How to pay international employees: practical guide for businesses

Each country has its own rules, taxes, and payroll regulations. If you don’t follow them, you may face legal issues, extra costs, or lose your top people.

In this guide, you’ll find:

• 3 ways to pay international staff: employees and contractors,
• how to stay compliant with local laws,
• and how to keep payments smooth and stress-free.

Explore your options for how to pay international employees and contractors abroad.

Choose the right setup for global payroll

Before you send a single payment, take a step back and ask yourself: What kind of employment relationship do you want?

Are you hiring full-time employees in a foreign country? Or working with international contractors on short-term projects? Your answer changes everything – taxes, contracts, payroll, and how much control you have.

To stay compliant, you need to match the setup to the role. Many businesses skip this step and pay for it later with fines or legal disputes.

Here are your three main options:

1. Set up a legal entity in the target country.
2. Use a legal employer through an Employer of Record (EOR).
3. Work with independent contractors and manage payments directly.

Each model has pros and cons. And each one affects how you handle your payroll processes, tax obligations, and local compliance.

Option 1: Set up a local entity abroad

If you want to hire overseas employees as full-time team members, you’ll need to create a local entity. This is the most complex and expensive option, but it gives you full control.

You must:

• Register your business in that foreign country.
• Follow local labor laws and employment laws.
• Run local payroll and handle employer contributions.
• Manage benefits administration like health insurance and paid leave.
• Stay compliant with local payroll regulations and tax laws.

This setup makes sense if:

• You plan a long-term established presence.
• You want to hire many foreign employees.
• You need full access to the local talent pool.

💡 Keep in mind: It takes time, money, and legal support. You’ll also need to deal with local reporting, audits, and ongoing tax compliance.

Option 2: Use an Employer of Record (EOR)

Want to hire international employees fast without setting up a legal entity? An Employer of Record (EOR) can help. An EOR is a third-party company that becomes the legal employer on your behalf. 

You manage the daily work. The EOR handles the admin, including:

1. Contracts and onboarding.
2. Payroll taxes and tax withholding.
3. Salary disbursement.
4. Benefits administration.
5. Full compliance with local employment laws.

It’s a smart option for:

• Testing new markets.
• Expanding fast.
• Managing international hiring without extra paperwork.

The downside? It’s more expensive than working with contractors, and you lose some control. Also, not all EORs are equal – check how they handle international transactions and ongoing compliance.

But if you want to pay international employees legally and without risk, this is one of the safest ways.

Option 3: Work with international independent contractors

If you don’t need a full-time hire, go flexible. Independent contractors are self-employed professionals who work with you on a project basis. You don’t need to set up a local entity or use an EOR. You just sign a contract and pay them for their work.

This is the easiest way to work with remote workers or bring in international contractors for short-term projects.

💡 Be careful: If you treat a contractor like an employee – by setting their schedule or controlling their process – you risk misclassification. That can lead to fines, back taxes, or even legal disputes.

To stay safe:

• Use a written agreement.
• Define clear payment schedules and project scope.
• Make sure the contractor handles their own taxes.
• Keep records and follow local tax regulations.

Many businesses prefer this model when hiring contractors in different countries. It’s fast, cost-effective, and flexible – but only if you handle invoice management, contracts, and international payments properly.

How to pay 1099 contractors vs international employees

In the U.S., 1099 contractors are self-employed individuals who work for your business but aren’t your employees. They handle their own taxes, benefits, and tools. Internationally, the rules vary – but the core difference stays the same: control and classification.

Here’s how 1099 contractors compare to international employees:

At first glance, paying international employees might seem complex – you need to follow local laws, run payroll, and offer benefits. However, once you set up a local entity or use an EOR, most of it becomes a structured, repeatable process.

With international 1099 contractors, it’s a different story. There’s no built-in system. You’re on your own when it comes to contracts, tax paperwork, deadlines, and cross-border payments. And if you misclassify the relationship or miss a compliance step – it’s on you. So how do you make it easier, safer, and less time-consuming?

How to pay international contractors the easy way

Paying foreign contractors can be messy, especially if you have to deal with multiple currencies, high fees, and late invoices.

You need to:

• Make sure contracts and paperwork are in place.
• Stay compliant with tax rules in different countries.
• Pay on time – without chasing or micromanaging.

That’s where Useme helps. Useme isn’t a payment processor or payroll provider. It’s a freelancer platform that helps you legally settle deals with independent contractors – even if they don’t run a registered business. Useme acts as an intermediary:

• You agree on the project with the contractor.
• Useme signs a legal contract with them.
• You receive one invoice from Useme.
• After your payment, Useme takes care of paying the contractor, handling taxes, and keeping everything compliant.

It also simplifies admin:

• One business account.
• You don’t need to gather data or sign contracts – Useme does it for you.
• Clear invoice management.
• Integration with your accounting software via API – so all payment data flows straight into your system.

You send one payment to Useme – we handle the contractor payouts in their local currency, along with all contracts, taxes, and deadlines. No need to manage separate transfers, deal with tax paperwork, or chase freelancers for invoices.

Alternative payment methods for contractors

Other common payment methods for foreign contractors include international wire transfers, local bank transfers (if available), or platforms like Wise and PayPal. However, these methods often require extra paperwork, higher fees, or currency conversions.

Tax and compliance basics

No matter which model you choose – employee or contractor – you’re responsible for tax compliance.

If you’re hiring employees abroad:

• You may need to withhold income tax and pay payroll taxes.
• You must follow local employment laws and local tax rules and provide benefits like health insurance.
• Mistakes can lead to audits, fines, or blocked payments.

If you’re working with international contractors:

• They usually handle their own taxes.
• But you still need proper documents (like Form W-8BEN for non-U.S. contractors).
• Some countries may still require tax withholding or reporting, especially if services are delivered in your home country.

To maintain compliance, make sure you:

• Research local regulations and employment laws.
• Understand tax obligations for each country.
• Keep records of contracts, invoices, and payments.
• And when in doubt – talk to a tax professional.

Whether it’s international payroll or contractor payments, staying compliant isn’t optional. It protects your business and builds trust with your international team.

💡 Pro tip: If you manage a large international workforce, consider using international payroll software or working with a trusted payroll provider. This will help you reduce compliance risks and more efficiently handle employee classification and payroll taxes for foreign employees.

Summary: How to pay international employees

There’s no one-size-fits-all way to pay international staff. It depends on who you’re hiring and how you want to manage the employment relationship.

Here’s a quick recap:

• Set up a local entity if you want to build a long-term team of local employees and have full control. It’s the most complex path — but it gives you full access to the local market.
• Use an Employer of Record (EOR) if you need to hire fast in different countries without the paperwork. Great for growing your international workforce safely.
• Work with independent contractors if you want to move fast, stay lean, and work cost-effectively on projects. Just make sure payments and taxes are handled properly.

Each option has trade-offs. But with the right setup, you can run global payroll, manage salary disbursement, and scale your international hiring – all without risking fines or delays.

→ If you choose the contractor route, platforms like Useme help you do it all legally, simply, and globally. That way, you can grow your international team with less risk and more results.