4 Ways to Pay International Contractors: Pros and Cons

Hiring international contractors is a great way for your business to discover the best talents globally. But how do you pay them while adhering to tax regulations? 

Today you’ll learn everything you need to know about paying independent contractors worldwide as a US-based company. Explore the most common pay methods — from bank transfers to payroll services. 

Legal considerations

First, when hiring an independent contractor, you need to make sure they actually are contractors and not employees. That’s because they fall under different tax brackets, and misclassification can lead to penalties. An independent contractor is someone whose work is project-based. This person can either work part-time or act as a full-time employee for a short period. 

When you hire an employee, you need to withhold payroll taxes, do tax reporting, and provide benefits such as health insurance, paid vacation, or retirement matching. This is not the case with local and international contractors. 

US companies are normally not obliged to report tax information to the Internal Revenue Service when paying international contractors. The latter are typically the ones responsible for sorting out their taxes locally. That being said, there is still some paperwork to do: 

• Your international contractors need to fill out Form W-8BEN (for individuals)/W-8BEN-E (for entities) before receiving the payment. This form acts as a confirmation that the international contractor you’re hiring is not a US citizen and is based in another country. 

If an independent contractor comes from a country that has a tax treaty with the U.S., they may use this form to gain treaty benefits. 

You don’t need to submit these forms to the IRS, but make sure you keep them and create one for each contractor you work with. These forms must be renewed every three years or when information like tax residency or address changes. 

• Form 1099-NEC. You should file this form to the IRS if you hire an American citizen residing abroad or an independent contractor if they stayed in the US for at least 90 days of the period you worked together and were paid more than $3000. 

Before we move on, I should state that this is an informational article. If you have any questions about your case, please, consult an advisor or attorney to make an informed decision.  

Common issues when hiring an international contractor

As a business hiring independent contractors globally, you need to constantly monitor the legal side of things. Joosep Seitam, the co-founder of IceATL, a leading e-commerce platform in the jewelry industry, has worked with many foreign contractors and experienced this firsthand. He shared the different country-specific nuances he and his team had to face and adjust to when paying international contractors. 

Joosep pointed out that navigating international contractor payments taught them that infrastructure choices directly impact trust and efficiency. For example, familiar platforms didn’t work for Southeast Asian artisans who faced significant currency conversion fees, eroding margins on smaller orders. That’s why they switched to a more cost-effective solution to cut fees substantially. However, it required educating contractors to accept USD transfers, which many Latin American suppliers initially resisted due to local banking norms.

In Joosep’s experience, legal frameworks demand hyper-localized compliance. In the EU, VAT registration thresholds vary by country: one contractor triggered mandatory invoicing at a higher annual threshold, while another country’s limit was notably lower. For U.S.-based freelancers, issuing tax forms became mandatory. At the same time, Canadian contractors required unique provincial tax codes for accurate reporting.

Another lesson Joosep and his team learned was when a Vietnamese designer disputed a payment, citing unclear IP ownership terms in their local language. As a result, they now embed contracts with multilingual clauses, specifying design rights transfer upon payment confirmation. He shared this reduced disputes significantly while creating audit trails for customs documentation.

Country-specific regulations often surprise even seasoned teams. Brazilian contractors faced withholding taxes on cross-border payments, forcing us to adjust pricing structures to maintain competitiveness. In India, GST invoices required specific codes for jewelry components—a detail that delayed payments for months until our system adapted.
Global payments aren’t transactional—they’re relational. We built a dynamic dashboard tracking dozens of variables, from religious holiday payment delays to anti-money laundering documentation rules. Flexibility beats automation when human nuance drives compliance.

{{Joosep Seitam}}

Having a dynamic dashboard can definitely be the answer when you work with dozens of foreign contractors located across continents. A minor detail can lead to payment delays going on for months — no one would be happy with that. It can be a good idea to clarify all the country-specific details before you sign a contract. 

The best ways to pay international contractors 

In this chapter I’ll be covering common ways you can pay independent contractors living abroad: wire transfers, money transfer apps, and payroll platforms. Find out which one works best for you. 

International wire transfers  

It’s important to note that wire and bank transfers are two different things. While you can make international bank transfers, they’re normally used for domestic payments. 

International wire transfers can be a convenient way to send money overseas since all you need to do is open your banking app — the money goes directly to your contractor. Banks use SWIFT or Western Union networks to send wire transfers. One of the major pros of this method is security — hence many use it for transferring large amounts of money. 

Safety aside, there are many downsides to wire transfers you should keep in mind. First, high and often hidden fees and unfavorable exchange rates. Your recipient may also get charged, receiving less than what they were promised. On top of that, the wait time can be pretty frustrating, with your funds taking several days to get delivered. 

Money transfer services

Big players like WorldRemit, Wise, Remitly, or Xoom are popular options for personal transactions but can also be used for paying international contractors. Recipients typically don’t have to be clients of these services to receive the funds.

When it comes to money transfer services, the wait time is usually one of the shortest out there. Some transfers take only a few minutes to be delivered. However, it all depends on the recipient’s location. Certain countries, such as India, have complicated regulatory processes causing delays.

It doesn’t make much sense to cover exchange rates in the article because these are subject to constant fluctuations. I’d recommend using services like Monito before you make a decision — there, you can compare your options in real time. 

Pay attention to both fees and exchange rates and don’t forget about hidden costs. Unfortunately, many money transfer services don’t offer transparent fee information upfront unless you sign in — that’s just how the industry operates. It is best to contact the company you choose directly for more detailed information. 

Digital wallets: Paypal vs Payoneer

Paypal is one of the most common methods for paying contractors both domestically and globally. It is supported in around 200 countries and allows sending and receiving money in local currency. Setting up an account is free. 

A big downside to PayPal is the high fees. They charge around 5% for international transactions plus extra commissions depending on the currency — this is where it can get tricky. Withdrawing in a different currency via PayPal can cause significant financial losses if you remit regularly. 

To send money, you’ll need to top your PayPal balance. Both the contractor you work with and you need to have Paypal accounts. One of the pros is that a freelancer can send you an invoice directly via the platform and that it supports various payment methods. 

When it comes to high-trust transactions, PayPal is still essential to use regardless of the high costs. In this case, we restrict access to verified contractors based in Eastern Europe where instant dispute resolution is non-negotiable due to the expensive fees that come with PayPal.

{{Joosep Seitam}}

Payoneer is very similar to PayPal. To compare the two, let’s take a look at the table:

Since PayPal and Payoneer are so common, it is often the simplest way to send and receive payments. They’re also freelancer-friendly. Both options are reliable and safe but can come at a high cost.

Payroll services 

Last but not least, let’s talk about payroll services. These are third-party services specifically tailored for managing employee and contractor payments without starting an entity. 

They typically provide HR and tax services and even local labor law compliance support. Plus, some offer integration with accounting software like Xero. As the world grows more automated and the demand for contractors increases, payroll services are becoming more popular every year.  

While such systems are not free, they’re worth investing in if your business hires local and foreign contractors often and needs help organizing the processes. 

Just like with all the services we explored today, there are many alternatives on the market. Let’s see what some of the biggest payroll service companies have to offer: 

While such services are automated, setting them up and learning how they operate takes time. It also gets pretty expensive if you have too many contractors and employees on board.

Overall, each method has its advantages and disadvantages. Choosing the right option for you also depends on your needs — whether you want financial or legal assistance with payroll or sending money as fast as possible. When creating a contract with an international freelancer, make sure you check local tax and labor laws to avoid penalties. 

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