How to pay independent contractors

The need for independent contractors and the popularity of remote work have increased recently. The ability to tap into the global labor pool has become a massive boon as companies broaden their worldwide reach.

That said, successfully utilizing this workforce requires understanding how to pay independent contractors. Errors in currency exchange rates, payment methods, or compliance might result in needless expenses and damaged relationships.

To help businesses navigate this process, we have created a practical, easy-to-follow guide that explains how to pay international contractors.

How to pay independent contractors: A simple guide

Here is a step-by-step guide on how to pay independent contractors. When hiring across borders, it’s critical to follow the right processes to stay compliant and efficient. 

Step 1: Make sure the role qualifies as an independent contractor

Before onboarding or paying a contractor, you need to ensure they’re legally classified as such and not employees. Misclassification can trigger penalties, tax issues, and regulatory consequences, especially when hiring across borders.

With Payoneer Workforce Management: Our trusted global partner network includes Agent of Record (AOR) services that make it easier to classify and hire international talent, all while staying compliant.

Step 2: Establish payment terms and budget

You need to be able to identify if you are paying hourly, per project, or by milestones. Defining how and when a contractor is paid ensures alignment from day one and prevents disputes. 

Be clear about your budget and how changes in scope will be handled. This will help avoid miscommunication later and give your contractor clear expectations. 

With Payoneer Workforce Management: You can pay contractors in 70 currencies worldwide. With flexible options, be they one-time, milestone-based, or recurring, our multi-currency wallet simplifies payouts across hundreds of markets.

Step 3: Collect legal and tax documentation

For compliance, you need to ensure that you collect key documents from your contractor, such as:

• W-8BEN or W-9 form (depending on their location)
• Valid government-issued ID or passport
• Business registration (if applicable)
• Any certifications or licensing required for the role

These documents help verify legitimacy and support tax reporting obligations.

With Payoneer Workforce Management: You gain access to onboarding tools that help collect contractor paperwork in one place–no spreadsheets.

Step 4: Draft and sign a contractor agreement

Contract agreements should clearly outline project terms, IP ownership, deliverables, payment schedule, and local labor and tax laws/codes compliance. A strong independent contractor agreement typically outlines:

• Project scope and deliverables
• Timeline and milestones
• Payment structure and currency
• Tax responsibility (clearly defined)
• Intellectual property ownership
• Confidentiality/NDA terms
• Dispute resolution and exit terms
• Any clauses required by local law

With Payoneer Workforce Management: Our global partner network offers legal expertise and an AOR service that helps you create localized contractor agreements.

Step 5: Set up payment infrastructure

You’ll need to establish how payments will be sent. 

• Bank wire transfers (reliable but expensive)
• Digital wallets like Payoneer (global support, currency flexibility, lower fees)
• Direct deposits (limited for international contractors)
• Mass payout systems for scale

Think about this: Do you send international wire transfers by hand? Be ready for hassles with foreign currencies, expensive fees, and delays. Independent contractors should typically be paid quickly, securely, and affordably.

With Payoneer Workforce Management: Pay talent in over 160 countries with transparent fees. Your contractors can easily withdraw from their local bank or a digital wallet—whichever they prefer.

Step 6: Navigate currency and compliance for international hires

When hiring globally, a few additional pieces come into play that you don’t need to worry about when hiring domestically.

Currency Conversion	Contractors overwhelmingly prefer to be paid in their local currency. Using a multi-currency platform helps reduce foreign exchange fees and ensures smoother transactions.
Local Entity Requirements	Depending on the country, you may need to register a local entity (i.e., a legal business presence) before legally hiring or paying international contractors there. This adds time, legal complexity, and further administrative burden.

Hiring overseas often means dealing with complex local labor laws, tax treaties, and compliance hurdles.

With Payoneer Workforce Management: Whether working with direct contractors or leveraging our AOR service, Payoneer Workforce Management can help you engage with talent compliantly.

Step 7: Use a contractor management platform

Managing this internally can be extremely time-consuming and error-prone, especially if you’re simultaneously hiring across multiple countries.

Contractor management platforms like Payoneer Workforce Management streamline the entire process, reducing the hassle and guesswork associated with paying independent contractors while staying compliant.

What you get when you pay independent contractors with Payoneer Workforce Management

Seamless contractor paperwork collection	Handle multi-currency payments globally
Mitigate misclassification risks	Payment tracking and reporting tools

Ready to simplify how you pay independent contractors?

You’re not alone if you’re still unsure how to pay independent contractors, especially across borders. The process can be complex, confusing, and time-consuming, often hindering your business’s global expansion.

That’s where a contractor management platform like Payoneer Workforce Management comes in. With flexible global payment options and support for engaging overseas contractors through AOR partners, Payoneer Workforce Management lowers the barriers to international contracting. You get peace of mind and streamlined operations, so you can focus on what matters: growing your business.

Start engaging and paying independent contractors with confidence.

FAQs

1. How are independent contractors typically paid?

Independent contractors are usually paid per project, hourly, or on a milestone basis. Payments are made after invoices are submitted and approved. Common payment methods include bank transfers, digital payment platforms, and contractor management platforms.

2. Do I need to issue a 1099 to an independent contractor?

Yes, if you pay a U.S.-based contractor $600 or more in a calendar year, you must issue them a Form 1099-NEC. This does not apply to most foreign contractors, but you should still collect appropriate documentation like Form W-8BEN.

3. How do I structure a contractor payment?

To structure a contractor payment, start with a clear agreement that outlines the payment terms. Decide whether you’ll pay hourly, per project, or by milestone. Include payment amounts, due dates, invoicing procedures, and accepted payment methods. Make sure both parties agree in writing before work begins.