What is an international contractor?

3 types of international contractors

International contractors come in various forms, each of which can fulfill different types of business needs.

1. Independent contractors

Independent contractors are self-employed professionals who offer their services to clients in different countries. They typically operate their own businesses, manage their schedules, and handle their own taxes and compliance with local laws. Examples of independent contractors include freelance writers, graphic designers, software developers, and consultants. They typically handle their own tax responsibilities and compliance with both local and international laws.

2. Subcontractors

Subcontractors are hired by a primary contractor to perform specific tasks or parts of a larger project. This arrangement allows the primary contractor to leverage specialized skills and expertise that are not available in-house. Subcontractors can be involved in various industries such as construction, IT, marketing, and engineering. They help ensure that complex projects are completed efficiently and to a high standard by focusing on their specific area of expertise.

3. Staffing agencies

Agencies are organizations that provide services through a team of professionals. They often work with multiple international clients, offering a range of services like marketing, design, IT support, and customer service. Agencies can scale their operations to meet the needs of different projects, making them a flexible option for businesses looking to outsource various tasks. Examples include digital marketing agencies, IT service providers, and creative design studios.

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What’s the difference between an international and local contractor?

The primary difference lies in their geographical location and the associated legal, logistical, and communication challenges. 

International contractors are based in a different country than their client, which can result in complexities such as time zone differences, language barriers, and varying labor laws. They’ve become more common as the rise in remote work around the world has enabled more and more businesses to expand their talent pool, finding top talent in all parts of the world thanks to global hiring.

Local contractors, on the other hand, operate within the same country as the client. This simplifies or even eliminates many of the legal and logistical challenges, but limits businesses to talent that’s available in their geographical location.

What’s the difference between an international contractor and an employee?

The main differences between international employees and freelancers are:

• Employment relationship: International contractors are not employees; they operate independently and are engaged for specific projects or tasks. Employees work under the direct supervision and control of the employer.
• Benefits and protections: Contractors don’t typically receive employee benefits such as health insurance, retirement plans, or paid leave. Employees, however, are entitled to these benefits and protections under many jurisdictions’ labor and employment laws.
• Tax obligations: Contractors are typically responsible for managing their own taxes, whereas employers generally withhold and pay taxes on behalf of their employees.

Risks of misclassifying international contractors

Misclassifying employees as contractors can lead to significant legal and financial penalties. Businesses may be required to pay back taxes or fines and provide benefits retroactively. Misclassification can also damage a company's reputation. It is crucial to accurately classify workers to avoid these risks.

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How to hire an international independent contractor

Follow these steps to make sure you’re hiring global contractors abroad correctly and compliantly.

Onboarding global contractors

1. Define the scope of work. Clearly outline the project details, including specific deliverables, timelines, and payment terms. This ensures both parties have a mutual understanding of the project requirements and expectations.
2. Verify the contractor’s credentials. Check the contractor’s references, portfolio, and professional background to make sure they have the necessary skills and experience you need.
3. Draft a contractor agreement. A written independent contractor agreement should clearly outline the terms of the engagement, including the scope of work, payment terms, and other relevant details.
4. Do the necessary paperwork. Onboarding paperwork like tax forms will vary depending on the contractor’s home country and where you’re based. 

Paying contractors in other countries

There are many options for paying foreign independent contractors, but some are more streamlined than others—plus, not all payment methods will be available depending on the contractor’s country of residence. Here are some of the most common options for global contractor payments:

1. International wire transfers

International wire transfers involve directly transferring funds from your bank to the contractor’s bank account. This method is secure and widely accepted, making it suitable for large payments. However, international bank transfers can be expensive due to fees and unfavorable exchange rates.

2. International money orders

International money orders are another option for paying contractors. You purchase a money order from a financial institution and mail it to the contractor. This international payment method is secure and traceable, but it is slower and less convenient than digital methods.

3. Digital payment platforms

Digital payment platforms like PayPal and Wise offer fast and convenient online money transfer options. They often come with lower fees compared to traditional banks. However, there may be limitations based on the contractor’s country or the amount you need to transfer.

4. Global contractor management platforms

One of the simplest ways to pay contractors around the world is with global payroll software. Rippling simplifies managing an international team, helping you onboard employees and contractors in 90 seconds and pay everyone in their local currency in minutes—without waiting on transfers or conversion.

Tax implications of hiring international contractors

Even though employers don’t typically have to remit payroll taxes for contractors like they do for employees, they still must understand and comply with tax laws in both their home country and the contractor’s country when working with international contractors. This may involve tax withholding, tax reporting to the correct authorities, and making sure contractors manage their own tax obligations, like paying income tax. 

US-based businesses should collect an IRS Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) from each international contractor they work with. This form helps businesses determine the contractor's status and claim any applicable tax treaty benefits.

Using an Employer of Record (EOR)

If you hire international employees rather than contractors, you can use an Employer of Record (EOR), a service that hires foreign workers on a company's behalf, and can help streamline and automate common HR processes like payroll, taxes, contracts, and benefits.

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