How to pay international contractors: the paperwork, the payment options and the fees

Hiring a contractor abroad is often a US company's first international hire. It's fast, it's flexible, and it doesn't need a local company. But it raises three practical questions almost immediately: what paperwork do you need, how do you pay them without losing money to fees, and how do you make sure the arrangement is really a contractor relationship?

This guide answers all three, in the order you'll need them.

Sign a contract first

Put the arrangement in writing before work starts. A good international contractor agreement covers:

• Scope and deliverables, described as results, not hours under your direction.
• Fees and payment terms, including the currency, when invoices are due and who pays transfer fees.
• Intellectual property, assigning to your company everything the contractor creates for you, including code, designs and documents. Without an explicit assignment, a contractor may own their work.
• Confidentiality, covering your business information and your clients'.
• Independence, confirming the contractor controls how and when they work, uses their own equipment and can work for others.
• Termination, how either side can end the arrangement and with what notice.
• Governing law, which country's or state's law applies to disputes.

Contractor platforms provide localized templates for many countries, which is one of the reasons to use one.

Collect the tax form

Before the first payment, ask each contractor for:

• Form W-8BEN if they're an individual, or
• Form W-8BEN-E if they invoice through their own company.

The form certifies that the contractor is not a US person. When the work is performed entirely outside the United States, the payment is foreign-source income for US tax purposes, so you don't withhold US tax and you don't file a Form 1099-NEC for it. Keep the form on file in case the IRS ever asks.

Two cautions. If the contractor does any of the work while physically in the US, that portion can become US-source income with different rules, so ask your CPA before they visit for work. And the contractor's own country may tax the income and require paperwork on their side, which is theirs to handle but worth being aware of.

Choose how to pay

You have four broad options, and the right one depends on how many contractors you pay and how often.

A bank wire from your US bank

The default, and often the most expensive. You pay the bank's international wire or conversion fee, intermediary banks may take a cut along the way, and the exchange rate may include a margin. Mercury, for example, charges a 1% conversion fee on international wires in other currencies. Fine for an occasional large payment. Costly for regular ones.

A multi-currency payment service

Wise Business and Airwallex send money as a local transfer in the contractor's currency, so the contractor receives a domestic payment and there are no intermediary fees. The main cost is the conversion: from 0.23% at Wise depending on the currency, and 0.5% above interbank for major currencies or 1% for others at Airwallex, which also offers free batch local transfers to more than 120 countries. Wise costs a one-time $31 to open for a US business, and Airwallex has a free plan.

Payoneer

Payoneer is common when contractors already use it, for example because a marketplace pays them through it. Sending from a Payoneer balance internationally costs up to 1% plus $4, and the contractor may pay fees to withdraw to their bank. It's convenient when both sides already have it, less so as a first choice.

A contractor management platform

Deel and Remote handle the contract, the tax forms, invoice approval and payment in the contractor's currency, all in one place. Contractor management costs $49 a month per contractor on Deel and $29 on Remote. Remote's Contractor Management Plus, at $99, adds up to $100,000 of cover per contractor for misclassification penalties, and both offer a contractor of record service from $325 a month that takes on more of the risk.

Platforms make most sense once you have several contractors, or one whose arrangement carries some classification risk. For a single contractor on a defined project, a contract plus Wise or Airwallex is usually enough.

Dollars or local currency?

Decide early whether you'll pay each contractor in US dollars or in their own currency, and write it into the contract.

• Paying in dollars puts the exchange risk on the contractor. Their income in local terms rises and falls with the exchange rate, and they pay to convert it. Some contractors prefer it, especially if they spend in dollars.
• Paying in local currency puts the exchange risk on you. Your cost in dollars moves with the rate, but the contractor gets a predictable income, which many prefer and which can help you keep good people.

Either is reasonable. What causes friction is leaving it unclear, so that each invoice becomes a negotiation over which rate to use.

Paying on time, every time

Late payments are the fastest way to lose a good contractor abroad, especially when international transfers can take a day or more to arrive. Agree a payment date, such as within a week of receiving the invoice, and stick to it. Batch payments on one day each month if you pay several people. Make a small test payment to each new contractor first, to confirm their details and how long the transfer takes. And if a bank or payment service holds a payment for review, tell the contractor straight away.

Comparing the cost on a real payment

Take a $3,000 monthly payment to a developer abroad, $36,000 a year.

• Through a contractor platform, add $29 to $49 a month in platform fees, $348 to $588 a year, plus whatever conversion the platform applies.
• Through Wise or Airwallex, the cost is the conversion, typically from well under 1% to about 1% depending on the currency, so roughly $70 to $360 a year on $36,000.
• Through bank wires, the conversion margin and fees on twelve wires can exceed any of these.

The cheapest route isn't always the best. A platform's fee buys contracts, compliance and, at higher tiers, protection. Pay for it when you need those.

Keep invoices and records

Ask each contractor to send an invoice for every payment, showing their name, address, the period, the work and the amount. Keep invoices, the contract, the W-8BEN and proof of each payment together. In your books, record the payment in dollars at the rate on the day, and the actual amount sent, so fees and exchange differences are visible. Our guide to small business bookkeeping covers the monthly routine.

Keep it a contractor relationship

The biggest risk with international contractors isn't the payment. It's the relationship drifting into employment. Under most countries' laws, the signs are similar to the US tests:

• they work full time, only for you, on an open-ended basis,
• you set their hours and tell them how to do the work,
• they use your equipment and systems, and appear in your org chart, and
• they're paid a fixed monthly amount regardless of output.

If that describes the person, local authorities can reclassify the arrangement as employment, with back taxes, social contributions and penalties. The safer move is an employer of record. Our guide to employer of record or contractor covers when to switch, and our comparison of the best employers of record covers the providers.

Country-specific points to check

Rules differ by country, so check a few things for each contractor's location:

• whether they need to be registered as self-employed or for local tax,
• whether they must charge local sales tax or VAT on their invoices,
• any local rules on receiving foreign payments, such as documentation from their bank, and
• how local law treats long-running contractor arrangements.

Contractors usually know their own obligations. Ask them, and keep the answer.

When a contractor leaves

Ending a contractor arrangement well protects your work and your reputation. Give the notice the contract requires, and pay the final invoice on time. Make sure all code, designs and documents are handed over and sit in your company's accounts, not the contractor's. Remove their access to your systems on the last day. And keep the contract, the tax form and the payment records for at least as long as you keep the rest of your tax records.

The checklist

• Sign a contract that covers scope, fees, IP, independence and termination.
• Collect a Form W-8BEN or W-8BEN-E before the first payment.
• Choose a payment route, such as Wise or Airwallex for a few contractors or a platform for several.
• Get an invoice for every payment, and keep records together.
• Review each relationship every few months for signs of employment.

If you're paying a growing team in one country, such as engineers in India, our guide to hiring developers in India from a US company compares contractors, an EOR and your own entity at different team sizes.