In 2025, more than 70 million Americans are part of the gig economy, making up around 36 % of the U.S. workforce

As remote work continues to grow, more U.S. businesses are hiring international contractors to tap into skilled talent across different countries. This approach not only helps companies reduce costs but also gives them access to a wider and more diverse talent pool.

However, hiring and managing contractors from other countries can be complex. Companies must follow both U.S. labor laws and the local regulations of the contractor’s country.

In this blog, we explain how U.S. companies can hire foreign contractors and handle the challenges that come with it.

Who Is an Independent Contractor?

An independent contractor is a self-employed individual who provides services to a company on a project or contractual basis without forming an employer-employee relationship. They are compensated based on the work or projects they complete rather than receiving a regular salary or hourly wage.

Independent contractors are also responsible for managing and paying their own taxes according to the regulations of their country of residence.

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How Can US Companies Hire Foreign Independent Contractors?

Before hiring foreign independent contractors, it is crucial for US companies to fully comprehend their legal obligations towards the contractors as stipulated in the labor laws of the countries involved. 

Step 1: Classify the new employee correctly 

Correctly classifying workers as independent contractors versus employees is vital to prevent legal issues and penalties.
The IRS provides clear guidelines for determining classification, focusing on factors like behavioral control, financial control, and the type of relationship between the parties.

Key Factors to Determine Contractor Status:

• Degree of Control: Contractors decide how, when, and where to complete their work.
• Tools and Equipment: Contractors use their own tools, bear expenses, and assume profit or loss.

Contracts: A written agreement outlines project scope, duration, and payment terms.

Step 2: Create a robust independent contractor agreement

To prevent any confusion or misunderstandings, prepare a written contractor agreement outlining the scope of work and responsibilities for both the contractor and the company. The agreement can include the following clauses:

Step 3: Obtain the necessary documentation

When hiring a non-US independent contractor, they must complete IRS Form W-8BEN. This form confirms that the contractor is not a US citizen or resident and ensures that US taxes are not automatically withheld. It also helps prevent the contractor from being taxed twice, since they will pay taxes in their own country.

For example, if a contractor from Canada works for a US company and performs services within the United States, the US company may withhold 30% of their earnings as a prepayment of US taxes. However, if all work is done outside the US and the contractor pays taxes in Canada, submitting the W-8BEN allows the contractor to receive full payment without US tax withholding.

Step 4: Tax withholding for independent contractors

In most cases, U.S. businesses do not withhold taxes such as income tax or FICA (Social Security and Medicare) on payments to foreign contractors. However, withholding may apply under specific circumstances:

For Domestic Contractors:

• No tax withholding is required.
• Contractors pay their own income and self-employment taxes.
• Businesses issue Form 1099-NEC for payments over $600.

For Foreign Contractors:

• No withholding is needed if the contractor’s country has a tax treaty with the U.S. and they provide a valid Form W-8BEN.
• If no treaty exists, a 30% withholding may apply to U.S.-sourced income (for services performed within the U.S.).

Step 5: Setting up a payroll system that complies with IRS regulations.

Establishing a secure, transparent payment system ensures efficiency and compliance.
Common methods include international wire transfers, Wise, Payoneer, or global payroll providers like Gloroots, which automate payments, handle currency preferences, and ensure adherence to local tax laws.

Checklist for US companies hiring independent contractors

Use this checklist to ensure you’re meeting all compliance requirements when engaging U.S. or foreign independent contractors in 2026.

1. U.S. Company Hiring a U.S. Citizen Living in the U.S.

• Request Form W-9 from the contractor to collect their Taxpayer Identification Number (TIN).
• Issue Form 1099-NEC to both the contractor and the IRS by January 31 of the following year for payments exceeding $600.

2. U.S. Company Hiring a U.S. Citizen Living Abroad

• The contractor is still considered a U.S. citizen for tax purposes, regardless of where they live.
• Request Form W-9 and issue Form 1099-NEC for payments exceeding $600 annually.
• Refer to IRS Publication 54 (Tax Guide for U.S. Citizens and Resident Aliens Abroad) for additional filing and reporting requirements.
• Check Foreign Earned Income Exclusion (FEIE) eligibility — contractors abroad may qualify to exclude some foreign earnings if criteria are met.

3. U.S. Company Hiring a Foreign Independent Contractor Living Abroad

• Collect Form W-8BEN (individuals) or W-8BEN-E (entities) to document non-U.S. status.
• No need to report payments to the IRS, as income is not U.S.-sourced when services are performed outside the U.S.
• No withholding is required if the contractor provides a valid W-8 form and works entirely outside U.S. territory.
• Verify whether a tax treaty exists between the U.S. and the contractor’s country to confirm exemption from withholding.

4. U.S. Company Hiring a Foreign Independent Contractor Living in the U.S. on a Visa

• Determine where the services are performed — if the contractor performs work within the U.S., the income is U.S.-sourced.
• If services are performed in the U.S., withhold 30% of gross income unless a tax treaty reduces or eliminates the rate.
• File Form 1042 (Annual Withholding Tax Return for U.S. Source Income of Foreign Persons) and Form 1042-S to report the payments by March 15 of the following year.
• If a tax treaty applies, the contractor must submit Form 8233 to claim exemption from withholding.

If the contractor performs all services abroad, the payment is considered foreign-sourced and no withholding is required.

Benefits of Hiring an Independent Contractor

Here are some benefits of hiring international contractors. 

1.Financial benefits

By hiring independent contractors, companies can cut down on the costs associated with setting up physical offices or renting workspaces. Unlike full-time employees, contractors require no expenditure on training, workplace facilities, or benefits such as health insurance and social security. Self-employed professionals typically possess specialized skills, necessitating minimal training, and are responsible for their equipment and management. Additionally, they do not receive benefits and handle their tax obligations.

2.Access to global talent

By engaging independent contractors, companies can tap into a diverse array of skills from across the globe, offering expertise that may not be locally accessible. This broadens the talent horizon and brings unique perspectives to projects, enhancing innovation and problem-solving capabilities.

3.Increased flexibility

Independent contractors are ideal for companies who are looking to associate with individuals for short-term project collaborations. During off-peak periods, businesses can avoid the financial burden of retaining full-time staff, as contractors can be engaged only as needed. This flexibility allows companies to scale their workforce up or down according to demand.

4.High productivity

Independent contractors are hired only for specific tasks and are expected to meet the set deadlines. Unlike traditional employees, contractors are compensated based on task completion rather than hours worked,encouraging fast and effective work. Freed from the obligations of traditional employment, such as attending regular meetings or fulfilling ongoing duties, contractors possess greater accountability and focus solely on achieving results. 83% of business leaders believe that contract workers are more productive than FTEs, according to the KRC Research report. 

Hire International Contractors with Confidence

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Gloroots: Your Simple Solution for Global Contractor Management

At Gloroots, we understand the complexities and risks involved in hiring and managing independent contractors worldwide. That's why we've developed a comprehensive, all-in-one solution, where you can onboard contractors in just 6 Clicks!  Here's why Gloroots stands out as the premier Employer of Record (EOR) platform for your contractor onboarding and management needs.

1. Compliance and Legal Protection: At Gloroots, we ensure that the contracts strictly comply with local labor laws, mitigating risks of misclassification. Additionally, our streamlined process includes automated form collection and electronic filing with the IRS for essential documents such as W-9, W-8BEN, and 1099 forms. This guarantees smooth contractor onboarding with legally airtight agreements

2. Effortless Payroll Management: Gloroots offers multi-currency payment options with automated payroll calculations including tax withholdings and deductions. With this, we ensure precise and prompt compensation regardless of location. 

3. Transparency: Our comprehensive dashboard provides a clear view of each contractor’s onboarding status, with options to pause or resume processes, and modify details as needed. It also provides real-time insights into contractor working hours for transparent and fair compensation. This clear visibility into employment expenses enables informed decision-making. 

With Gloroots’ user-friendly platform and comprehensive features, we empower businesses to focus on growth while we handle the complexities of contractor management. Experience the ease of global contractor onboarding with Glooroots – book a demo today!

FAQs

Do U.S. companies need to pay taxes for foreign independent contractors?

No, U.S. companies generally do not pay taxes for contractors working outside the U.S., as long as the contractor submits a valid Form W-8BEN. This ensures compliance with IRS rules and prevents double taxation for the contractor.

What happens if a contractor is misclassified as an employee?

Misclassifying a contractor as an employee can lead to serious consequences, including IRS penalties, back taxes, and compliance issues. Proper classification is essential to avoid legal and financial risks.

Can U.S. companies pay foreign contractors through PayPal or Wise?

Yes, payments can be made through platforms like PayPal, Wise, or Payoneer, but using services like Gloroots provides additional advantages. These platforms automate payroll, handle currency conversions, and ensure full compliance with international labor and tax laws.

Do foreign contractors need a U.S. bank account?

No, foreign contractors can receive payments in their local currency using global payment solutions. This makes the process simple and convenient while avoiding extra conversion fees or banking complications.

How does Gloroots help manage foreign contractors?

Gloroots simplifies global contractor management by automating onboarding, payroll, and compliance. It ensures contractors are paid correctly and on time, while also helping businesses stay compliant with U.S. and local laws, reducing administrative burden and risk.