How to compliantly pay contractors around the world
In this article
Since the pandemic, millions of workers worldwide left the supervision of a single employer to become their own bosses. Now, the global gig economy is surging, valued at more than $674 billion in 2026 and projected to surpass $2.5 trillion by 2035.
The rise of the freelancer offers new opportunities. Contractors set their own schedules, work from wherever, and take on trial projects with multiple clients in search of their best fit. Companies save on equipment, training, and benefits costs, all while having more staffing flexibility to account for the ebbs and flows of their business needs.
But companies can ruin this arrangement if they don't pay contractors their hard-earned income quickly, with minimal strings attached. What's the best way to do this if your workforce is spread across cities, countries, or continents, each with their own pay regulations?
This guide will walk you through paying international contractors quickly and compliantly. Learn how to onboard them, distinguish them from full-time employees, and all your options when it comes to running payroll.
For more information, watch our webinar on how to pay global contractors.
Preparing compliant contractor agreements
Unlike hiring employees, you don't need to enroll new independent contractors in benefits or deduct taxes on their behalf. But before they start any work, they need to sign a contractor agreement. These legally binding contracts establish the terms of the working relationship and should always include:
Job responsibilities
Timeline, with start date and deadline
Hourly expectations
Payment structure (whether per project, on retainer, or for time and materials)
Payment frequency
Payment currency for international contractors
Termination policy
Agreements should also outline what happens if a contractor doesn't fulfill their responsibilities, include non-disclosure agreements to safeguard proprietary information, and set IP protections to determine who owns rights to the produced work.
It's crucial for contractor agreements to comply with local labor laws in the self-employed worker's jurisdiction. Since employment laws vary between countries, you need to adjust agreements if you're hiring across multiple regions. Consider tapping local legal experts to tailor contracts to specific countries and avoid any compliance issues. You could also use a contractor management solution like Rippling, which provides pre-vetted contractor templates for more than 50 countries that are both compliant with local regulations and customizable. They're also safely stored within the Rippling platform and easily accessible for reference, so that companies and independent contractors always know expectations.
The risks of misclassification
While hiring independent contractors can be a boon for your company, it's vital to ensure they are, in fact, contractors and not employees in disguise. Misclassifying employees can result in steep fines and penalties, owing back pay and retroactive benefits, and civil lawsuits. In the US, for instance, the IRS charges $50 for each W-2 that isn't paid, as well as unpaid FICA taxes and other penalties, whether the misclassification was accidental or not.
Real-life examples of misclassification's severe consequences include:
The Netherlands case involving Uber drivers has evolved significantly. In 2021, an Amsterdam District Court ruled that Uber drivers were employees entitled to collective labor agreement protections. After multiple rounds of appeals, the Dutch Supreme Court ruled in February 2025 that no single factor dominates the classification analysis. A subsequent Amsterdam Court of Appeal ruling found those specific drivers to be self-employed based on their degree of entrepreneurship. Separately, Uber agreed in November 2023 to pay $290 million into a fund for New York drivers who were denied benefits due to misclassification, one of the largest US settlements of its kind.
In 2015, FedEx paid out $228 million after misclassifying drivers as independent contractors in California. The company was found to have violated state labor laws by not providing drivers with benefits like overtime pay and workers' compensation insurance.
In Canada, misclassification suits have been on the rise; damages claimed in recent lawsuits range from $30 million to $200 million.
So, how do you draw the distinction between contractor and employee?
Contractor: An individual or business that provides goods or services to another entity under terms specified in a contract.
Employee: An individual hired by an employer to work for a company on a regular basis who is entitled to certain benefits.
While no single factor is determinative, the main factors companies need to consider when delineating employees from contractors are as follows:
Contractor | Employee | |
|---|---|---|
Degree of control | The contractor controls key aspects of how they complete their work. | An employee’s day-to-day work is overseen by the company, which can dictate how the work is done. |
Permanency of the relationship | The agreement tends to have a defined end date. | The agreement doesn’t have a defined end date (though many countries permit fixed-term employment agreements). |
Degree of integration | Doesn’t participate in typical company processes; a true contractor’s work isn’t considered integral to the business. | Does participate in company processes; an employee’s work is considered integral to the business. |
Chance of profit and loss | A contractor can realize a profit or incur financial losses from their work. | An employee doesn’t bear an economic risk. |
Exclusivity of service | A contractor can freely provide services to multiple organizations. | An employee generally works for their employer exclusively. |
Common payment methods for international contractors
If you've hired (and correctly classified) a global contractor, you need to figure out how to pay them. Here are the standard payment methods, along with some of their upsides and limitations.
International wire transfer
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a financial messaging network used by more than 11,500 member institutions across 200+ countries and territories. A contractor provides their bank account number and bank's SWIFT code, then companies can send international payments.
While this method is secure and reliable (processing in one to four business days), it also comes with steep, often hidden banking fees, unfavorable exchange rates, and potential service charges for every transfer.
Say, for instance, you pay a contractor in the Philippines. The bank transfer may funnel through three or four intermediary banks, all of whom charge a processing fee. So by the time your contractor actually gets paid, they may find a smaller deposit than they expected.
What's more, SWIFT fees can be volatile; one transfer may incur several while the other has none. This can create frustrating uncertainty for international contractors trying to anticipate their income.
International money order
Similar to writing a paper check, this method involves sending a physical payment in the mail to a contractor living abroad. Companies usually have to go to a Western Union, bank, or post office to buy the money order, then contractors have to go to their bank for a deposit once it's received.
While this can be a useful option to reach global contractors who don't have any digital payment access, these payments take a while to process and require both payer and payee to commute to a physical location, with the contractor making a second trip to deposit the funds, which are held in escrow until the check clears.
Money orders also come with wire fees, unfavorable exchange rates, and may face weeks-long clearing periods that delay a contractor's access to the money they're owed.
Digital payments
Digital payments are money transfer services that allow funds to be sent and received online. Most allow money to transfer near-instantaneously. There won't be hidden fees, but there will be vendor fees (PayPal, for instance, charges about 4% of the total payment). Contractors also need accounts with the specific digital payment service to receive their funds, and some services don't operate in certain countries.
Of course, instead of implementing a separate method of paying international contractors, the easier option is to pay them alongside employees, all in a single pay run. Rippling allows you to do just that, all while managing localized tax forms, providing flexible currency options, and offering different withdrawal methods, ensuring your global team gets paid on time without error.
Platforms like Rippling can also help you address fluctuating currency conversion rates across countries where you hire contractors. Many countries require workers to be paid in their native currency, so you should never assume an international contractor will be paid in USD.
But foreign exchange rates are constantly changing, which means the currency in which you pay independent contractors in other countries can end up making a big difference to your cash flow and operating expenses. While it's difficult to take advantage of currency fluctuations manually, Rippling pays contractors in their local currency automatically. You'll be able to specify any number of different currencies and pay them all out in the same pay run, plus report on the local amounts or USD-converted amounts.
Watch our webinar for more information on determining which currency to use for paying international contractors.
Pay contractors around the globe in 90 seconds
Rippling is the best solution for quickly paying international contractors, all while managing your entire workforce at every stage of your company's growth.
Rippling simplifies paying international contractors by:
Providing country-specific consulting agreement templates and storing for e-signature
Sending payment in 50+ local currencies across 185+ countries
Paying all contractors in a single pay run, no matter their location
Consolidating contractor and employee data in the same global HRIS
Automatically collecting W-8BEN and W-8BEN-E forms from international contractors during onboarding
Automatically generating and managing contractor invoices, with custom approval flows and GL sync
All this while fully managing employees, administering benefits, monitoring compliance, and running payroll, within the same system. Request a demo today to see how Rippling makes paying international contractors quick and easy.
What is the difference between an independent contractor and an employee?
An independent contractor provides services under a contract without being subject to the same control as a full-time employee. Employees work regular hours under employer direction and receive benefits like health insurance, overtime pay, and workers' compensation. Contractors set their own schedules, often work for multiple clients simultaneously, and are responsible for their own taxes and benefits. Misclassifying an employee as a contractor can expose companies to back pay obligations, tax penalties, and civil lawsuits.
How do you pay international contractors compliantly?
To pay international contractors compliantly, start by creating a locally compliant contractor agreement that reflects labor laws in the contractor's jurisdiction. Determine the correct classification (contractor vs. employee) under local rules, choose a payment method (bank wire, digital transfer, or global payroll platform), confirm the payment currency required by local law, and collect the relevant tax forms such as W-8BEN for non-US contractors providing services to US companies. Using a global payroll or contractor management platform simplifies this process by handling local compliance, currency conversion, and tax documentation automatically.
What tax forms are required when paying international contractors?
For US companies paying foreign contractors, the key forms are the W-8BEN (for individual foreign contractors) and W-8BEN-E (for foreign contractor entities). These certify that the contractor is not a US person and is not subject to US federal income tax withholding. Unlike W-9s, which US-based contractors complete, W-8BEN forms must be renewed every three years. US companies generally do not issue 1099s to foreign contractors providing services outside the US.
What are the risks of misclassifying a contractor as an employee?
Misclassification can trigger severe financial and legal penalties. In the US, the IRS charges $50 for each unissued W-2 along with unpaid FICA taxes and additional penalties, regardless of whether the misclassification was intentional. Companies may also owe back wages, retroactive benefits, and face civil lawsuits. Internationally, penalties vary by jurisdiction but can be equally severe. FedEx paid $228 million in California for driver misclassification, and Uber agreed to a $290 million fund for New York drivers denied benefits, one of the largest US settlements of its kind.
What currency should you pay international contractors in?
Many countries require that workers be paid in their local currency, so never assume a contractor will accept USD. Foreign exchange rates fluctuate daily, which can materially affect your operating costs. Using a global payroll platform that supports multi-currency pay runs lets you pay each contractor in their local currency within a single payroll cycle, reducing manual conversion errors and ensuring compliance with local wage laws.
What should a contractor agreement include?
A compliant contractor agreement should include: the scope of work and job responsibilities; the timeline with start date and deliverable deadlines; payment structure (per project, retainer, or time and materials); payment frequency and currency; a termination clause; a non-disclosure agreement to protect proprietary information; and intellectual property provisions clarifying who owns the work produced. For international hires, the agreement must also comply with local labor laws in the contractor's jurisdiction, which vary significantly between countries.
How do you pay contractors internationally? What are the options?
The main options for paying international contractors are: (1) international bank wire transfers via SWIFT, which are secure and widely accepted but carry high fees and take one to four business days; (2) international money orders, suitable for contractors without digital access but slow and cumbersome; (3) digital payment services like PayPal or Wise, which are fast with transparent fees but require the contractor to have an account with the service, and some services don't operate in every country; and (4) a global payroll platform that consolidates contractor and employee payments in one system, handles local currencies, and manages compliance automatically.
Do you need to withhold taxes when paying independent contractors?
Unlike full-time employees, independent contractors are generally responsible for paying their own taxes. For domestic US contractors, companies must collect a W-9 and issue a 1099-NEC for payments of $600 or more per year. For foreign contractors providing services outside the US, no US withholding is typically required, though contractors must submit W-8BEN or W-8BEN-E forms to confirm their foreign status. Always consult local tax guidance for the contractor's jurisdiction, as withholding requirements vary internationally.
Disclaimer
Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.
Author
Vanessa Kahkesh
Content Marketing Manager, HR
Vanessa Kahkesh is a content marketer for HR passionate about shaping conversations at the intersection of people, strategy, and workplace culture. At Rippling, she leads the creation of HR focused content. Vanessa honed her marketing, storytelling, and growth skills through roles in product marketing, community building, and startup ventures. She worked on the product marketing team at Replit and was the founder of STUDENTpreneurs, a global community platform for student founders. Her multidisciplinary experience — combining narrative, brand, and operations — gives her a unique lens into HR content: she effectively bridges the technical side of HR with the human stories behind them.
See Rippling in action
Increase savings, automate busy work, and make better decisions by managing HR, IT, and Finance in one place.