Key takeaways

  • Hiring international contractors is a great way to fill gaps in your workforce and get expert help on key projects. 
  • There are several different compensation structures for international contractors, from down payments to retainers. 
  • It’s important to make sure you’re compliant with employee classification rules and tax form collection when hiring international contractors. 

In today’s business landscape, it’s easier than ever to tap into global talent on a contract basis. In fact, the share of online global gig workers makes up between 4.4-12.5% of the total global workforce—that’s between 154 and 437 million workers. 

If you hire international contractors to perform work for your business, it’s crucial to understand how to structure your business relationship. Not only do you have to find a payment structure that works for you and your contractor—you also have to pay attention to hiring laws, local labor laws, and tax requirements. 

Below, we’ve compiled a guide to working with international contractors.  

The business case for international contractors

Hiring international contractors can be a great way to supplement your workforce on a budget. You can get expertise with an important business project or goal, or offload tedious daily tasks to save time and brainpower—all at a lower cost than U.S. contractors and employees

Here are some important benefits of working with international contractors: 

  • You have access to high-skilled, often lower cost talent from around the world.
  • You have a lot of flexibility over how and when you hire contractors, as well as when you stop working with them. 
  • You can save money on costs like benefits and bonuses. 
  • You don’t have to train contractors who are already experts in their area, or conduct performance reviews.
  • You don’t have to pay for their tools and materials.

Payment structures for paying international contractors

There are a variety of different ways to structure how you work with and compensate an international contractor. What you choose depends on the nature of the work, your contractor’s preferences, and your business’s typical accounts payable process. 

Start by considering your business goals for the project; from there, you can ask your contractor their preferences and find a setup that works for both of you. Common payment structures for contractors include: 

  • Hourly payments: This is when you pay a contractor a set fee per hour. This arrangement works well when you need your contractor on a flexible, fluctuating basis. 
  • Milestone payments: This is when you pay a contractor in installments based on specific project milestones they’ve hit (agreed upon in advance). This can be as simple as paying a contractor once they finish the project—or choosing milestones along the way. For example, if you hire a marketing specialist to help launch a holiday campaign, you might pay them a portion of their fee after they share their campaign strategy and another portion after they publish their ad set. Milestone payments can either be evenly split installments of a flat total agreed upon in advance, or varying fees that depend on the contractor’s performance in helping you reach certain quantitative goals (like a set number of unique monthly visitors to your business’s website).  
  • Upfront payments: This is when you pay a contractor their full fee when you hire them for the job. This usually works best for trusted contractors you’ve worked with before, or for low-cost one-time projects. 
  • Down payments: This is when you pay a contractor a certain percentage of the project total upfront, then the rest upon project completion. 
  • Retainer: Putting a contractor on retainer is when you pay them a set fee per pay period for their services (usually a number of hours or projects over a month or quarter). This is a good option if you work with a trusted contractor on an ongoing basis and if you want to guarantee their availability. 

Whatever payment structure you choose, make sure you and your contractor create, review, and sign a written contractor agreement or statement of work (SOW) so you’re both on the same page. 

Classification and compliance with international contractors

Many countries, including the U.S., have more stringent rules for hiring and managing employees, and less stringent rules for working with contractors. 

As a reminder, an independent contractor is a self-employed person who enters into contracts with employers to perform specific work or projects. Independent contractors often work on a short-term basis, though some can perform ongoing work for employers. 

An employee, on the other hand, is a person who works for a single employer on a regular basis, whether part-time or full-time. 

Treating someone as a contractor, when the law views them as an employee, can trigger legal risks and fines, so it’s important to consider how to correctly classify the international contractors you work with.

The person you hire is more likely to be contractor if:  

  • They’re in charge of how (and when) they perform the work.
  • They use their own tools and materials to perform the work.
  • They might be performing similar work for other employers or companies at the same time.
  • They set or negotiate their own rates and compensation.
  • They’re working on a short-term basis for you or working on an as-needed basis. 
  • They do not receive any benefits from you. 

Taxes and international contractors

In general, if you operate your business from the U.S. and hire an international contractor who lives and performs their work outside the U.S., here’s what you need to know:

  • International contractors, not you, are responsible for meeting their country’s tax obligations and reporting requirements. 
  • You don’t need to report payments made to international contractors to the IRS. 
  • You don’t need to withhold US tax from payments to international contractors, as long as your contractor fills out the IRS form mentioned below. 
  • Your international contractors must complete Form W-8 BEN to show they’re what the IRS calls a “non-resident alien”. If they operate as an individual, they need to use Form W-8 BEN. If they’re an international company or a self-employed worker operating under a business entity, they need to fill out Form W-8 BEN-E
  • You don’t need to file these forms with the IRS; you just need to have them on record. If you use Gusto, we help you and your contractor sign and store these forms. 

Payment methods for international contractors

There are different ways you can send money to your contractor, including wire transfers, digital wallets like PayPal, and payroll software like Gusto. 

With Gusto’s built-in global contractor payments solution, you can manage and pay international contractors from over 120 countries—in the same place you run payroll for the rest of your workforce. Plus, you don’t have to pay additional monthly fees to add contractors to your payroll; there’s just a small transfer fee when your contractors get paid. 

Gusto also streamlines the onboarding process for new contractors, and we’ll help you sign and store the W-8 BEN tax form. 

Paige Smith Paige is a content marketing writer specializing in business, finance, and tech. She regularly writes for a number of B2B industry leaders, including fintech companies and small business lenders. See more of her work here:
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