How to Pay International Contractors: Which Route Fits You

The short answer

You can pay a contractor abroad four ways: a bank wire, a payouts service, a contractor platform, or a US company that pays them on your behalf.

• Ask for a signed Form W-8BEN, which is how a contractor states they are not a US taxpayer, before the first payment. You keep it, and you do not send it anywhere.
• No 1099 goes to a foreign contractor for work they did in their own country.
• Agree in writing who pays the bank fees and which currency you are sending, before the first invoice.
• Paying one US invoice to an agency does the same job with no foreign transfer at all.

Where that comes from: the IRS pages quoted below, plus the four countries we pay contractors in every month.

How to pay international contractors, four ways

There are only four real routes, and the right one depends on how many people you are paying, not on how much you are sending.

Most people reach for a wire first, so here is what happens inside one. You give your bank three things: the contractor's bank name, their account number, and that SWIFT code.

Your bank then sends dollars out. Somewhere along the way, one bank turns those dollars into pesos or reais, and a second bank may touch it before it arrives. Every bank in that chain is allowed to take something for its trouble.

What the IRS asks you for, and what it does not

The US tax rules on how to pay foreign contractors are shorter than most people expect. They come down to one form, plus one question about where the person was sitting.

Your contractor signs a Form W-8BEN, you keep it in your own file, and nothing goes to the IRS. Work they do at a desk in their own country counts as foreign income, so you take nothing out of the payment and no 1099 goes out in January. I went through that paperwork, and how long the form stays good, in contractor vs employee in Latin America.

Here is the part that catches people out, and it changes the moment somebody gets on a plane.

Say you fly the contractor in for two weeks of work at your office. The IRS says the place where the work is done decides the source of the income. Where the contract was signed and where you sent the money do not change it. So those two weeks are US income.

That changes three things for you. The IRS taxes most US-source income paid to a foreign person at 30 percent. You are the one who holds that money back before you pay them. Then you report it on Form 1042 and Form 1042-S. Form 1042-S is the year-end form for money paid to somebody who is not a US taxpayer, and it is the one the IRS instructions for Form 1099-NEC point you to "for payments to nonresident aliens". So the form you send US freelancers is the wrong one here too.

So ask where the person will physically be while they work, and ask it before you book anybody a flight.

Their own country's labor law is a separate question with its own penalties, and these IRS rules say nothing about it. Getting that side wrong is what leaves a company owing back benefits abroad.

That is the IRS side. The other half of the paperwork turns up every month.

What a good invoice from abroad says

Your contractor sends you an invoice every month. Tell them what you need on it in week one, because fixing eleven of them in April is a bad day.

Four things, and they fit on one page:

• Their name and address, in their own country: It is the simplest record you keep of where they were sitting when they did the work.
• The dates the work covers: A month, usually. It is what makes the payment line up with the invoice when your accountant goes looking.
• What the work was, in plain words: Two lines is enough. "Inbound support, 40 hours a week" tells the story better than "professional services".
• The amount and the currency, written out: Two thousand US dollars is not the same line as two thousand. A currency code ends the argument.

Keep four things together: the invoice, your proof of payment, the signed agreement and the W-8BEN. Your accountant needs that set for the expense. It is also the paper record that shows this person bills you like a supplier.

That is the paperwork. The money is where it gets expensive.

Where this costs you more than the transfer fee

The wire fee is the cost everybody checks, and it is rarely the biggest one. Four things cost you more: the exchange rate, who pays which bank fee, how you record it, and sending money to the wrong account.

• The exchange rate: Whoever converts your dollars picks the rate. They do not have to use the rate you see on Google, and the difference is money they keep. It never shows up on your statement as a fee. So ask your bank what rate they will use, then ask the contractor how much reached the account.
• The fee split: Your bank charges you, and their bank can charge them. If you agreed on $2,000 and $1,965 arrives, somebody has to decide who covers the rest. Settle that in the agreement and you never have the argument.
• Your bookkeeping: You report in dollars, so every peso payment gets converted on your books. The IRS publishes yearly average currency exchange rates for this. Pick one method now, either the rate on the day or the yearly average, because switching halfway through the year makes a mess.
• The account name: Pay the account that carries the same name as the agreement. When a contractor asks you to send money to a different name, stop and confirm who that is, by video, before you send anything. That is also the cheapest fraud check there is, and the rest of them are in how to verify a remote candidate.

Three things to settle before the first payment

These are the three questions I would ask, in this order, before any money moves.

• Which currency are we agreeing on? Pick one and write the number in that currency. A monthly rate in dollars and a payment in pesos are two different agreements once the rate moves.
• Can we run a small test payment first? Send a hundred dollars, wait for the contractor to confirm it arrived, then send the rest. A wrong digit in an account number is cheap to find this way and painful to find later.
• What date does the invoice come, and what date do I pay? Give the contractor a date they can plan around. A wire that takes four days to arrive is not late if you both expected it.

The route where you never make a foreign payment

There is a fifth route, and it is the one the payment companies never write up: you can buy the work from a US company and let them do the paying.

That is how we are set up. You sign one Master Services Agreement with Remote Hero. We engage and pay the professional. They work directly with your team, every day, as part of it.

In practice that is one invoice, in dollars, from a US business. No SWIFT code, no W-8BEN in your file, no exchange rate to argue about.

Our contractor engagements run month to month. Monthly rates start at $1,500 for a virtual assistant or a customer service role, and run to $3,500 and above for an AI and automation specialist. You can price a role in the savings calculator.

Which route fits you

On price alone, the exchange rate moves more money than the fee does. So the cheapest route is usually the one with the best rate, not the lowest transfer charge.

One or two contractors you have worked with for a while, and a bank you are comfortable with: send the wire. Get the W-8BEN signed, run one test payment, and the whole thing takes twenty minutes a month.

Several people in several countries: pay for a payouts service or a contractor platform. It keeps every payment and every form in one place, and that is worth the monthly price.

You want the work and not the admin, or you are hiring in Latin America for the first time: buy it from a US company and pay one invoice.

Tell us who you are trying to pay

Tell us the role and the country, and we will say plainly whether paying through us is cheaper than paying them yourself. If your own bank is the better answer, we will tell you that.

Book a free call and you will have first candidates in two to four weeks, at 50 to 70 percent under what the same hire costs in the US.