How to pay freelancers – payment methods for every type of project

Getting ready to pay freelancers but not sure which payment method is right for you? Choosing the right way to send money matters, whether you’re hiring independent contractors for a specific project or working with them on a recurring basis. Since you have various payment methods to consider – such as a PayPal account, credit or debit card, direct deposit, wire transfers, etc. – we’re here to help you decide on the most effective one for your business.

In this article, we’ll discuss the most popular freelancer payments, from setting clear payment terms to selecting the best payment method based on transaction fees, freelancer preferences, and international transfers.

Keep reading for tips on freelancer payments, or skip ahead to learn about the pros and cons of each payment method.

And just to let you know – we’ll use the terms freelancer and independent contractor interchangeably in this article. Here you can read more about the differences between a sole proprietor, freelancer, and self-employed.

Plan your freelancer payments strategically

There’s no single option that works for everyone – finding the best payment method depends on your company setup, budget, and future plans. So before you start paying freelancers, it’s a good idea to answer these strategic business questions:

• How many independent contractors are you planning to hire?
• Will you only work with local professionals? Or do you want to stay open for international talent?
• Are you only hiring freelancers for specific tasks, or do you also need to manage full-time employees?
• Will you be sending recurring payments or handling one-time transfers per freelance project?
• Will multiple clients or departments be involved in approving or managing the payment process?
• What’s your expected budget, including transaction fees and other additional expenses?
• Are you already using accounting software, a payment platform, or another tool to handle freelancer payments?

These answers will help you find a cost-effective, scalable payment method. It also helps you handle international transfers, collect the right tax forms, and stay aligned with your company’s systems.

Best payment method vs. your tax requirements

Tax compliance when paying freelancers starts with one crucial step: making sure you classify your workers correctly. That means knowing the difference between independent contractors and regular employees. Each group follows different legal and tax rules – and that affects your payments and tax forms. If you’re working with independent contractors, you’re not responsible for covering their health insurance, retirement plans, or withholding taxes. But that doesn’t mean there’s no responsibility on your part. That means collecting the right taxpayer identification number and reporting payments to the IRS. Here’s how it typically works in the U.S., according to the IRS rules.:

1. Collect the correct tax forms before sending payments

• For domestic transactions, always have your independent contractor fill the Form W-9 before paying them. This form provides their taxpayer identification number (TIN) for tax purposes.
• If you’re paying international freelancers, request Form W-8BEN (or Form W-8BEN-E for business entities). This certifies their non-U.S. status and may qualify them for reduced withholding tax rates under a tax treaty.

2. Report payments over $600 using Form 1099-NEC

• If you pay independent contractors in the U.S. more than $600 during the tax year, you must file Form 1099-NEC by January 31 of the following year.
• Send the form to both the contractor and the IRS.
• If you submit 1099-NEC forms on paper, you must also include Form 1096, which summarizes all your freelancer payments for the year.

3. Keep proper records of all payments

• Track how much you paid, when you paid it, and through which payment method (e.g., bank transfers, ACH payment, PayPal account, etc.).
• Store all tax forms (W-9, W-8BEN, 1099-NEC, etc.) for at least four years in case of inquiries from the IRS or the contractor.

4. Follow rules for international freelancer payments

• U.S. businesses aren’t required to report or withhold taxes on payments to foreign contractors for work performed entirely outside the U.S.
• If payments include services performed within the U.S. or certain types of income (e.g., royalties, interest), you may need to file Form 1042-S. 
• Be aware of backup withholding rules – the default IRS withholding rate is 30% unless a tax treaty applies.

5. Verify employment classification to avoid penalties

• Confirm that each worker is correctly classified as an independent contractor and not a regular employee. Rely on the Economic Realities Test to determine if a worker qualifies as an independent contractor.
• If a worker is misclassified, your business may become liable for employment taxes, including unemployment tax.
• Independent contractors aren’t covered by federal unemployment tax (FUTA), but misclassification can trigger state-level obligations. Always check state tax department guidelines to stay compliant.

Freelancer payment methods – overview

Let’s get to the core – here are the most popular freelancer payment options along with their up and downsides.

Electronic Funds Transfer / Bank transfers

Bank transfers send money directly from your bank account to the freelancer. They’re secure, reliable, and widely used for both local and international transactions. ACH direct deposit is mostly used for domestic U.S. payments. Wire transfers can be domestic or international, but come with higher fees and are not reversible. Pros:

• secure and traceable,
• no third-party platforms,
• good for large or recurring payments,
• domestic transfers can be fast

Cons:

• steep fees for international wire transfers,
• slower processing (especially overseas),
• requires full bank details (IBAN, SWIFT, etc.),
• less flexible than digital wallets,

Best for: Domestic independent contractors, large payments, or recurring work.

ACH transfers

ACH (Automated Clearing House) transfers are electronic payments made between bank accounts within the United States. This method is commonly used for payroll, direct deposit, and regular payments. It’s ideal for paying independent contractors domestically when the payment doesn’t need to be processed instantly. Pros:

• low or no processing fees,
• secure and reliable for domestic transfers,
• works well for recurring payments,
• no need for checks or third-party platforms,

Cons:

• only available in the U.S.,
• slower than wire transfers (1–3 business days),
• requires an accurate bank account and routing numbers,
• not ideal for time-sensitive payments,

Best for: Paying U.S.-based freelancers via direct deposit, especially for regular or scheduled payments.

Useme

Useme is a Europe-based company that provides an all-in-one payment platform designed specifically for freelancer payments. By all-in-one, we mean that it allows you to pay securely, handle contracts, and stay compliant without the usual paperwork or tax concerns – especially when working with international freelancers. Useme isn’t just a payment tool. It also acts as a legal intermediary – signing a contract with the freelancer, handling tax forms, and issuing a clean invoice directly to your business. You can also browse verified freelancers on Useme Jobs and outsource directly through the platform. They’re primarily based in Central and Eastern Europe, offering high-quality work at competitive rates.

Pros:

• You can pay all your freelancers in a few clicks,
• tax-compliant invoice issued directly to your business,
• legally binding contracts created on your behalf,
• fast cross-border transfers – freelancers usually get the money within a day or two,
• no need to collect personal or banking data from freelancers,
• freelancers can pick how they want to receive payments (e.g., they can get paid via PayPal or Payoneer, even if you choose a bank transfer or card payment)

Cons:

• some freelancers may need a brief onboarding,
• Customer Service available in the UTC+2 timezone,
• It’s better if you create an account.

Best for: All types of freelance payments – domestic and international, for one-off jobs, long-term projects, and recurring tasks.

Card payments

Using a credit or debit card to pay freelancers is fast, secure, and widely accepted on most platforms. However, it typically involves processing fees, which freelancers may pass on to you. To use this method, the freelancer must have a merchant account or be registered with a payment processor that supports card payment, such as Stripe, PayPal, or Square. Pros:

• fast and secure payments,
• works well for international freelancers,
• allows you to use card rewards or benefits,
• fraud protection from card providers

Cons:

• high transaction fees,
• not ideal for large payments due to added costs,
• not all freelancers accept payments via card,

Best for: quick one-time payments, especially through digital platforms with built-in card processing.

Checks

Though less common today, checks – both paper and electronic – are still used by some businesses to pay independent contractors. A check draws funds directly from your business account. The freelancer then deposits or cashes it, either in person or electronically. This method may suit traditional payroll systems or situations where the freelancer doesn’t have a bank account. Pros:

• no payment platform needed,
• no fees on domestic transactions,
• tangible paper trail for accounting,
• eChecks are faster than paper ones

Cons:

• slow delivery and clearing times,
• can get lost in the mail,
• risk of bounced checks,
• not suitable for international payments

Best for: Domestic freelancers, businesses with traditional payment systems, or cases without bank access.

Digital payment platforms

Online payment platforms like PayPal, Wise, Stripe, and Payoneer make it easy to send money to independent contractors worldwide. They support multiple currencies and often include tools like invoicing and payment tracking. Pros:

• fast and secure payments,
• supports international transfers and multiple currencies,
• no need to collect bank details,
• mid-market rate in Wise,
• preferred payment methods of many freelancers

Cons:

• processing fees, e.g., in PayPal, can add up,
• high currency conversion fees on some platforms,
• not available in all countries,
• less personal than bank transfers,

Best for: Fast, low- to mid-value international payments through platforms freelancers already use.

Online wallets

Apps like Venmo, Revolut, and Cash App are mobile wallets that let users send and receive payments instantly between app accounts. They are designed for speed and convenience, and some offer currency conversion features with competitive exchange rates. However, these platforms are mainly intended for personal use, not for formal business transactions. They often lack advanced security features, tax documentation, or integration with accounting software. Pros:

• fast and easy to use,
• low or zero service fees,
• good exchange rates for many currencies,
• no need for bank account details,

Cons:

• limited security and buyer protection,
• not designed for business payments,
• not ideal for recurring or high-value payments,
• may lack proper records for tax purposes,

Best for: One-time payments to freelancers you know or trust, especially for small jobs.

Freelancer marketplaces

Freelancer platforms let you hire and pay contractors through a built-in system. They often use escrow to hold funds until the work is approved, offering basic protection and simplified payments. Pros:

• built-in contracts and payment protection,
• escrow system ensures work is approved before payment,
• wide access to global freelance talent

Cons:

• high fees,
• payouts can take several days to process,
• payment is tied to the platform’s full order process, not just a simple transfer

Best for: One-off projects or first-time collaborations with freelancers found through platforms.

How to pay freelancers securely – fraud protection

Choosing the right freelancer payment method is important, but so is protecting your business from fraud. One way to stay safe is using escrow payments, where funds are held until the work is delivered and approved. Whenever you work with a new freelancer found on a marketplace, Useme offers escrow protection and performs a required KYC check on every contractor. That means you’re working with verified individuals using real identities and legitimate bank accounts.

💡Tip: Useme lets you turn on file verification. It allows you to review and accept work files from the freelancer before the money goes to their account. 

It helps protect you from scams, fake profiles, and lost payments. It’s a smart, secure way to handle international freelancer payments with confidence.

Set clear payment terms upfront with your freelancer

Picking the right payout method is just one part of the process – you also need to agree on the full payment structure to avoid misunderstandings later on. Setting clear payment terms from the start helps you avoid delays, disputes, and additional expenses. Be sure to cover the following details when discussing the contract:

Paying contractors – rate structure

Deciding on how to pay independent contractors, it’s not just about the method you use to send money. It’s also about how you agree to calculate the cost of the work. A clear rate structure protects both sides and helps avoid misunderstandings. Here are the most common ways to structure freelancer payments:

Hourly

It’s best for flexible or ongoing work. You pay for the actual time the freelancer spends on the project. This rating scheme works well for independent contractors whose scope isn’t fully defined or may change over time. Tools like time-tracking software or freelance platforms can help monitor hours. Be sure to agree on a maximum number of hours or a weekly cap to control costs.

Project-based

You agree on a fixed price for the whole job. This method works best for projects with a clearly defined scope and timeline – for example, building a website or designing a logo. It allows better budget planning but changes to the project should be reflected in the contract.

Milestone

Useful for longer or more complex freelance projects. You break the work into stages and pay a portion after each one is completed. This reduces upfront risk while keeping the freelancer motivated to deliver consistent progress.

Upfront 

Many freelancers, especially with new clients, ask for a deposit before starting. Paying a portion upfront (e.g., 30% or 50%) builds trust, especially for short-term or one-time tasks. Avoid paying the full amount before delivery unless you’ve worked with the freelancer before and have a strong relationship.

Retainers

In a retainer model, you pay a fixed amount regularly (usually monthly) for ongoing access to the freelancer’s services. This is ideal for long-term collaboration, recurring projects, or when you want the freelancer available as needed.

After completion

This is the most client-friendly method – you pay only once the full project is delivered and approved. However, many experienced freelancers may avoid this option unless there’s already an established working relationship.

Other models

Depending on the nature of the work, some freelancers may propose:

• per-word or per-page rates (common in writing and editing),
• commission-based pricing (e.g., a percentage of revenue generated),
• value-based pricing, where the rate reflects the business impact of the result rather than the hours spent.

Whichever structure you choose, make sure it’s in the contract, alongside payment deadlines, conditions for extra work, and what happens if the scope changes.

💡 Tip: Match the payment method to the project. For quick one-time jobs, online wallets may work best. For long-term work, use a method with stronger tracking and security like direct deposit or escrow.

Fees for extra work

When working with freelancers, it’s important to define how additional tasks outside the original scope will be handled. Unlike a regular employee, a freelancer typically charges separately for extra revisions, added features, or unexpected changes. To avoid confusion, make sure your contract states when and how the client pays for extra work. This could be a flat fee, an hourly rate, or a per-task charge agreed upon before the extra work begins. Clear terms protect both sides and keep the working relationship smooth.

Invoice deadlines and payment window

Agreeing on invoice deadlines and the payment window helps avoid misunderstandings and keeps your collaboration on track. Make sure the contract clearly states when the freelancer can submit their invoice – whether it’s after each milestone, at the end of the project, or on a recurring basis. Also, define how soon you pay after receiving the invoice. A common payment window is 7 to 14 days, but this can be adjusted based on the client’s preferences or internal processes. If you’re paying U.S.-based independent contractors, setting up direct deposit helps ensure timely payments within that window. Just like with a regular employee, consistency in payments helps build trust and keeps freelancers motivated.

The right currency for freelancer payments

When handling international transactions, choosing the right currency can really make a difference. While USD and EUR are widely used, choosing the local currency often reduces international bank transfer fees and improves the experience for your freelancer. If you’re figuring out how to pay freelancers abroad, make sure to ask which currencies they accept payments in and who will cover any conversion costs. Clear terms help avoid confusion later. Including currency details in your freelancer contract keeps your payment process smooth, compliant, and cost-effective.

Intellectual property and sensitive information

If your freelancer is creating original content – like graphics, videos, code, or written materials – make sure to define who owns the rights to the work in the contract. Who owns the work affects what you’re paying for. Full ownership or licensing often justifies a higher compensation. When working on projects involving confidential information, have the freelancer sign a non-disclosure agreement for added protection. NDA supports fair pricing for confidential work. If the freelancer agrees not to disclose sensitive information, you can safely assign higher-value or strategic tasks without risking leaks – making it possible to negotiate more accurate fees and expectations.

💡 Tip: Protect IP in writing. If the freelancer is creating original work, make sure your contract clearly defines who owns the rights — especially for content you plan to reuse long-term.

How to pay freelancers – never skip the contract

All of these details should be documented in a clear, signed (manually or digitally) agreement. The freelance project contract should also include essential details such as the freelancer’s bank account, debit card or wallet information and define the scope of work, rate structure, deadlines, payment terms, and what happens if the project changes. Without it, there’s no clear reference for what the freelancer is being paid for – which increases the risk of disputes, delays, or unexpected costs. Even if you’re working with someone you trust, a contract protects both sides and keeps your freelancer payments compliant and transparent. With Useme, you don’t need to draft a contract yourself. As an intermediary platform, Useme enters into a contract with your freelancer on your behalf – and then resells the completed work to you. The agreement is legally binding, compliant, and issued in English. While we handle the legal part, the terms are based on what you and the freelancer agree on – including deadlines, payment amounts, and project scope. It’s your deal, just fully formalized and secure.

FAQ: Freelancer payment methods

• What factors should I consider when choosing a freelancer payment option?

Start by checking where your freelancer is based – some methods work only in specific countries. Then compare fees, processing times, and security. It’s also important to ask your freelancer what method they prefer to avoid delays or account issues. If you’re making regular payments, look for a method that can be automated and tracked easily.

• How do I set up a payment process for multiple freelancers?

First, agree with each freelancer on their rate, payment method, and invoice schedule. Use a tool that keeps everything in one place – contracts, payment history, and tax forms. Automating payments can save you time and reduce mistakes. The goal is to have a system where you don’t need to double-check every transaction manually.

💡 Tip: Use a single invoice for multiple freelancers. If you’re working with a team of freelancers, platforms like Useme allow you to consolidate payments into one invoice, saving time and reducing paperwork.

• How do I pay domestic vs. international freelancers?

Domestic payments are usually simple – bank transfers or direct deposit are common and low-cost. For international freelancers, you’ll need to consider currency exchange and transfer fees. Use platforms like Wise or Payoneer to send money quickly and at better rates. Also make sure you understand tax form requirements depending on where the freelancer lives and works. Alternatively, you can settle a deal through Useme, where the freelancer chooses their preferred payment method and currency but that doesn’t impact how you pay them. Then, they pay their own taxes in their respective countries. 

• How can I reduce transaction fees when paying freelancers?

Traditional wire transfers are often expensive, especially across borders. For U.S. payments, ACH transfers are low-cost and reliable. For foreign remote workers, use platforms with fair exchange rates and transparent fees. If you’re working with many freelancers, consolidating payments or using an all-in-one platform can also cut costs.

• What’s the best way to handle currency exchange when paying international freelancers?

The most important step is to agree upfront on the currency for payments. Ask your freelancer if they want to be paid in their local currency or in USD. Services like Wise usually offer better rates and lower fees than banks. Avoid surprises by making sure you both understand who covers the exchange costs.

• What are the most common freelancer payment structures?

Freelancers often charge an hourly rate, per project, or per milestone. For ongoing work, retainers are also common. Whatever you choose, make sure it’s clearly written in your agreement, along with deadlines and payment dates. This prevents disputes and helps both sides plan ahead.

• Do I need to withhold taxes when paying freelancers?

In the U.S., you generally don’t withhold taxes for independent contractors – they handle that themselves. But if you pay a U.S.-based freelancer over $600 in a year, you must file Form 1099-NEC. For international freelancers, you’ll need Form W-8BEN and may have reporting obligations if the work is done inside the U.S. Always double-check the IRS guidelines or consult a tax advisor. Not sure how to pay your international freelancers without overpaying? Message us – we’ll explain everything. 😊