Pay international contractors

Global hiring has accelerated in the post-pandemic era, with remote talent playing a key role in many companies’ growth strategies. If your business is exploring this path, understanding how to pay international contractors is essential.

Engaging foreign contractors offers numerous advantages — from access to specialized skills to fresh insights into global work cultures and practices. These cross-border collaborations can be incredibly valuable, but to build strong, compliant relationships, it’s crucial to know how to manage payments effectively.

Paying international contractors involves more than just transferring funds. It requires navigating currency exchanges, tax obligations, local labor laws, and international compliance standards. Whether you’re exploring how contractors are paid globally or seeking the most efficient and lawful method to compensate them, this guide will walk you through every step of the process—ensuring you pay correctly, avoid penalties, and support long-term global partnerships.

Things to consider while making payments to foreign contractors for services

One of the biggest challenges in hiring independent contractors is managing payments and taxes while staying compliant. Understanding how to pay contractors correctly is vital to avoid legal risks and maintain strong business relationships.

Local labor laws and why they matter

Each country has its own labor and tax regulations, and failing to comply with them when paying foreign contractors can result in significant penalties. To ensure smooth and lawful international transactions, businesses must understand and adhere to the specific legal requirements of the contractor’s local jurisdiction.

Key government resources for local labor laws:

• United States: Department of Labor – Independent Contractor Guidelines
• United Kingdom: GOV.UK Employment Status Guidance
• Canada: Canada Revenue Agency – Employee vs Self-Employed
• Australia: Australian Taxation Office – Contractor Information

Before engaging a foreign contractor, ensure that you understand and comply with their local labor laws. Your own country’s regulations don’t apply—you must comply with the legal and tax requirements of the contractor’s jurisdiction.

Employee misclassification and meeting IRS requirements

The IRS defines certain criteria for an employer to classify contractors and full-time employees. As an employer, you have to distinguish between full-time employees and contractors and manage their employment and payroll appropriately when paying international contractors.

Essential IRS resources for contractor classification:

• IRS Publication 15-A – Employer’s Supplemental Tax Guide
• Form SS-8 – Determination of Worker Status
• Independent Contractor vs Employee Guidelines

The IRS states that an independent contractor is someone who:

• Offers services to other companies or the public
• Pays and manages taxes on their own
• Is hired for specialized skills
• Works on multiple projects simultaneously

Furthermore, employers are expected to provide contractors with sufficient flexibility regarding how and when they complete their work. The employer’s role should be limited to defining the expected outcome or final deliverable, without controlling the methods or processes used to achieve it.

If an employer exerts too much control or fails to uphold this distinction, the worker may no longer qualify as an independent contractor and must be classified as a full-time employee. This classification requirement isn’t limited to domestic arrangements—when working with international contractors, you must also consider the labor laws of their respective countries. In some jurisdictions, local regulations may require you to treat your foreign contractor as an international employee based on the nature of the engagement.

Misclassifying workers in such situations can lead to serious consequences, including substantial tax penalties and compliance issues with local authorities. These penalties include:

• Back tax withholding for workers
• Paying overtime for workers
• Additional compliance requirements

How your tax reporting and tax-related obligations look

While you generally aren’t required to withhold taxes for independent contractors, hiring foreign contractors does come with specific compliance obligations.

If you’re a U.S.-based employer, you may need to file IRS Forms 1042 and 1042-S to report payments made to foreign contractors, depending on the situation. The IRS also recommends verifying that the contractor maintains a legitimate business presence — such as an office — in their home country. Furthermore, if the contractor earns over $3,000 annually, additional reporting requirements may apply.

If these conditions aren’t met, you may be obligated to withhold U.S. taxes on the contractor’s income. In such cases, the contractor might also need to provide a valid Taxpayer Identification Number (TIN) to comply with U.S. tax laws. Understanding and meeting these requirements is essential to avoid penalties and ensure compliance when working with international talent.

6 best ways to pay international contractors

Paying international contractors is a critical part of global talent management. Whether you’re working with a freelance designer in the Philippines or a software developer in Poland, understanding the right payment method is crucial for maintaining smooth business operations, ensuring legal compliance, and fostering strong contractor relationships.

Each payment method offers different benefits and challenges, depending on factors such as cost, speed, security, and accessibility. Below is a breakdown of the most commonly used methods to pay international contractors effectively.

1. Wire transfers for international contractor payments

Overview:
Wire transfers are a traditional and secure method for sending payments internationally, either through your bank or services like Western Union.

Pros:

• High security and reliability
• Insured by the bank
• Widely accepted worldwide
• Creates a detailed audit trail

Cons:

• Slow processing time (2–5 business days)
• High fees ($15–$50 or more)
• Requires the contractor to have an international bank account
• Unfavorable exchange rates
• Additional intermediary bank fees

Best for:
Large, infrequent payments to well-established contractors with bank access.

2. Checks and money orders for contractor payments

Overview:
Paper checks and money orders are now outdated for international transactions; however, some businesses still use them due to their familiarity.

Pros:

• No need for digital infrastructure
• Familiar to some recipients
• Physical documentation

Cons:

• Extremely slow (weeks for international delivery)
• Risk of mail loss or theft
• Limited acceptance internationally
• High administrative effort
• Poor currency conversion options

Best for:
Rare use cases when no digital options are available.

3. International bank (SWIFT) transfers

Overview:
The SWIFT network enables banks worldwide to send and receive international payments securely.

Pros:

• Standardized and secure
• Well-documented transaction history
• Global reach

Cons:

• High fees ($25–$75)
• Potential currency losses
• Fees from intermediary banks
• Slower delivery times (3–5 days)
• Unexpected deductions for contractors

Best for:
Large corporate payments where security and compliance are a priority.

4. Digital wallets and online payment platforms

Overview:
Fintech has revolutionized global payments. Platforms like PayPal, Wise (formerly TransferWise), Revolut, and Payoneer are widely used by freelancers and small businesses.

Popular options:

• PayPal:
  • Available in over 200 countries and 25 currencies
  • Fees: ~3.9% for international payments + exchange markup
  • Offers MassPay for bulk payments
• Wise:
  • Transparent fees and real exchange rates
  • Fast transfers (within hours)
  • Supports batch payments
  • Great for recurring payments
• Others:
  • Revolut: Offers competitive FX rates and global reach
  • Payoneer: Designed for freelancers and platforms like Upwork
  • Remitly: Focused on sending payments to emerging markets

Pros:

• Lower fees than banks
• Faster processing (minutes to hours)
• Transparent exchange rates
• Easy to use and mobile-friendly
• Batch payment capabilities

Cons:

• Some platforms charge high fees for certain regions
• Limited availability in certain countries
• May require contractors to set up accounts
• Platform dependency

Best for:
Small to mid-sized payments to tech-savvy contractors.

5. Cryptocurrency payments

Overview:
Crypto payments are an emerging method for paying international contractors, offering speed and decentralization.

Pros:

• Instant global transfers
• Low transaction fees
• No bank intermediaries
• 24/7 availability

Cons:

• Volatility in cryptocurrency value
• Legal uncertainty in many jurisdictions
• Limited contractor adoption
• Complex tax and reporting requirements

Best for:
Tech-savvy contractors in crypto-friendly countries.

Here’s a quick comparison table:

Have you checked out EOR solutions like Multiplier?

Overview:
An Employer of Record (EOR) like Multiplier manages payments, tax compliance, and legal documentation on your behalf, particularly useful when hiring across borders.

How Multiplier Helps:

• $40/month per contractor
• No need to set up local entities
• Handles onboarding, payments, and compliance
• Manages taxes and legal risks

Pros:

• Full compliance with local labor laws
• Reduces the risk of worker misclassification
• Handles contracts, payroll, and taxes
• Consolidated reporting
• Simplifies cross-border hiring

Cons:

• Higher costs than direct payments
• Requires use of a third-party platform
• Less control over exact payment timing

Best for:
Companies hiring multiple international contractors and seeking a low-risk, compliant solution.

Successfully paying international contractors requires balancing efficiency, cost, compliance, and contractor satisfaction. While traditional methods like wire transfers remain reliable for large payments, modern digital platforms offer better rates and faster processing for most situations.

Understanding how to pay an independent contractor internationally involves more than just choosing a payment method – it requires comprehensive knowledge of tax obligations, labor laws, and compliance requirements. The key is understanding your specific needs, contractor preferences, and regulatory requirements to choose the most appropriate payment method for your international workforce.

For businesses regularly working with international contractors, Employer of Record solutions provide the most comprehensive approach, handling payments, compliance, and tax obligations while you focus on your core business.

Always consult with a tax advisor or legal expert when dealing with international payments to ensure you’re aligned with local and global regulations.