Contracts, Payroll and Compliance Basics

1. Contractor or employee?

Most offshore hires for US companies are engaged as independent contractors. That only holds if the relationship actually looks like one, and two countries get a say.

• The US view. The IRS looks at the whole relationship under three headings: behavioral control (do you direct how the work is done?), financial control (who provides tools, sets pay, carries expenses?) and the type of relationship (benefits, permanence, how central the work is). Its guidance is on irs.gov under "Independent contractor (self-employed) or employee?"
• The worker's country. Local labor law usually decides whether someone working there is an employee, whatever your contract calls them. Many countries have their own tests, and a contractor who works set hours, exclusively, for years can be treated as an employee, with back pay, benefits and severance owed.
• What lowers the risk. A contract written for the worker's country, a provider (a staffing firm or an EOR) that holds the contract and knows the local rules, or employing the person properly through an EOR when the role is really a job.

2. Local contracts

A US template contract often misses what matters abroad. Whoever writes it, make sure it covers:

• Scope of work, hours and the time zone they are worked in.
• Rate, currency, payment date and who pays transfer and conversion fees.
• Intellectual property: that everything the person creates for you is assigned to your company, written so it is enforceable where they live.
• Confidentiality and data protection, including what happens to your data when the engagement ends.
• Equipment: who provides the laptop and software, and who owns them.
• Notice and termination, in line with local rules.
• Governing law and where disputes are settled.

3. Paying in local currency

You can pay in US dollars and let your hire convert, or pay in their local currency. Each moves the currency risk to a different side:

• Paying in USD is simple for you, but your hire's income in their own currency moves with the exchange rate, and they may pay conversion fees on every payment.
• Paying in local currency gives your hire a predictable income, which helps retention; your cost in dollars moves with the rate instead.
• Fees add up. Bank wires, payment platforms and currency spreads all take a cut. Ask your provider or payments service for the all-in cost of a payment, including the exchange rate it uses.
• Local rules apply. Some countries regulate how residents receive foreign payments. Managed providers handle this; if you pay directly, ask the payments service what it supports in that country.

4. US paperwork

For a non-US person who does all of their work outside the US, US companies usually collect IRS Form W-8BEN rather than a W-9, and don't issue a 1099. Rules differ for US citizens and residents living abroad, so check with your accountant before the first payment, and keep contracts, invoices and payment records together.

5. Data, access and security

• Give access by role, starting small: view-only before edit, a shared password manager rather than passwords in chat.
• Decide who provides the device, and how it is secured and returned.
• If the role touches regulated data (health records, payment cards, personal data of EU residents), check the rules that apply to that data before granting access, and whether your provider can meet them.

Who handles what, by route

What to verify before hiring abroad

• Is this role really independent work, or a job? If it is a job, use an EOR or a managed provider.
• Which country's law governs the contract, and has someone who knows that law reviewed it?
• Does the contract assign all IP to your company, enforceably in the worker's country?
• Who pays the person, in which currency, and what does each payment cost in fees?
• Which US tax form do you need from them, and has your accountant confirmed it?
• What does ending the engagement require under local law?
• If you use a provider: who is the legal counterparty, and what does it take responsibility for in writing?