Hiring a foreign independent contractor

Advertised prices, verified

How hiring a foreign contractor works step by step

1. Test whether contractor status is defensible. Before any paperwork, check the facts against both the IRS common law control test and the labour law of the contractor's country. Independent means the person controls how the work is done, serves other clients, uses their own equipment and is paid for outcomes. If you plan to set their hours, manage them like staff and make them exclusive, hire them as an employee through an EOR instead.
2. Collect Form W-8BEN before the first payment. A foreign individual gives you Form W-8BEN certifying foreign status as the beneficial owner of the payment; a foreign company gives W-8BEN-E. Keep it on file. It is the document that supports not treating the payments like US contractor payments, and payers collect it whether or not any treaty claim is being made.
3. Sign a contract that matches the facts. The agreement should state the deliverables, the rate and invoicing terms, intellectual property assignment, confidentiality and which law governs. Write it to describe an independent business relationship, then make sure day-to-day practice actually matches it, because in a dispute the facts beat the document in most jurisdictions.
4. Pay against invoices in the agreed currency. Contractors invoice; you pay gross, with no US payroll withholding on foreign-source service income. Bank wires work at small scale but fees and exchange margins add up. Contractor-management platforms batch payments, handle currency conversion and keep the W-8 forms, invoices and contracts in one auditable place, for a fee per contractor per month that ranges from tens of dollars on basic tiers to a few hundred where the vendor takes on classification risk.
5. Re-test the relationship as it deepens. Long tenure, full-time hours, exclusivity and integration into your team all push toward employment over time. Review the arrangement periodically, and when the facts have drifted, convert the contractor to an employee through an employer of record in their country rather than waiting for a local authority to make the argument for you.

The US tax position, in plain terms

The IRS sources personal service income to the place where the services are performed, regardless of where the contract was made, where payment comes from or where the payer lives. A developer in Poland working from Poland for a US company is earning foreign-source income, which is why the familiar 1099 machinery for domestic contractors generally does not apply. The W-8BEN on file is what documents this position. If the same person spends part of the year working from inside the United States, the picture changes: pay attributable to US workdays becomes US-source, allocated on a time basis, and can trigger withholding and reporting.

Contrast this with a US contractor, where you collect Form W-9, report payments on Form 1099-NEC above the reporting threshold, and must apply backup withholding at 24% if a valid taxpayer identification number is missing. The foreign contractor path replaces that machinery with the W-8 form and a sourcing analysis. Keep both the form and evidence of where the work is performed; the paperwork is light, so there is no excuse for it being missing. None of this is tax advice, and cross-border edge cases, treaties and state rules are exactly where a professional earns their fee.

Misclassification is the real risk, and it is local

The contractor's own country decides whether the relationship is genuinely independent, using its own tests and its own courts. Reclassification typically means back social contributions, holiday pay, severance exposure and penalties, and the exposure lands on the hiring company. The pattern that gets companies caught is uniform across jurisdictions: one full-time exclusive contractor, managed like an employee, for years. Where the engagement looks like that, an employer of record is the clean fix: the EOR employs the person locally with a compliant contract and statutory benefits, and you keep directing the work.

Pricing reflects the risk transfer. Basic contractor-management tiers, which handle contracts, invoices and payments but leave classification risk with you, cost tens of dollars per contractor per month at the advertised tier. Contractor-of-record and EOR products, where the vendor takes on the employment or classification exposure itself, run from a few hundred dollars per person per month. The comparison table on this site lists the verified list prices, each linked to the vendor's own pricing page, so the premium you are paying for risk transfer is visible rather than folded into a bundle.

Common questions

Do I withhold US taxes when paying a foreign contractor?

Generally not for services a foreign person performs entirely outside the United States, because the income is foreign-source. Collect Form W-8BEN to document foreign status, and take advice where the person works partly in the US or a treaty is involved.

Do I send a 1099 to a foreign contractor?

Form 1099-NEC is for reportable payments to US persons, which is why you collect W-8BEN instead of W-9 from a foreign contractor working abroad. The W-8 form is what supports leaving them out of 1099 reporting.

What happens if the contractor works from the US for a month?

Pay for services performed inside the United States is US-source income, allocated by workdays, and can bring withholding and reporting obligations with it. Track where the work physically happens, not just where the person is resident.

When should I switch a contractor to an EOR?

When the relationship becomes full-time, exclusive, open-ended and managed like employment, or when the person's country is one where enforcement is active. The EOR fee is the price of making the arrangement match the facts.

Coverage by country

• Employer of record vendors covering Singapore
• Employer of record vendors covering Mexico
• Employer of record vendors covering Spain
• Employer of record vendors covering Colombia
• Employer of record vendors covering United Kingdom
• Employer of record vendors covering France
• Employer of record vendors covering Hungary
• Employer of record vendors covering New Zealand