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How To Pay International Contractors

The ins and outs of paying contractors across borders

Updated: August 1, 2023

If you’re looking to expand your workforce with top talent from around the world, hiring international contractors could be the way to go. They can be a quick and cost-effective solution, but paying them can be a bit tricky. You want to make sure you’re complying with all the rules and regulations, so you don’t run into any issues.

It’s important to know that every country has its own laws and requirements when it comes to paying contractors. This can get even more complicated if you have contractors in multiple countries. But don’t worry – there are experts out there who can help you navigate these complexities.

If you want to make sure you’re doing everything right, this comprehensive guide can be a lifesaver. It will give you all the information you need to stay on top of your obligations and avoid any risks. The best part is, with the help of the right service provider, you can make the whole process stress-free and affordable.

What are international independent contractors?

When you work with an independent contractor, you’re hiring someone who works for you but is not officially part of your company. That means they’re responsible for handling their own taxes and benefits, and they don’t have the same protections as regular employees.

It’s worth keeping in mind that the rules around independent contractors can vary from country to country. In Canada, for example, they’re often considered self-employed and may have access to different protections than contractors in other places. And in the UK, they’re called “freelancers” and have specific rights related to things like minimum wage.

If you’re thinking about hiring contractors from other countries, it’s really important to make sure you’re following all the rules and regulations in their area. That might mean getting advice from legal experts who know the local laws, creating a contract that covers all the bases, and being aware of any cultural differences that could affect your working relationship. You’ll also want to factor in things like taxes and fees that may be associated with working with people in other countries.

If you want to learn more about how to hire international workers and do it right, check out our expert guide for some helpful tips and advice.

Ways to send money internationally

As companies expand globally, paying employees and vendors in different countries is becoming more and more common. However, making international payments is a more complicated process than paying domestic workers, and there are several differences to consider.

One big difference to consider is currency conversion. When making payments to international employees or contractors, the currency must be converted into the right currency. It’s important to keep an eye on exchange rates and choose a reliable currency exchange provider, like Wise, because rates can vary and impact the final amount you pay.

Another factor to consider is banking protections. Different countries have varying levels of banking protections, so it’s important to ensure that the recipient’s bank account is secure, and the company’s bank account is protected when making international payments. Some countries may even require a local bank account to make payments to the worker. Before making international payments, it’s important to research the specific country’s regulations and requirements.

International payments may also involve additional fees, such as wire transfer fees and international transaction fees. It’s essential to factor these fees into your budget when making international payments, as they can add up and impact the final amount paid.

To make international payments more manageable, companies may choose to work with a third-party payment processor or a global payroll provider like Rippling, Deel, or Papaya Global. These companies have experience navigating the complexities of international payments and can help ensure payments are made efficiently and securely.

businessman paying with credit card online

International Bank Transfer

This involves sending money directly from your U.S. bank account to the contractor’s foreign bank account. The cost of these transfers can vary depending on the banks involved and the currencies used. There may be fees for wire transfers, exchange rates, and intermediary banks, which can add up to anywhere from $20 to $100 per transaction.

Exchange rates can fluctuate, and some banks may use less favorable rates, which can impact the cost of your transfer. Additionally, international bank transfers can take several business days to complete, which may not be the best option if you need the payment to be processed quickly. By doing your research and choosing a bank that offers competitive exchange rates and speedy processing times, you can save time and money when paying your international contractors.

Payroll Software

Payroll software is a great option that’s reliable and convenient. Some popular international payroll providers include Deel, Papaya Global, Remote, and Gusto. They offer different features, but they all help employers with payroll processing and tax filing. These services usually charge a monthly fee, which depends on how many contractors you’re paying. For example, Deel charges $10/month for service and $8/month per contractor.

Get Started Visit Deel’s website.

With this service, contractors are able to access their pay stubs and financial info online. This software can also help employers stay compliant with tax filing and regulations, which can be tricky when working internationally. Plus, customer support is usually available from payroll experts, so you can get help when you need it. Overall, using payroll software is a great way to make your payment process more efficient and ensure compliance with international rules.

Schedule Demo Visit Papaya Global’s website.

Digital Wallets

Using a digital wallet like PayPal could also be a good option to consider. Digital wallets provide a secure and straightforward way to send and hold money outside of traditional banks, which can be convenient for both businesses and contractors. However, it’s essential to keep in mind that using a digital wallet comes with fees, usually ranging from 1%-4% of the amount you’re sending, as well as exchange rate fees.

One of the most significant downsides is that there can be delays in the transfer process because of additional verification steps. Moreover, some digital wallets might not be available in countries under international sanctions, which can limit their usefulness in certain situations. Despite these downsides, many people still choose to use digital wallets for paying international contractors due to their convenience and ease of use.


Cryptocurrency is a newer way to pay international contractors that is growing in popularity. One great thing about using cryptocurrency is that it eliminates the need for exchange rates since the currency is the same no matter where the person is located. With platforms like Coinbase, it’s easy to send payments to international contractors and the recipient can receive it instantly.

Using cryptocurrency for international payments does not come without risk. One of the main risks is that the value of cryptocurrencies can change a lot, which means the payment’s value could be different from when it was first sent to when it was received. Also, not everyone will have a cryptocurrency account or use the same kind of cryptocurrency, which could make it harder for US businesses to find contractors who accept payment in this way.

How much to pay an international contractor

Paying an international contractor outside of the U.S. makes it difficult to know how much to pay for their services without overpaying and hurting your bottom line. Factors to consider include local pay expectations, currency exchange rates, U.S. and foreign taxes, and whether the foreign contractor will ever physically work in the U.S. at any point. Read more by clicking each item below.

If you’re trying to figure out how much to pay your international contractor, the first thing to think about is what people in their area typically get paid. You want to make sure you’re offering a fair rate, so it’s a good idea to check out the local wage rates in the country where your contractor lives. Luckily, there are lots of online resources you can use to find this information, like government websites and industry associations. By doing a bit of research, you’ll be able to make sure you’re paying your contractor what they’re worth.

Another factor to consider when paying an international contractor is currency exchange rates. The value of foreign money changes all the time, so the amount you pay your contractor could vary depending on when you make the payment. You’ll want to factor in possible currency fluctuations when you’re deciding how much to pay them. This way, you can make sure you’re both on the same page and avoid any surprises.

Paying taxes can be tricky business, especially when it comes to hiring international contractors. While in the U.S. employers are obligated to withhold federal and state taxes from their employee’s paychecks, this may not apply to contractors living overseas. Different countries have their own unique tax laws, so it’s crucial to seek guidance from a tax professional to ensure you’re following all the rules and regulations that apply to your situation. With the right help, you can navigate this process with ease and confidence while ensuring that you remain in compliance with all necessary tax laws.

Finally, if your international contractor will be physically working in the U.S. at any point, you will need to consider the additional costs associated with this. This may include obtaining a work visa, paying for travel expenses, and ensuring that the contractor complies with all U.S. employment laws and regulations.

Choosing payment terms for international contractors

Paying international contractors means having a clear payment agreement. Without one, things can get messy and lead to legal and financial problems for everyone involved.

Having a clear payment agreement in place before starting work is essential to avoid any misunderstandings down the road. This agreement should include details like payment schedule, payment method, and currency to be used. It’s crucial that both parties agree to these terms beforehand to ensure that work is completed within budget and on time. With a clear payment agreement in place, everyone involved is protected and can move forward confidently.

Local laws may impact your payment terms when working with international contractors. For example, some countries require payment at least twice a month, even for independent contractors. Others might have specific regulations around how you can pay or what currency to use. That’s why it’s essential to do your research on the laws of the country where the contractor is based and make sure you include the right payment terms in your agreement. By doing so, you can avoid any legal or financial headaches down the road and ensure a smooth and fair working relationship with your international contractors.

Here are some examples of payment terms to include in an international independent contractor agreement:

  • Payment schedule: The payment schedule should include the frequency of payment, such as weekly, bi-weekly, or monthly. This should also include the due date of the invoice and the expected date of payment.
  • Payment currency: The payment currency should be agreed upon by both parties. It is recommended to use the local currency of the contractor, as this will save on currency conversion fees and potential fluctuations in exchange rates.
  • Payment method: The payment method should be agreed upon by both parties. This can include wire transfers, PayPal, or other electronic payment methods.
  • Late payment fees: Late payment fees should be included in the agreement to discourage late payments. The amount and frequency of the late payment fee should also be clearly stated.
  • Dispute resolution: The agreement should include a dispute resolution process in case of any payment disputes. This can include mediation or arbitration.

Complying with international tax regulations

No one likes taxes, and understanding tax regulations for cross-border payments to your contractor can be painful. The tax rules for international business can be complex and vary widely by country, making it essential to seek the advice of a knowledgeable tax professional.

In the U.S., businesses are required to withhold taxes on payments made to international independent contractors if certain conditions are met. For example, if the contractor is performing services in the U.S. and the payment is over a certain threshold, the business must withhold federal income tax and pay Social Security and Medicare taxes on behalf of the contractor.

businesswoman on laptop computer in the office

In addition to federal taxes, you must also comply with state and local tax regulations, as well as the tax laws of the country where the contractor is located. This includes understanding Value-added tax (VAT) or goods and services tax (GST) requirements, which may be applicable to cross-border transactions.

VAT is a tax that is applied to the sale of goods and services in many countries outside of the U.S. If a business sells goods or services to customers in these countries, they may need to register for and pay VAT. Failure to comply with VAT requirements can result in significant penalties and fines.

To stay compliant with international tax regulations, businesses should take the following steps:

  • Research and understand the tax laws in the countries where they operate or engage in cross-border transactions.
  • Seek the advice of a knowledgeable tax professional.
  • Maintain accurate and up-to-date records of all cross-border transactions.
  • Stay up-to-date with changes in tax laws and regulations.
  • Train employees on the importance of complying with international tax regulations.

By understanding and complying with international tax regulations, businesses can avoid penalties and fines, protect their reputation, and ensure a smooth and successful operation across borders.

Paying foreign independent contractors FAQs

Yes, if you paid $600 or more to the international contractor during the calendar year for services rendered, you must send a Form 1099-MISC to the contractor and the IRS by January 31 of the following year. This is required even if the contractor is not a US citizen or resident.

Foreign contractors who perform services in the US and earn income from US sources are generally subject to US tax laws. The amount of tax owed will depend on various factors such as the contractor’s residency status, the type of income earned, and any applicable tax treaty between the US and the contractor’s home country.

Foreign contractors who perform services in the US and earn income from US sources are generally subject to US tax laws. The amount of tax owed will depend on various factors such as the contractor’s residency status, the type of income earned, and any applicable tax treaty between the US and the contractor’s home country.

A W-8BEN form should be completed by a foreign individual or entity that receives income from a US source. This form is used to establish that the recipient is a foreign person and to claim any applicable tax treaty benefits. A completed W-8BEN form will also provide you with the information you need to properly report the income on Form 1042-S.

The Bottom Line

Paying international contractors can be a complex process, but it doesn’t have to be. By understanding available payment options, having a clear payment process, keeping track of exchange rates and fees, and building a strong relationship, you can make the process more manageable. I encourage you to implement these strategies to ensure a smooth payment process for your international contractors.