But there’s a process to follow. If you want to know how to hire an independent contractor without legal risk, you need to follow the rules.
The Internal Revenue Service (IRS) has strict rules about the employer-employee relationship. If you misclassify a worker, you risk fines, back taxes, and legal issues. You also need the correct paperwork, payment process, and tax information – especially when hiring from abroad.
In this guide, you’ll learn:
- How to determine employment status correctly.
- What paperwork you need to hire an independent contractor.
- How to manage payment, contracts, and onboarding.
- And how platforms like Useme help you stay compliant and avoid admin hassles.
Make sure it’s the right type of worker
Before you hire contractors, make sure they qualify as independent contractors – not employees. This step is critical. If the Internal Revenue Service (IRS) decides that your contractor is actually an employee, you could be responsible for employment taxes, Medicare taxes, Social Security, and even unemployment insurance.
What’s the difference?
The key aspect is control. If your company decides how the work is done – when, where, and using what tools – that’s an employer-employee relationship. If the person decides how to deliver the result, uses their own tools, sets their pay rates, and works with other businesses, they likely qualify for independent contractor status.
To determine a worker’s status, the IRS uses the Common Law Rules and the Economic Realities Test. These tests look at:
- how much control you have over the work performed,
- whether the contractor can take on work from many independent contractors or just a single employer,
- who provides the tools and covers business expenses,
- whether the person is part of your core operations or brings in specific skills temporarily,
- and if they run an independent business as a sole proprietor or LLC.
Misclassification happens when companies treat a contractor like an employee. That means:
- fixed work hours,
- using your internal systems and tools,
- no clear contract or job scope,
- and treating them like one of your own employees.
📌 Tip: The employment status isn’t defined by the job title. It’s based on how the person actually works with you.
→ Still not sure? Read our contractor status guide to better understand how the IRS defines independent contractors – and what makes them different from employees.
Understand the legal basics
Once you’ve confirmed the employment status, it’s time to handle the legal side. This step protects your business and shows the IRS that you’re following the rules.
What paperwork do you need to hire a 1099 employee?
If you’re hiring independent contractors in the U.S., you need:
- W-9 form – to collect the contractor’s taxpayer identification number (TIN).
- 1099-NEC form – if you pay $600 or more during the year. You must report this payment to the IRS.
- A written contract – clearly stating the services provided, deadlines, project requirements, and who owns the intellectual property.
If you’re working with foreign contractors, ask for:
- W-8BEN form – confirms they’re not a U.S. resident and helps determine if income tax withholding applies.
This paperwork helps you prove that your contractor isn’t one of your full-time employees and that you aren’t responsible for federal employment taxes like Medicare or Social Security.
What to include in the contract
A good independent contractor agreement should:
- define the job description and expected results,
- explain the payment model (hourly, milestone, or per project),
- confirm that the contractor pays their own taxes and handles all business aspects,
- include a clause about intellectual property (IP),
- state that the contractor uses their own tools and is responsible for business expenses,
- mention that the contractor doesn’t receive employee-type benefits like health insurance, holiday pay, or sick pay.
📌 Contracts don’t have to be long – but they must be clear. They help avoid disputes and protect your business in case of an audit or disagreement.
Can a U.S. company hire a foreign independent contractor?
Yes – but you must follow tax rules and local labor laws. A U.S. company can hire a foreign independent contractor as long as the person is truly independent and performs the work outside the United States.
This type of collaboration is common in IT, marketing, content, and design – especially for short-term projects that require specific skills. Here’s what you need to stay compliant:
1. Confirm it’s not an employment relationship
The contractor must control how they perform services, choose their own schedule, and use their own tools. If they depend on your company like an employee, you may face reclassification risks and have to pay employment taxes, Social Security, and Medicare taxes.
📌 Even if the contractor works remotely, the IRS looks at the real working relationship, not location alone.
2. Get the right documents
To hire foreign contractors legally, collect:
- A signed written contract – stating that the contractor is fully independent.
- A completed W-8BEN form – to confirm non-U.S. tax residency and avoid incorrect income tax withholding.
- Contractor’s taxpayer identification number (if applicable in their country).
3. Pay taxes correctly
In most cases, foreign contractors must pay taxes in their home country – not yours. But you must keep records of the services provided, payments, and contracts. If the work performed happens in the U.S., extra rules may apply – consult a tax advisor if unsure.
4. Avoid payment delays and confusion
Currency exchange, invoice issues, or missing documents can delay projects and hurt trust. Platforms like Useme solve this:
- You agree on the project and services.
- Useme signs the contract and collects all required forms.
- You get one invoice in your language and currency.
- We pay the contractor, handle taxes, and keep everything compliant.
→ That’s why many companies choose Useme to hire contractors abroad. It’s legal, fast, and risk-free – even if the contractor doesn’t run a business or invoice you directly.
How to find the right contractor
Now that you know how to legally hire an independent, it’s time to find the right person for the job.
Define what you need
Start with the job description. What skills are required? What’s the timeline? Do you need someone for contract work, a one-time task, or ongoing support? Clear project requirements help you attract the right talent from the start.
Look at the contractor’s work history, portfolio, and references. Some businesses also run background checks, especially when sharing sensitive data or system access.
Focus on specific skills, not job titles. Many independent contractors offer specialized expertise that your in-house team may not have – for example:
- a UX designer for mobile app optimization,
- a GDPR consultant for an EU rollout,
- or a copywriter for SEO landing pages.
Where to find contractors
There are many freelancer platforms, but not all are created equal. Some don’t provide legal support or formal agreements. Others require the contractor to run a business or issue their own invoices.
That’s where Useme Jobs helps. It’s the best site to find contractors who:
- don’t run registered companies,
- work from different countries,
- and are ready to start short-term projects quickly.
You can search by hashtag, filter by skill, and get matched with verified professionals. Or post your own job offer – and let freelancers apply directly to you. It’s fast, easy, and fully compliant.
Once you find the right match, define clear expectations:
- project scope and services provided,
- timeline and feedback process,
- payment terms and IP ownership,
- and who covers business aspects like software licenses or materials.
Make sure both sides agree on how you’ll provide feedback and communicate during the project.
Set up onboarding and payments
Once you’ve picked the right contractor, make onboarding fast and clear. Even though you’re not hiring an employee, you still need a smooth working relationship and clear communication.
Start with onboarding basics
Onboarding helps your independent contractor understand your tools, expectations, and goals. This step reduces delays and sets the tone for your collaboration.
→ Download our free checklist: Freelancer onboarding guide
Make sure to cover:
- The services provided and final deliverables.
- Key deadlines and feedback loops.
- Who to contact with questions or updates.
- Any access to internal tools or data (if needed).
A structured start helps you avoid confusion later – especially if you work with many independent contractors.
Set payment terms clearly
You don’t have to offer company benefits, but you must define:
- Pay rates – hourly, per project, or milestone.
- Payment method – wire, platform, or direct transfer.
- Paid time for revisions or rush tasks (if applicable).
- What happens in case of delays or missed deadlines,
Remember: contractors aren’t entitled to minimum wage, sick pay, holiday pay, or workers’ compensation – unless you misclassify them. To avoid risk, focus on the outcome, not the process. Let the contractor work independently.
💡 Want to make sure you pay your contractors the right way – and on time? Check out our full guide: How to pay independent contractors.
Collect tax information
Even if you don’t pay taxes on the contractor’s behalf, you still have responsibilities.
- For U.S. contractors: collect Form W-9 with their social security number or business TIN. If you pay over $600 per year, file 1099-NEC.
- For non-U.S. contractors: collect Form W-8BEN and keep records of the contract, payments, and services performed.
Incorrect or missing tax paperwork may result in backup withholding – meaning you’ll need to hold part of the payment for the IRS. That’s why keeping full tax information and documentation is a must.
Pros and cons of hiring a 1099 employee
Working with independent contractors gives you flexibility and access to talent – but it’s not the right choice for every situation. Let’s break it down.
Pros of hiring independent contractors
- Lower costs – you don’t need to pay employment taxes, Medicare taxes, Social Security, or offer employee-type benefits like health insurance, holiday pay, or sick pay.
- Specialized expertise – independent contractors bring specific skills for tasks your team can’t cover. They work with other businesses, so they’re used to adapting fast.
- No long-term commitment – you can scale up or down based on project requirements. Perfect for short-term projects.
- Faster onboarding – you avoid the formal HR process. The working relationship starts with a clear scope and a written contract – no payroll, no benefits setup.
- Less admin work – Useme handles contract, tax forms, and payouts in one platform. You focus on results – not paperwork.
Cons and risks
- Less control over work – You can’t treat a contractor like a regular employee. If you do, the IRS may reclassify the person based on the single factor of how the work performed is controlled.
- No exclusivity – most contractors work with other businesses. You’re not always their top priority.
- Risk of misclassification – if the IRS sees an employment relationship, you may owe back income tax, unemployment insurance, and more – even if you thought it was clear.
- No long-term loyalty – contractors can leave after the job is done. You may need to repeat the background checks and onboarding process for future projects.
📌 1099 contractors are great for independent business needs – as long as you treat them like true partners, not disguised employees.
Summary: how to hire an independent contractor
Hiring independent contractors can help your business move faster, stay flexible, and access specialized expertise – without the costs of full-time employees. But to do it right, you must:
- Determine employment status – make sure you’re not creating an employment relationship. The IRS doesn’t care about job titles. They look at other factors like control, tools, and independence.
- Use a written contract – outline the services provided, project requirements, and who owns the work.
- Collect the right tax forms – W-9 or W-8BEN, depending on the contractor’s location. Get their taxpayer identification number early.
- Set clear expectations – scope, deadlines, pay rates, communication, and ownership.
- Respect independence – let the independent contractor decide how they deliver. Focus on results, not the method.
📌 One mistake – like controlling how the work is done – can be a single factor that changes your contractor into a reclassified employee, with all the tax and legal consequences.
Want a safer, faster way to hire an independent contractor – even internationally?
Useme makes it easy to hire an independent contractor, handle contracts, manage payouts, and stay compliant – all in one place.
- No need to create your own contract
- No chasing for forms or signatures
- No headaches with international payments
