Guide on What to Know When Working with International Contractors

Hiring international contractors is a great way to tap into a global talent pool. Remote work is more popular than ever, and looking outside your country's borders can give you access to many talented individuals. But there's no denying hiring foreign contractors with unique hurdles to overcome.

Employment Classification

One of the most important things to consider is the contractor's employment classification. There's a big difference between hiring a foreign employee and hiring a foreign contractor. By definition, a contractor is not an employee. The IRS defines independent contractors as individuals who control what they work on and how they do it. In this professional relationship, you would be a client. You'd hold the final result but not how they get there.

Independent contractors pay self-employment taxes. That means you, as a company, don't have to withhold anything.

Steep penalties exist for incorrectly classifying a worker as an independent contractor when they're doing an employee's work. As a result, you must be vigilant about the working relationship.

Tax and Reporting Obligations

It doesn't matter where your international contractors live. You must learn how to pay foreign employees (independent contractors) and what you need to do to remain compliant. That means understanding your reporting obligations.

Research the local tax laws of your contractors. Tax laws are heavily nuanced, and you may inadvertently cause issues for you and your contractor. Many companies will work with agencies to avoid trouble and stay above board.

But that doesn't mean you'll avoid reporting. Companies must report payments made to non-US residents through IRS Form 1099-MISC. Depending on the situation, you may also have to complete IRS Form 1042 or 1042-S.

How to Pay Foreign Employees

You also have to consider how you'll pay contractors for their work. You have many options here. Some companies do simple global wire transfers. But it all depends on the contractor's needs and preferences. Using something like a payouts API platform can give your contractor ample flexibility while streamlining your processes and ensuring compliance across the board.

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