How to Pay International Contractors

How Do You Actually Pay Someone in Another Country?

Four things need to be in place before you send your first payment: a signed contractor agreement, a completed W-8BEN form, a reliable payment channel, and a process for collecting invoices. Miss any one of these and you create compliance gaps that are expensive to fix after the fact.

Most small businesses hiring their first international contractor underestimate the setup. The payment itself, sending money to another country, is often the easy part. The documentation is where things go sideways. This guide covers the setup in the order that matters: paperwork first, payment method second.

Step 1: Get the W-8BEN Before the First Payment

The Form W-8BEN is what certifies that your contractor is a foreign person working outside the US. With it on file, you are not required to issue a 1099-NEC or withhold taxes from their payments. Without it, the IRS can require you to withhold 30% from every payment, even retroactively.

A common mistake: asking for a W-9. That form is for US persons only. If your contractor is a foreign individual, the correct form is W-8BEN. If they are billing through a foreign entity such as their own LLC or corporation, they fill out a W-8BEN-E instead. Collect it before the first invoice clears, keep the signed copy on file for at least four years, and verify it is still current before each calendar year of payments. The form is valid for three years unless circumstances change.

Step 2: Put a Written Contractor Agreement in Place

A verbal agreement or email thread is not enough. A signed contract establishes the scope of work, payment terms, deliverables, IP ownership, and the independent nature of the relationship. This matters both for tax purposes and for misclassification risk. The IRS looks at the substance of the relationship, not just the label. A written agreement showing that you hired someone for a defined result, not to work set hours, is your first line of defense.

The contract should specify the payment currency and method, what triggers an invoice, the payment timeline, and who owns any work product. For insurance agencies bringing on remote policy coordinators or claims processors, the contract should also define access to agency management systems and data confidentiality expectations.

Step 3: Choose a Payment Method That Creates a Paper Trail

The IRS does not regulate which payment method you use for foreign contractors. What it cares about is that you have documentation: payment date, amount, reference to the invoice, and confirmation that the payment was received. The four most common options each have trade-offs.

• Wire transfer. Reliable and accepted everywhere. Fees typically run $15-$45 per transfer depending on your bank, plus a spread on the exchange rate. Good for large or infrequent payments. Bank statements serve as your audit trail.
• International transfer platforms. Services like Wise or Relay offer better exchange rates than traditional banks and lower per-transfer fees, often under $5-$10. They generate payment confirmations that work well for records.
• Contractor management platforms. Platforms built for this use case handle payments, collect W-8BEN, generate invoices, and maintain records automatically. The added cost buys you compliance infrastructure and audit-ready documentation. Sourced's Contracting plan at $99/month includes this for the roles you hire through the platform.
• PayPal and similar. Works for smaller or occasional payments, though fees can be higher and the exchange rates less favorable. Not ideal for regular payroll-scale disbursements, but acceptable for project-based work.

Whichever method you use, keep a record of every transaction: the payment date, amount, currency, method, and the invoice number it corresponds to. This is your audit trail if the IRS or a state agency ever has questions.

Step 4: Require Invoices for Every Payment

Every payment to an international contractor should be triggered by a formal invoice. No invoice, no payment. The invoice should include the contractor's name and address, the services rendered, the period of work, the amount, and payment instructions. This is both good business practice and part of your compliance documentation.

Invoices serve a second purpose: they reinforce the independent contractor relationship. Employees get paid on a schedule; contractors invoice for completed work. The distinction matters under IRS classification tests, as the IRS guidance on reporting payments to independent contractors makes clear.

What About Currency and Exchange Rate Risk?

Most contractors working with US companies prefer to be paid in USD for stability, especially in markets with high inflation. Paying in USD keeps your costs predictable and simplifies your records. If you pay in local currency, exchange rate movements can create unexpected cost increases or savings month over month.

Before finalizing contractor rates, read through the real cost of hiring a remote employee. Transfer fees, currency spread, and the time you spend managing compliance all add to the effective cost of each hire. A $25/hour contractor rate can look meaningfully different when you account for transaction friction at scale.

When the Contractor Starts Looking Like an Employee

Paying someone as a contractor does not make them one. If you control how their work gets done, they work exclusively for you, they use your equipment, and they attend internal meetings on your schedule, both the IRS and their local labor authority may classify them as an employee regardless of what the contract says.

Misclassification risks vary by state and continue to shift at the federal level, as detailed in this SHRM analysis of DOL independent contractor enforcement. When in doubt, an Employer of Record removes the classification risk entirely: the EOR formally employs the worker in their home country, managing local payroll taxes and benefits, while you manage the work itself. Sourced's EOR plan starts at $799/month per person.

For roles that are clearly independent, with a defined scope and the contractor having other clients, a direct arrangement works well. Start a search on Sourced for $299 per open role to find a vetted remote contractor. The Contracting plan at $99/month handles ongoing payment, W-8BEN collection, and compliance in one place.