International contractor compliance 101

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, IP, documentation, and common pitfalls.

Classification basics

The most important compliance question: is this person actually a contractor, or are they an employee?

Key factors that indicate contractor status:

• Control: They set their own schedule and methods
• Tools: They use their own equipment and software
• Multiple clients: They work for other companies, not just you
• Project-based: You pay for deliverables, not hours or salary
• No benefits: They handle their own insurance, taxes, and retirement
• Limited duration: Engagement is for a specific project or timeframe

Red flags that suggest employee status:

• You set their work hours or require them to be online at specific times
• You provide equipment (laptop, software licenses, etc.)
• They work exclusively for you and can't take other clients
• You pay them a monthly salary instead of per-project
• You provide benefits or paid time off
• The relationship is indefinite with no end date

If you're treating someone like an employee, they should be classified as one—which means you need an EOR or local entity. If they're truly independent, you can engage them directly.

Contracts and scope of work

Every contractor engagement should start with a written agreement. This protects both parties and establishes the terms of the relationship.

Essential contract elements:

• Scope of work: What deliverables are expected
• Payment terms: Rate, milestones, and payment schedule
• Timeline: Start date, end date, or project duration
• IP ownership: Who owns the work product (usually you)
• Confidentiality: NDA terms if handling sensitive information
• Independent contractor status: Explicit statement that this is not employment
• Termination clause: How either party can end the agreement
• Governing law: Which country's laws apply to disputes

Scope of work (SOW) best practices:

The SOW should be specific enough to be enforceable but flexible enough to allow the contractor to use their expertise. Good SOWs focus on outcomes, not methods.

Example: "Design and deliver a mobile-responsive homepage with hero section, feature grid, and contact form" is better than "Work 40 hours per week on website tasks."

Intellectual property

By default in many countries, contractors own the work they create unless you have a written agreement stating otherwise. This is why IP clauses are critical.

Standard IP clause:

"All work product, deliverables, and intellectual property created by Contractor under this Agreement shall be considered 'work made for hire' and shall be the sole and exclusive property of Client. To the extent any work product does not qualify as work made for hire, Contractor hereby assigns all right, title, and interest in such work product to Client."

This ensures that 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, clarify that you're licensing those (not owning them) but you own the final deliverable.

Tax forms and documentation

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

U.S. contractors:

• Collect a W-9 form (name, address, tax ID)
• If you pay them $600+ in a year, issue a 1099-NEC by January 31
• File a copy with the IRS

Non-U.S. contractors:

• Collect a W-8BEN form (certifies they're not a U.S. taxpayer)
• No 1099 required for non-U.S. contractors
• Keep records of payments for your own accounting

Other countries: Some countries require you to report contractor payments to local tax authorities. Check local requirements or consult an accountant familiar with that jurisdiction.

Invoices and payment records

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

What to track:

• Invoice from contractor (date, amount, description of work)
• Payment confirmation (screenshot from Wise, PayPal, etc.)
• Contractor confirmation that payment was received
• Total paid to each contractor per year (for tax reporting)

Invoice best practices:

Contractors should send invoices that include:

• Invoice number (for tracking)
• Date issued
• Description of work completed
• Amount due
• Payment terms (e.g., "Net 15")
• Payment method (Wise, PayPal, bank transfer)

If you're using Kontrable, all of this is tracked automatically—invoices, payments, confirmations, and year-end totals.

Common pitfalls

Pitfall 1: No written contract
Verbal agreements are hard to enforce and create ambiguity. Always use a written contract, even for small projects.

Pitfall 2: Treating contractors like employees
If you set their schedule, provide equipment, or require exclusivity, you're creating an employment relationship—even if you call them a contractor. This can lead to misclassification penalties.

Pitfall 3: No IP assignment
Without a written IP clause, the contractor may own the work they create. This can cause problems if you want to sell your company or enforce IP rights.

Pitfall 4: Missing tax forms
If you don't collect W-9s or W-8BENs, you may face penalties from the IRS. Collect these forms before the first payment.

Pitfall 5: Poor payment records
If you can't prove you paid a contractor, you may not be able to deduct the expense. Keep payment confirmations and receipts.

Audit trail checklist

For each contractor, you should have:

• ✓ Signed independent contractor agreement
• ✓ W-9 (U.S.) or W-8BEN (non-U.S.) form
• ✓ Scope of work or project description
• ✓ Invoices for each payment
• ✓ Payment confirmations (screenshots, receipts)
• ✓ Contractor confirmation of receipt
• ✓ Year-end payment total (for 1099s or tax reporting)

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

Frequently asked questions

Next steps

If you're managing international contractors and want a system that handles contracts, invoices, payments, and audit trails automatically, Kontrable gives you everything you need—without the EOR markup.

Learn about EORs · Do I need an EOR? · EOR alternatives