal risks of misclassification. Use our free assessment tool to evaluate worker status and stay compliant, accurately, and efficiently.
Policy update (May 2025):
The U.S. Department of Labor has temporarily paused enforcement of its stricter 2024 independent contractor rule and reverted to the simpler 2008 framework. For businesses, this makes it easier to classify workers as contractors, for now. A new rule is expected, so both companies and contractors should stay tuned for updates.
Paperwork for hiring independent contractors
Hiring independent contractors requires a different set of documents than hiring full-time employees. These forms ensure legal compliance, clarify expectations, and help you avoid misclassification risks. Here’s what to prepare:
Key documents to prepare
- Independent contractor agreement (must-have)
Outlines responsibilities, payment terms, intellectual property ownership, timelines, and termination clauses. - Scope of work (SOW) attachment
Clearly defines deliverables, deadlines, and expectations tied to the project. - Non-disclosure agreement (NDA)
Essential when contractors have access to sensitive business information or IP. - Tax forms
- U.S. contractors
- Form W-9: Collects the contractor’s legal name and Taxpayer Identification Number (TIN). Required before issuing payments.
- Form 1099-NEC: Must be issued to U.S.-based contractors who earn $600 or more in a year. Deadline to send: January 31.
- Keep W-9s on file for at least four years as a compliance safeguard.
- International contractors
- Form W-8BEN: For non-U.S. individuals to certify foreign status and claim tax treaty benefits.
- Local tax forms: Check requirements in the contractor’s country (e.g., tax ID, declaration forms).
- U.S. contractors
- Payment agreement or invoicing process
Clarifies how and when payments will be made; helps avoid disputes. - Certificates of insurance (if required)
Especially relevant for high-risk projects or when required by your clients or partners.
Onboard your contractor effectively
Onboarding an independent contractor can be tricky, especially when they’re based overseas. From navigating local labor laws to setting up compliant payment structures, there’s a lot to manage. Here’s what to cover:
- Provide access
Share the tools, files, systems, and communication platforms they’ll need (e.g., Slack, Trello, Google Drive). - Make introductions
Introduce them to key team members and assign a clear point of contact for questions or check-ins. - Set expectations
Outline project timelines, deliverables, communication cadence, and how progress should be reported. - Clarify review and approval process
Explain how feedback will be given, who signs off on work, and what qualifies as “done.”
This is where Multiplier’s Contractor of Record solution helps. From choosing the right compensation type to ensuring labor law compliance and managing payout schedules across borders, Multiplier makes onboarding global contractors simple and compliant, while keeping clear records for every hire.
How to track, manage, and pay independent contractors
Once your contractor is onboarded, keeping things organized across tracking, payments, and compliance is key to a productive relationship.
Here’s how to stay on top of it:
- Track work clearly
Decide how you’ll measure progress: by hours worked, milestones achieved, or specific deliverables. Align on this early to avoid confusion. - Set payment frequency
Agree on how often payments will be made — weekly, monthly, or per milestone — based on the nature of the work and contractor preference. - Use Multiplier to simplify payments
Multiplier helps you manage and pay contractors across borders with ease. From automating invoicing to handling exchange rates and local tax requirements, it reduces admin and ensures global compliance, so you can focus on the work, not the paperwork. - Stay compliant
Ensure all necessary tax documentation is collected and up to date (e.g., W-9s, 1099s, or local equivalents). This protects your business and streamlines reporting. - Create transparent review cycles
Establish regular check-ins, feedback loops, and performance reviews. This helps you maintain quality, catch issues early, and keep your contractors aligned with project goals.
Building long-term contractor relationships
The best contractors aren’t just a one-off resource. They can become trusted partners who know your business inside and out. But just like full-time talent, they need the right conditions to stay invested.
Here’s how to retain your top external talent:
- Communicate consistently
Keep the lines open. Regular check-ins, constructive feedback, and clear direction go a long way in building trust and alignment. - Offer ongoing or recurring work
If you find someone great, don’t let them go. Offer longer-term projects or predictable work cycles to give them stability and keep their best work coming your way. - Treat them like partners, not employees
Respect their autonomy. Give them space to work their way while maintaining clear expectations. The balance between independence and collaboration is key. - Document for continuity
Create shared documentation for processes, preferences, and learnings. This ensures smooth transitions if the contractor takes a break or if you pick things up again months later.
Strong contractor relationships are built on clarity, respect, and consistency. Invest in them, and you’ll have a flexible, loyal talent pool ready to support your growth — on demand.
Hiring independent contractors internationally
You’ve already seen how classification and tax rules differ by country — whether it’s IR35 in the UK or 1099 reporting in the U.S. But these are just the tip of the iceberg. Every country has its own definitions, forms, and thresholds when it comes to independent work and even subtle missteps can lead to compliance issues. Canada, for example, also recognizes a unique “dependent contractor” category, which falls between employee and independent contractor status and can create additional compliance challenges.
That’s why hiring internationally isn’t just about finding the right talent. It’s about understanding the regulatory landscape behind it.
This is where Multiplier helps.
With a presence in 150+ countries and a team of 100+ in-house legal experts, Multiplier enables you to compliantly hire and pay international contractors without the legal or administrative burden. Everything is bundled into one easy-to-use SaaS platform.
Case in point:
When U.S.-headquartered Accelerator Life Sciences expanded its R&D operations to Singapore, it quickly ran into operational friction. Managing payroll across geographies wasn’t just time-consuming; it was risky. The company partnered with Multiplier to streamline global payroll operations in the U.S. and Singapore, bringing everything onto one compliant, reliable platform.
The outcome?
- 30% annual cost savings
- 100% compliance with Singapore and U.S. labor laws
- 75% reduction in time spent on payroll vendor coordination
- 99.5% payroll accuracy, cycle after cycle
When not to hire an independent contractor
There are times when full-time employees are a better fit than an independent contractor. Here are two key scenarios where that applies:
Building a pilot team
When you’re forming your initial team, full-time employees are essential. They help set the tone for your company culture, establish workflows, and provide the long-term stability needed to build your foundation.
Relying solely on contractors at this stage can lead to high turnover and a lack of cohesion. Instead, use independent contractors to support — not replace — your core team.
Training for long-term growth
If you’re investing in talent for the future, prioritize full-time hires. An independent contractor is typically focused on short- to mid-term tasks, and training them for long-term roles is rarely efficient.
To build a loyal, future-ready team, you’re better off hiring and training early-career employees who will grow with your company over time.
Bottom line: Independent contractors are great for filling skill gaps and supporting project-based work but when it comes to stability, culture, and long-term vision, full-time employees are the better investment.
Multiplier: The smarter way to hire and pay independent contractors
Independent work is no longer the outlier. It’s fast becoming the norm. But independence shouldn’t come at the cost of complexity. For companies, this means ensuring every independent contractor is classified correctly, paid on time, and compliant with local laws, without triggering permanent establishment risk or legal exposure.
Multiplier’s Contractor of Record helps companies hire independent contractors by eliminating the usual administrative and compliance hurdles associated with global contractor management. Here’s how:
- Fast, compliant onboarding in multiple jurisdictions without the need for local entities
- Localized contracts in multiple languages and currencies
- Manage all contractor agreements, payments, and compliance tasks from a single dashboard, streamlining HR administration and reducing manual effort
- One-click global payments in 120+ currencies, including crypto
- Tax documentation and invoicing handled automatically
- Access to 24/7 contractor support for questions, onboarding, and expense claims
Ready to simplify the process of hiring independent contractors?
Book a demo today.
