Contractor vs. Employee: How US Companies Hire

When a US company offers you a position, there's a good chance you won't be their employee. Most Latin American professionals working with US companies are hired as independent contractors — and understanding what that means is critical before accepting any offer. It's not inherently good or bad: it's the standard format for hiring remote talent abroad, with real implications for taxes, benefits, and how you negotiate your rate.

What's the Difference Between a Contractor and an Employee?

An employee has an employment relationship: the company withholds taxes, pays benefits, and is bound by employment law. An independent contractor is a self-employed professional providing services: they invoice for their fees, manage their own taxes, and benefits are not part of the contract.

For US SMBs, hiring remote talent as contractors simplifies their legal structure and avoids local employment law obligations. The IRS and the US Department of Labor have formal criteria to distinguish employment from independent services — mainly the degree of behavioral and financial control, integration into the business, and permanence of the relationship. Misclassification can mean significant penalties for the employer, which is why most US companies default to contractor arrangements for remote talent abroad.

For you, this has concrete consequences:

• No automatic tax withholding: you're responsible for declaring your income and paying taxes per your country's laws.
• No US employment benefits: no health insurance, 401(k), or mandatory paid time off from the employer.
• Real flexibility: you can work for multiple clients simultaneously and aren't tied to a single employer.
• Full gross rate: you receive the agreed amount without deductions on the employer's side.

What About Vacation Days, Bonuses, and Health Coverage?

As a contractor, none of these benefits are included automatically. Paid vacation, annual bonuses, and health insurance are features of a local employment relationship — they don't apply to an independent services contract with a US company. You receive the agreed rate, and managing those benefits is your responsibility.

This doesn't mean you can't take vacation — it means the days off aren't paid by the employer. Many LATAM contractors factor these costs into their rate: if you want to match a compensation package with 15 vacation days and a year-end bonus, add that cost to your monthly proposal. A practical rule of thumb: as a well-positioned contractor, your rate should be 20–30% above the equivalent salary to cover what an employer would cover in an employment relationship.

To learn how to structure and present that number in a negotiation, see our guide on how to negotiate your salary with a US company.

How Do Taxes Work When You Get Paid by a US Company?

The US company does not withhold taxes from your fees. The first thing they'll ask for is a W-8BEN form — an IRS declaration confirming you're a non-resident outside the US, which exempts automatic withholding on your fees. You complete it once, send it to the client, and they keep it on file. It takes under 10 minutes and costs nothing.

On your country's side, the obligation depends on local legislation. In general terms, it means registering as a self-employed professional and declaring income in local currency. Rules vary across Argentina, Colombia, Mexico, Chile, and Peru — and change frequently. Consult a local accountant experienced with foreign client income before making tax decisions — this article is not legal or tax advice.

General points that apply in most countries:

• Register as self-employed: the equivalent of a sole proprietor in your country (monotributista in Argentina, RUT as independiente in Colombia/Chile, RESICO in Mexico).
• Declare income in local currency: the USD amount is converted at the applicable exchange rate per your country's regulations.
• Document payments: platforms like Wise, Payoneer, and Deel generate PDF statements and receipts that serve as supporting documentation.

You can review the IRS official definition of independent contractor to understand the criteria US companies use when structuring your contract. For a comparison of payment platforms by country, see our guide to remote payment platforms.

What Is an EOR and When Does the Company Offer One?

An EOR (Employer of Record) is a third-party company that becomes your formal employer in your country. You do the work for the US client, but the EOR employs you locally — with benefits, tax withholding, and labor law protections. The client pays the EOR, and the EOR pays you with local employment benefits included.

For LATAM talent, an EOR makes sense in these scenarios:

• The client wants a formal employment relationship and local labor compliance in your country.
• Your role involves access to sensitive systems and the company has internal policies requiring formal employees.
• The company wants to hire multiple people in the same country under a single provider.

The EOR cost is paid by the client — a monthly fee on top of your compensation. If the company proposes an EOR, it doesn't mean you'll earn less: it means they're willing to pay that overhead to formalize the relationship. Sourced offers Contracting ($99/mo) and EOR ($799/mo) as options for companies hiring through the platform. If you want to be found by these companies, add your profile to Sourced and stay available for opportunities that already have the hiring format defined.

Contractor or EOR: Which Is Right for You?

For most LATAM professionals starting to work with US companies, contractor is the most common path: faster to start, less paperwork, and more flexibility to work with multiple clients. An EOR makes more sense when the client offers one, or when your personal situation calls for a formal employment relationship.

• Go contractor if: you want to start quickly, you know how to invoice in your country, and your rate covers the cost of your own benefits.
• Consider an EOR if: the client offers it, you'd prefer not to manage your independent tax situation, or your country requires a formal employment relationship for foreign client income.

Either way, the rate you negotiate should reflect the format: as a contractor, your proposal needs to cover the cost of your own benefits. For how to build and present that number to a US company, see our salary negotiation guide.