How to pay international contractors in Nicaragua [2025]

If you operate a global company, you may consider tapping into Nicaragua’s workforce using Nicaraguan contractors. The capital of Managua is one of the largest cities in Central America and a major economic hub, offering many opportunities to find highly skilled contractors. Nevertheless, before hiring in the country, you must grasp Nicaraguan laws and tax regulations to ensure you can pay your contractors appropriately.

This guide will take you through the step-by-step process of correctly classifying, onboarding, and managing payroll for Nicaraguan contractors.

Step #1: Classify your workers in Nicaragua

Complying with Nicaragua's labor laws requires correct worker classification. Misclassifying employees as independent contractors could result in penalties such as fines, back pay, and, potentially, bans from operating in the country. To determine the appropriate classification, consider the following criteria:

Step #2: Determine the best way to pay your contractors in Nicaragua

As you put together your contract for professional services—an agreement for self-employed workers in Nicaragua—consider what the best payment method is for you and the freelancer. Thanks to an increase in global and remote work, there are more options than ever for paying Nicaraguan contractors: 

• Bank wires: You can open a Nicaraguan bank account and deposit funds into contractors' accounts or use your bank for global wire transfers.

• Digital wallets or payment platforms. Not all payment platforms are available in Nicaragua. For example, Venmo is not available outside of the US. Some options in Nicaragua include PayPal, SmartMoney (from Banco Lafise Bancentro in Nicaragua), and IPSIPay. Exchange rates may vary.

• International money orders. This method is longstanding but can be slow and inconvenient, often involving fees and unfavorable exchange rates. The employer must purchase the money order in person, and the contractor needs to deposit it physically. 

• Global payroll services. Usually, contractors aren't included in payroll because they aren't subject to withholdings. Instead, freelancers send invoices to be processed by accounts payable. However, with Rippling, you can easily pay Nicaraguan contractors—and any other global workers—in one system.

Step #3: Use global payroll software to process payments for Nicaraguan contractors 

If you want to simplify and expedite payments to Nicaraguan contractors, opt for global payroll software. Rippling facilitates seamless payroll for contractors worldwide. 

Learn more about how Rippling’s global payroll system works:

Step #4: Ensure your Nicaraguan contractors have the right tax information 

Nicaraguan contractors are responsible for their own taxes, and employers should not withhold taxes on their behalf. Residents pay a progressive income tax rate ranging from 0% to 30%, while non-residents pay a flat 20% withholding tax.

Compliance with the Internal Revenue Service (IRS) is crucial for US-based employers. Gather essential information from contractors, including their legal name, date of birth, contact details, bank account information (or other payment information), and tax identification number (or TIN). The IRS requires foreign independent contractors, including those in Nicaragua, to fill out a Form W-8BEN. Employers then complete a 1096 Form, providing details about their foreign contractors.

Effortlessly manage contractors around the world

Paying international contractors is a breeze with Rippling. You can pay contractors in Nicaragua or anywhere else in the world in just one system.

Frequently asked questions about running payroll for contractors in Nicaragua