International contractor compliance 101

Disclaimer: This is not legal advice. Laws vary significantly by country and change frequently. Consult qualified legal counsel in the relevant jurisdictions for your specific situation.

Hiring international contractors is one of the fastest ways to access global talent. But it comes with compliance considerations. The good news: if you're working with true independent contractors, the compliance burden is much lighter than hiring employees.

This guide covers the practical basics of engaging global contractors: classification, contracts, intellectual property, documentation, and common pitfalls.

Classification: The fundamental question

The most important compliance decision is whether someone is actually a contractor or an employee. This distinction determines legal obligations, tax reporting, and potential liability.

Courts look at several factors to determine status. Control matters—do they set their own schedule and methods, or do you control how and when they work? Tools and equipment—do they use their own equipment, or do you provide it? Multiple clients—do they work for other companies, or exclusively for you? Payment structure—do you pay per deliverable or project, or a monthly salary? Duration—is the engagement for a specific project, or indefinite?

Signs of true contractor status: They set their own work schedule and methods. They use their own equipment and software. They work for other clients, not just you. You pay for deliverables, not hours worked. They handle their own insurance, taxes, and retirement. The engagement has a specific end date or project scope.

Signs of employee status: You set their work hours or require them to be online at specific times. You provide equipment like laptops or software licenses. They work exclusively for you and can't take other clients. You pay them a monthly salary. You provide benefits or paid time off. The relationship is indefinite with no planned end date.

If most of these employee indicators apply, you should classify them as an employee. Misclassifying creates legal risk, back taxes, and penalties. If you're uncertain, consult with an employment lawyer in the relevant jurisdiction.

Contracts and scope of work

Every contractor engagement should start with a written agreement. This protects both parties and creates a clear record of the relationship.

A solid contractor agreement includes scope of work (what deliverables are expected and what success looks like), payment terms (rate, milestones, and when payments are due), timeline (start date, end date, or project duration), intellectual property ownership (clarifying who owns the work created), confidentiality and non-disclosure terms if you're sharing sensitive information, explicit statement of independent contractor status, a termination clause explaining how either party can end the engagement, and specification of which jurisdiction's laws apply if disputes arise.

Scope of work best practices: The scope should be specific enough to be enforceable but flexible enough to allow the contractor to use their expertise. Good scopes focus on outcomes rather than methods.

Example of a poor scope: "Work 40 hours per week on website development tasks as needed."

Example of a good scope: "Design and deliver a mobile-responsive homepage with hero section, feature grid, contact form, and form validation."

The difference matters. Outcome-focused scopes let the contractor apply their expertise while keeping expectations clear.

Intellectual property ownership

By default in many jurisdictions, contractors own the work they create unless you have a written agreement stating otherwise. This is critical to address upfront.

A standard IP ownership clause should state that all work product, deliverables, and intellectual property created under the agreement become the client's exclusive property. To the extent any work product doesn't automatically qualify as "work made for hire," the contractor assigns all right, title, and interest to the client.

This ensures you own the code, designs, content, or other deliverables the contractor creates for you.

Pre-existing IP: If the contractor is using their own tools, templates, or frameworks to create your deliverable, clarify that you're licensing those tools (not owning them) but you own the final output. Example: "Contractor may use their own design template as the foundation. The final design is the property of the Client. The template itself remains Contractor's property."

Tax forms and documentation

Different countries have different tax reporting requirements. Here's what you typically need to collect and maintain:

For U.S. contractors: Collect a W-9 form before the first payment (name, address, tax ID). If you pay them $600 or more in a calendar year, issue them a 1099-NEC by January 31 of the following year. File a copy with the IRS. Keep W-9s and payment records for at least 7 years.

For non-U.S. contractors: Collect a W-8BEN form (which certifies they're not a U.S. taxpayer for tax purposes). You generally don't need to issue a 1099. Keep records of payments for your own accounting and tax purposes. Check if the contractor's country requires you to report the payment to local tax authorities.

For other countries: Some countries require you to report contractor payments to local tax authorities. Research requirements or consult with an accountant familiar with each jurisdiction.

Invoices and payment records

Maintain a clean audit trail of every payment. This protects you in tax audits, payment disputes, or compliance checks.

Track the invoice from the contractor (date, amount, and description of work completed). Keep payment confirmation from your payment provider (screenshot from Wise, PayPal, receipt from bank transfer). Maintain contractor confirmation that payment was received. Record the total paid to each contractor per year for tax reporting.

Invoice best practices: Contractor invoices should include an invoice number for tracking, the date issued, a description of work completed, the amount due, payment terms (e.g., "Net 15"), and the payment method preferred. Consistent invoicing makes record-keeping easier and creates a clear audit trail.

Common compliance pitfalls

Pitfall 1: No written contract. Verbal agreements are hard to enforce and create ambiguity about deliverables, payment, and timelines. Always use a written contract, even for small or short-term projects. A simple one-page agreement is better than nothing.

Pitfall 2: Treating contractors like employees. If you set their schedule, provide equipment, require exclusivity, or pay them a salary—you're creating an employment relationship, regardless of what you call them. This can trigger misclassification penalties, back taxes, and legal liability. Maintain contractor independence by letting them set their own schedule and work for other clients.

Pitfall 3: No IP assignment in the contract. Without a written IP clause, the contractor may legally own the work they create. This can prevent you from using the work as intended, cause problems if you sell your company, or create disputes over IP rights. Always include a clear IP ownership clause.

Pitfall 4: Missing tax forms. If you don't collect W-9s or W-8BENs before paying contractors, you may face penalties from the IRS. Worse, you might not be able to issue accurate 1099s at year-end. Collect these forms before the first payment.

Pitfall 5: Poor payment records. If you can't document that you paid a contractor, you can't deduct the expense on your taxes. Keep payment confirmations, receipts, and contractor acknowledgment of receipt.

Your compliance checklist

For each contractor, maintain these documents:

Signed independent contractor agreement. W-9 form (U.S. contractors) or W-8BEN form (non-U.S. contractors). Scope of work or project description. Invoice for each payment or milestone. Payment confirmation from your payment provider. Contractor confirmation that they received the payment. Year-end total of payments made (for 1099 reporting or tax purposes).

If you have all of these items organized, you're in good shape for audits, tax filing, and compliance checks.

Frequently asked questions

Do I need a lawyer to create contractor agreements?

For standard contractor engagements, you can use templates available online or from contractor management platforms. For complex projects, highly sensitive IP, or high-value contracts, it's worth having a lawyer review the agreement. One lawyer review of a template saves money compared to having every contract reviewed individually.

What if a contractor refuses to sign a contract?

Don't engage them. A written contract protects both parties. If someone won't sign a basic agreement, that's a red flag about their professionalism or intent. Move on to another contractor.

Can I convert a contractor to an employee later?

Yes, but the relationship structure must change. If they're in another country, you'll need an EOR or local entity to hire them as an employee. If they're domestic, you can hire them directly as an employee or use a PEO.

What happens if I misclassify someone as a contractor when they're really an employee?

Penalties vary by country but typically include back taxes (you owe the employer portion of payroll taxes), fines and penalties from tax authorities, potential liability for unpaid benefits, and in some cases, legal claims from the worker. The total can easily reach tens of thousands of dollars. If you're uncertain about classification, consult legal counsel or use an EOR to be safe.

Do I need to withhold taxes for international contractors?

Generally no—contractors handle their own tax compliance. For U.S. contractors, you don't withhold income tax (they're responsible for quarterly estimated tax payments). For non-U.S. contractors, you typically don't withhold either. However, rules vary by country. Check local requirements or consult an accountant.

What if a contractor is in a country I'm not familiar with?

Research that country's contractor classification rules and tax reporting requirements, or hire a local accountant to advise you. Different countries have different standards for contractor vs employee classification. Some countries are stricter than others. Getting guidance is cheaper than dealing with compliance issues later.

How long do I need to keep contractor records?

Keep records for at least 7 years for U.S. tax purposes. For other countries, requirements vary but are typically 5-10 years. When in doubt, keep longer rather than shorter.

The foundation of compliance

Contractor compliance boils down to a few core practices: honest classification (are they actually contractors?), written documentation (contract, scope, IP terms), proper tax forms (W-9, W-8BEN, or local equivalents), and complete records (invoices, payments, confirmations).

Getting these right protects you in audits, tax filings, and potential disputes. It also establishes clear expectations with contractors, which leads to better working relationships.

The cost of getting it wrong—misclassification penalties, back taxes, legal claims—far exceeds the cost of getting it right upfront. For international contractors, the complexity is real but manageable if you follow these basics.

Consult with qualified legal and accounting professionals in the relevant jurisdictions. Rules vary significantly by country and change over time. This guide covers general principles, but your specific situation may have different requirements.