An independent contractor is a self-employed individual or business hired to perform specific tasks or services without being treated as an employee.
This guide explains what independent contractors are, how contractor engagements usually work, and what to consider before you hire one internationally.
What is an independent contractor?
An independent contractor is someone you pay to perform a specified task or service. They could be hired for a one-off project or to perform work on an ongoing basis, but they are not employees. They are a self-employed individual you hire to deliver specific services or outcomes. Unlike employees, contractors typically control how they work, use their own tools, and invoice for their services.
For example, you might hire a contractor for specialized work like UX research, security audits, recruiting support, or short-term marketing projects.
A signed agreement beforehand should always outline the exact scope of work and compensation. This agreement usually focuses on the expected outcome of the collaboration rather than on how the work itself is carried out.
Once the job is complete, the contractor will issue you an invoice to wrap up their employment.
Independent contractor vs employee: key differences explained
The differences between independent contractors and employees are mainly how they are classified, paid, and managed. Contractors operate independently, manage their own taxes, and invoice for services, while employees work under an employer’s direction and receive statutory benefits.
Independent contractors can be a good fit when you need specialized skills, flexible support, or project-based work without adding long-term headcount.
Independent contractors are commonly used for specialized or project-based work. Below are examples of common contractor roles across industries.
Consulting
Many contractors leverage their expertise in a particular field or sector by offering consulting services. If you need help, guidance, or advice on managing or improving a specific process, then hiring a contractor with the relevant expertise is a simple, cost-effective way to do so.
Content creation
Another useful way to leverage independent contractors is for content creation. Many contractors offer their services as writers, editors, graphic designers, animators, video producers, and more. This is an ideal solution if you want to grow or bolster your existing in-house team for larger one-off projects or marketing campaigns.
Professional services
Many professionals, including accountants, lawyers, and tax specialists, offer their services as contractors. This is particularly useful for smaller businesses that need help with specific tax, legal, or accounting obligations, but don’t have the budget or the requirement to hire someone full-time or in-house.
Technical solutions
If your company wants to build a technical or digital tool, such as a mobile app, website, or proprietary software, hiring a contractor (or a team of contractors, depending on the project scope) is an ideal short-term solution.
Independent contractor agreements
An independent contractor agreement specifies the terms and conditions of the relationship between you (the client) and the contractor.
As a minimum, it should address:
The scope of work
Remuneration
The duration of the contract
Pay cycles (and method)
It’s important to understand that there isn’t a one-size-fits-all template for contractor agreements. This is especially important for businesses hiring contractors across multiple countries, where classification rules and contract requirements can differ significantly.
They must be compliant with your contractor’s local labor laws and account for any other local tax and legal peculiarities. As a result, the more external talent you work with — and the more countries they’re based in — the more customized your agreements need to be.
Each agreement should also address the issue of copyright and intellectual property (IP) ownership. It’s crucial to specify who the owner of the work/deliverables produced by the contractor is. Otherwise, the authorities in the contractor’s country of residence may assign rights to the work based on the IP address of where it was produced.
Remote can help you cover all these bases. Our local, on-the-ground legal experts will vet all your contractor agreements to ensure they comply with local tax and labor laws.
Paying independent contractors
Paying international contractors often involves additional considerations, such as local payment preferences, currencies, and exchange rates.
However, remember that you are the client when dealing with contractors. It’s doubtful that the contractor will adjust their rates for you, and they probably won’t appreciate you asking.
Here are some of the most common ways that contractors calculate their pay rates:
Time-based: The contractor works at an hourly or daily rate.
Project-based: The contractor quotes a project rate based on the task description.
Measurement-based: The contractor charges a specific (usually very small) rate per commodity. This is common when working with writers and translators, who often charge per word.
Retainer: The contractor charges an ongoing monthly fee for agreed-upon services.
For instance, you might pay a lawyer a monthly retainer of $2,000 for 20 hours of work each month, with the exact tasks and responsibilities agreed beforehand. Note that the contractor would still have to issue an invoice for each month.
Some contractors may ask you to pay them before the start of a project, either partially or in full, especially if you’re a new client and there is no prior relationship. In most cases, you settle the payment after the contract is deemed “complete.”
Paying international contractors
Paying international contractors often involves additional considerations, such as local payment preferences, currencies, and exchange rates.
Contractors set their rates in line with their living costs and the average market rate in their country. Depending on where your contractor is based and where your company is based, this can work positively or negatively for you.
You also have to consider how you’re going to handle payments. Different contractors in other countries may prefer different methods and tools, and if you’re paying in a different currency, there are exchange rates to factor in.
To simplify this process, you can use a dedicated aid, like Remote’s Contractor Payout Explorer. This quick, free, and easy-to-use tool allows you to see:
Which currencies can you pay in
The various withdrawal options (across Wise, Stripe, and Connect)
The approximate payout speed for each option
Remote also enables you to quickly, easily, and compliantly pay contractors across the globe in over 100 currencies — often with just a single click.
Misclassification risk
Misclassification occurs when a worker is treated like an employee but classified as an independent contractor. This can expose businesses to fines, backdated taxes, and legal penalties.
Because classification rules vary by country, global businesses should regularly review contractor relationships to ensure they align with local labor and tax compliance laws.
Here are a few common questions and answers about hiring independent contractors. These are general guidelines and may vary depending on local labor and tax regulations.
How does an independent contractor pay taxes?
Independent contractors are responsible for withholding, submitting, and filing all appropriate taxes to federal, state, and local governments.
In the US, independent contractors are subject to a self-employment tax. This is the contribution to Social Security and Medicare that the employer would otherwise withhold.
How do you pay independent contractors?
Businesses must comply with the regulations established through the tax, labor, and employment laws of each country they hire in. In Mexico, for example, companies must pay each worker in their local currency.
Independent contractors can be paid through various means, such as checks, ACH transfers, or online payment systems.
How do you fill out a W9 as an independent contractor?
Form W-9 is the document that provides your Taxpayer Identification Number (TIN) to your employer for their own tax-filing purposes. Complete it line by line, ensuring your name matches the one on your independent tax return.
If you have a business name, add it next. If you don’t, you can leave that line blank. Check the Federal Tax Classification box if you are an individual, sole proprietor, or single-member LLC.
What are some best practices for hiring independent contractors?
Do your research. Evaluate each country so you can offer competitive salaries and compensation based on market rates and trends.
With Remote, you can also provide exclusive health benefits and other desirable perks.
Also, make sure your written contracts have clear definitions, expectations, pay scales, deadlines, and any other necessary information. That way, if an issue arises down the line, it can be resolved quickly.
Managing global contractors at scale
With remote work fully in the mainstream, companies everywhere have instant access to some of the world’s top talent. When it comes to filling talent gaps, the possibilities are endless.
You can enjoy the convenience of working with domestic contractors or leverage the diversity and expertise of international specialists. You can save time and money. You can approach projects and tasks with greater flexibility and without compromising quality.
But to reap all these benefits, you still need to pay attention to the small print. The more contractors you hire (particularly abroad), the more labor laws and tax regulations you need to comply with.
The good news is that you don’t need to be an international lawyer or HR expert to manage all of this. Our Contractor Management service does all the heavy lifting, including:
Ensuring compliance with local labor laws, including tax filing and reporting
Protecting your IP rights
Vetting contract agreements through our local, in-house experts
Approving or rejecting contractor invoices in a single click
Handling contractor payments quickly and in the right currency
Interested in hiring an independent contractor for your business? Learn more about how Remote solutions and expertise help you hire, manage, and pay your contractors, no matter where they are.
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