The essential guide to working with remote contractors

Published

Jun 27, 2023

Are you thinking about hiring remote contractors in different countries to expand your workforce? It makes sense: remote work is a major trend, especially in the wake of the COVID-19 pandemic. 

According to the Pew Research Center, 59% of US workers whose jobs could be performed remotely said they worked from home most or all of the workweek. Worldwide, Gartner predicted that 31% of all workers globally are either fully remote or hybrid. 

Hiring remotely allows you to tap into talent anywhere in the world and diversify your workforce—and hiring international contractors can even save your company money.

What is an independent contractor?

Independent contractors may also be known as self-employed individuals or freelancers. These workers are contracted by clients to perform work as a non-employee.

Why hire contractors remotely? 

Bringing on contract workers provides more flexibility for employers who may not be ready to hire a full-time employee or only need select help on a temporary, short-term project. 

Contractors may be engaged for one-off projects or on a short-term basis (typically with an hourly rate or a retainer). In some cases, they may temporarily fill roles, though you’ll want to be careful about misclassification (more on that below).

Moreover, depending on the market where you’re hiring, you may be able to save money by hiring someone who charges less than in your home country. Contractors are also a great way to test out foreign markets where you’re considering expanding—you may choose to eventually onboard those people as full-time employees or otherwise expand operations into that country.

Step-by-step guide: How to hire remote contractors overseas

Step 1: Assess the job

Before you begin your search for a freelancer, ask yourself if there is a clear need for them. One pro of using a contractor is that it’s a flexible arrangement. However, make sure that you’re not actually bringing them on for a full-time position, lest you encounter issues with misclassification, which can be a major employment law violation. (More on that in the FAQ.)

Working with contractors globally opens up a world of possibilities for your workforce—you can target talent with specialized skills and scale up without adding to your permanent staff. Hiring a freelancer can also be faster than bringing on a full-time employee, and overseas contractors can work in different time zones, giving you better coverage.

Unlike employees, contractors are not entitled to benefits, such as healthcare, and they must pay their own taxes. Contractors supply their own tools (such as laptops and other devices), control where they complete their work, set their own working hours, and can typically be discharged from their contract at any time. 

But hiring contractors, including those who work abroad, requires a strategy. You may have questions about whether it’s legal to bring them on board, how to pay them, how to make sure the right paperwork is covered, and more. This guide will give you the foundation you need to get started.

Is there a specific project you'd like a contractor to work on? Alternatively, do you need temporary help for some part-time work and, if so, how long will you need assistance? Determining this will help you create a job post or scope of work, which should include a description of the work, deliverables, budget, payment terms (whether fixed-price, hourly, or retainer), and deadlines for the deliverable or the end of the contract.

Step 2: Source and recruit the contractor

How can you find qualified freelancers?

Recruiters can match contractors with appropriate gigs. Recruitment companies typically have a long contact list and can help connect you to freelancers quickly. However, recruiters cost money, either charging an hourly rate for their work, charging per project, or taking a percentage based on what you pay the contractor.

Job boards are another way to source contractors from a wide talent pool. Post on websites like Indeed, LinkedIn, Monster, or Glassdoor, which all have a large global presence.

Freelance marketplaces, such as UpWork or Fiverr, help you connect directly with freelancers around the world who are open to taking on new work. You can post contract openings or target specific contractors with availability. These sites tend to show you reviews of the freelancers’ past work, so you can assess whether they’re up to the task. Many of these sites will also handle payment of that freelancer once jobs are complete. This is typically best for truly one-off projects rather than ongoing freelance relationships.

You can also tap into your network. Ask your contacts if they can recommend any contractors. If you’ve worked with contractors in the past, ask them if they have any peers they think would be a good fit for your needs.

Step 3: Conduct interviews and get quotes

Once you’ve identified a qualified contractor, conduct a short screening process to determine if they’re the right fit. You might exchange a few emails or perform an interview by phone or video. Remember: They won’t be a full-time employee, so finding a cultural fit may not be crucial. Instead, your interview should focus on their skills, past work, communication style, and availability.

Ask them for their rates. Do research to understand the going rates for their specialty and be prepared with your budget. Once you've agreed on a price, it’s time to extend an offer.

Step 4: Generate a contractor agreement

So you’ve found an excellent contractor and they’ve agreed to your terms. Great! Now, it’s time to generate a contractor agreement. This document will specify the terms and conditions for your working arrangement, including the scope, obligations, and deadlines. 

The agreement is also proof that you are not in an employer-employee relationship. It can include non-disclosure agreements and payment terms, as well as any confidentiality clauses and termination clauses. 

When hiring contractors globally, ensure that your agreement is legal both within your country and the country where the contractor is based. Though you can do this by yourself, it’s advisable to familiarize yourself with local laws and have a lawyer or HR team review it before giving it to the new contractor. Rippling's simple paperless hiring process makes it easy to onboard contractors by gathering their necessary information, documents, and e-signatures. Our contractor agreements can help keep you compliant, no matter where your contractor is based. Plus, once the contractor is onboarded, their data is housed alongside that of full-time employees, giving you a single directory for your whole workforce.

Step 5: Fill out forms to retain rights to the work

In addition to the contractor agreement, you will also need to issue the appropriate tax and government documents. In the United States, employers must issue 1099-NEC forms to independent contractors who are US citizens, regardless of where they’re based, as long as they will make more than $600 from you. The contractor will need to fill out a W-9 form, which gives you the information you need for the 1099 reporting.

US-based employers should have remote, foreign contractors fill out an IRS Form W-8BEN (if they’re individuals) or an IRS Form W-8BEN-E (if they operate under a business entity). This certifies that your contractor is based abroad, isn’t a US citizen, and isn’t performing their work in the US.

Tax forms can get complicated, especially if you’re hiring contractors across the globe. For example, companies hiring contractors in Canada must submit T4A slips to the contractors, as well as T4A summaries to the Canada Revenue Agency (CRA), T4A-NR to cross-border contractors, and T5018s to construction subcontractors. 

Don’t let compliance overwhelm you: Rippling makes it easy. 

Step 6: Agree on a payment method

You’ll want to agree on a payment method that works for both you and the contractor. Typically, you’ll pay the contractor in their local currency, unless it’s otherwise agreed on in writing.

Rippling has a country-specific series with guides to contractor payments. (For example, check out this guide on running international payroll for contractors in Mexico.) However, generally speaking, your options include:

  • Bank wires. In this scenario, you’d open a local bank account and use that to deposit funds into your contractor’s account or use your current bank to send a global wire transfer. 
  • Digital wallets or payment platforms. Not all digital payment platforms are available globally (for example, Venmo only works within the US). Still, some employers use platforms like Wise or PayPal to transfer money to contractors across borders. Exchange rates can vary, making it difficult to predict your outgoing amounts.
  • International money orders. This method can be slow because the employer needs to physically purchase the money order, and the contractor needs to physically deposit it upon receipt. Money orders can also come with fees and bad exchange rates.
  • Global payroll services. Contractors aren't typically included in payroll since they aren't subject to the same withholdings as employees. Instead, they invoice for their services, which is processed through accounts payable. However, with Rippling, you can pay both employees and contractors, wherever they’re based, in a single pay run. 

Step 7: Throughout it all, keep classification in mind

If you misclassify full-time employees as contract workers, you risk fines, legal action, and reputational damage.

Remember: No single factor determines whether your worker has been misclassified. What’s more, the risks for misclassification amplify the longer you continuously work with a contractor. Read our full guide on misclassification or read more about misclassification below. 

Frequently asked questions about working with remote contractors

How do I know if I’ve classified my contractor correctly?

Regardless of where your contractors are located, there are some key aspects to keep in mind:

1. Impact of work. A contractor’s duties shouldn’t be integral to the business or its success. Can you manage without the contractor’s services? If not, then they should probably be classified as an employee.

2. Permanence. Your contract should have a definitive end date, whether that’s at the conclusion of a specific project or period of time. However, if your worker is paid hourly, weekly, or monthly with no end date, then they should likely be classified as an employee.

3. Degree of integration. Contractors are separate from the rest of your team members and should be treated as such. Your contractors shouldn’t be subject to performance improvement plans, salary reviews, perks, or employee benefits, such as health insurance. They should take care of their own expenses for tools or travel. 

4. Degree of control. As an employer, you can’t control when or where contractors complete their work. If you do, then they may need to be reclassified. 

5. Exclusivity of service. Contractors should be able to work for multiple clients. If your contractor only has time to work for you, then they should likely be reclassified.

The legal tests for misclassification will vary depending on where you and your worker are based. Still worried about whether you’ve classified your workers properly? Try out Rippling’s free Worker Classification Analyzer. With a 90-second quiz, we can help assess your risk of contractor misclassification for workers across the globe.

What are the risks of not classifying a worker correctly? 

Misclassifying employees as contractors is illegal and, unfortunately, very common. According to the US Department of Labor, upwards of 30% of US employers have misclassified some workers. 

If you’re caught misclassifying an employee as a contractor, the repercussions depend on where you and your contractor are based. You could face fines, repayments of unpaid taxes (plus possible penalties), employee benefit repayments, lawsuits, wage claim audits, punitive damages, or even jail time.

Why is this such a big deal in labor law? Unlike employees, contractors aren’t covered by worker protection laws, collective bargaining rights, unemployment benefits, or workers’ compensation. Contractors don’t get employee benefits and are also responsible for paying their own payroll tax contributions. What’s more, employers with misclassified workers are improperly reporting taxes.

Again, Rippling’s free Worker Classification Analyzer can help assess your risk of contractor misclassification for workers across the globe. If you’re still unsure, contact a legal expert.

Do I have to pay my remote contractor minimum wage?

No. Unlike employees, contractors aren’t covered by worker protection laws, such as minimum wage. Contractors negotiate for their rates. However, because contractors pay their own taxes in full to their own country and take on the cost of their supplies, it’s considered best practice to pay a fair wage for their location.

What are the tax implications of hiring remote contractors overseas?

International remote contractors only pay taxes to their countries of citizenship and/or residence, even when the client paying them is based abroad. Contractors typically handle their own tax payments to their country and are subject to that country’s tax laws. US-based companies usually do not need to withhold tax from payments to contractors, but you should always double-check that there are no foreign tax obligations.

Companies with remote contractors do need to know when to report annual earnings to their contractors. One small hitch is that different countries have different dates marking their tax years. For example, though the US tax year runs from January 1 to December 31, in some countries, like Australia and Bangladesh, the tax year goes from July 1 to June 30.

Should I report payments made to foreign independent contractors?

If the contractor is a US citizen working abroad, US-based companies must report payments to the IRS. If they are not a US citizen and do not work in the US, then payments do not need to be reported.

Employers should have remote workers fill out an IRS Form W-8BEN (if they’re individuals) or an IRS Form W-8BEN-E (if they operate under a business entity). This proves that your contractor is based abroad, isn’t a US citizen, and isn’t performing their work in the US. If both the organization and contractor are based in the United States, then the contractor will fill out a W-9 form. This gives you the information you need, such as their social security number, to file a Form 1099 with the IRS to report income paid to them. 

Want help with tax forms? Rippling collects any necessary tax information from contractors and also files 1099s on your behalf. 

How do I convert an independent contractor to a full-time employee on payroll? 

Onboarding a contractor is similar to onboarding any other full-time employee.  First, notify the worker about your desire to hire them full-time and make sure they want to be converted. Some freelancers prefer to remain independent, while others may be excited about the stability of full-time employment. Write up a contract, which officially offers employment, outlines the employment relationship, and terminates the contract agreement.

Bringing a contractor on full-time means they are entitled to benefits and that you must make tax contributions. Depending on their citizenship, you’ll want to switch the contractor to a Form W-2 (for US citizens) or a Form W-4 (for non-residents), which allows you to report employee wages and determine how much tax to withhold. Add information to their file about their salary and other job details. Adjust payroll software to pay your new employee alongside your other full-time workers and enroll them in your benefits program.

It sounds overwhelming, but Rippling can quickly transition contract workers with legally compliant paperwork, benefits administration, and payroll. Learn more.

As you bring on full-time remote employees, consider whether you have an entity in their country, which is often a requirement for hiring abroad. Opening a local entity can be a complex and time-consuming process. Instead of initiating your own entity, you can opt to use an employer of record (EOR). An EOR takes on the responsibility of establishing the entity to hire employees on your behalf, minimizing risk, and handling all of the legal requirements, payroll, employment contracts, vacation, leave, and taxes. EORs, such as Rippling, can accelerate and streamline the process, so you can onboard new foreign employees quickly.

How do I fire a contractor? 

Contractors can’t be fired, as they aren’t employees. However, their contracts can be terminated.

When and how you can initiate termination depends on the terms of your contract agreement. Typically, either party may terminate the contract agreement after providing notice. Set the terms in your contract agreement—you may allow for immediate termination or require a notice period of two weeks to a month. Generally speaking, contractors do not receive employee entitlements, such as severance. But, again, outline this in your contract so that the terms are clear for all parties, and make sure all terms are compliant with local laws.

Effortlessly manage global contractors with Rippling

Managing contractors has never been easier, no matter where they’re based. With Rippling, your contractors' data is housed alongside that of your full-time employees, giving you a single directory for your entire workforce.

Rippling can pay all types of contractors automatically, gather e-signatures and store documents, and assign contractors accounts for business apps. Contractors can track their hours in Rippling with our electronic timesheets and clocks, which can be synced directly to payroll. Plus, we automatically generate and distribute 1099 tax forms to contractors at the end of the year.

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.

last edited: August 4, 2023

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