How to pay international contractors: A beginner’s guide

Paying international contractors is more complex than simply sending money overseas. You need to find the right talent, set clear agreements, choose compliant payment methods, and maintain thorough documentation to avoid legal and financial risks. Mishandling these steps can result in fines, payment delays, and damaged business relationships.

Let's take a look at how to pay international contractors compliantly and efficiently, and go over some best practices.

What is an international contractor?

An international contractor is a self-employed individual or business entity that provides services to your company while living in another country.

Unlike employees, contractors work independently and decide how to complete their tasks, and they usually operate under their own business name or entity. They also handle their own taxes and don't receive company benefits, often working on a project basis and serving multiple clients at once

Why classification matters

Getting worker classification right is important for legal compliance. The main factors that determine contractor status include the level of control you have over their work, their independence in using their own equipment and methods, and the way they are paid, such as per project or hour, or without tax withholdings.

You'll run into problems if you treat contractors like employees, such as setting strict work hours, providing equipment, or managing their daily tasks. If workers are misclassified, the business could face back taxes, penalties, and legal disputes that become even more complicated across international borders.

Proper classification protects the business from compliance issues while ensuring smooth working relationships with talented professionals worldwide who can help drive the company's growth and success.

How to pay a foreign contractor

When paying international contractors, you have several payment methods to choose from, each with its own pros and cons. Consider factors like transaction costs, cross-border fees, transfer speed, currency conversion fees, and how easy the method is for both you and your contractor.

Here's a comparison of the main payment methods:

Choose the payment method that works best for your specific situation, keeping both your budget and the contractor's preferences in mind for a smooth, professional partnership.

1. International bank transfers (wire transfers via SWIFT)

International bank transfers send funds directly from your bank to the contractor's local bank account. For most cross-border payments, this process uses the SWIFT (Society for Worldwide Interbank Financial Telecommunications) network. Here’s how it works:

• Process: You initiate the transfer using the contractor’s banking details. Your bank communicates with the recipient’s bank through the SWIFT network, often using intermediary banks to bridge different financial systems.
• Considerations: Watch out for hidden costs—unfavorable exchange rates and intermediary bank fees can reduce the amount your contractor receives
• Documentation: International wire transfers often require supporting documents, such as invoices or contracts, and may need purpose codes depending on the country
• Best for: Large payments, established contractors, or when you need a globally recognized, secure method

2. Digital payment services

Digital platforms offer a streamlined alternative to traditional banks. These services are ideal if you work with multiple freelancers in different countries, need to send frequent, smaller payments, or want to minimize administrative overhead. Here’s why is when digital payments are used:

• Accessibility: Contractors can set up accounts with just an email and basic ID, making these platforms accessible even in regions with limited banking infrastructure
• Convenience: Mobile apps and online dashboards make it easy to send, receive, and track payments. Many platforms integrate with accounting software for easier record-keeping
• Speed and fees: Payments are often faster and fees lower than traditional wire transfers, but costs and exchange rates vary by platform
• Best for: Small businesses, startups, or those working with contractors in emerging markets

3. Employer of record (EOR) services

An employer of record (EOR) is a service provider that acts as the official employer for international contractors. The EOR handles creating compliant contracts, processing payments through local banks, managing tax withholdings, and ensuring compliance with local labor laws. This creates a legal buffer for the business while letting you work directly with the contractor.

EORs are especially helpful if compliance is of the utmost importance. They take on the administrative burden of navigating tax systems, payment methods, and legal requirements in each region. This reduces the internal workload and legal risks, especially around misclassification or tax errors.

If you're expanding into new markets, EORs offer a scalable solution so you can focus on the core business. The main trade-off is cost as EORs usually charge a percentage of contractor payments plus service fees. This option is best if you value compliance and simplicity over minimizing direct expenses.

Whichever method you choose to pay international contractors, the goal is to balance efficiency, cost, and the needs of the working relationship.

Compliance and risk management to pay foreign contractors

Staying compliant when paying international contractors is vital for the business's legal and financial health. Ignoring compliance can lead to tax penalties for misreporting, legal disputes that disrupt projects, and loss of contractor status if relationships aren't structured correctly. These problems can quickly escalate from minor headaches to major business disruptions.

Key legal considerations when working with international contractors include tax documentation, the risk of creating a permanent establishment, which could result in corporate tax obligations in another country, and the need to comply with local labor laws that may require specific contract terms to maintain independent status.

If you run a small or medium business, use a basic process for compliance:

1. Verify contractor status with clear written agreements outlining project scope, deliverables, and independence
2. Collect the right tax documentation before making the first payment
3. Keep detailed payment records and corresponding invoices
4. Review arrangements annually to ensure they haven't shifted into employment relationships

If you run a large corporation, there are additional steps to the process:

1. Standardize contractor onboarding with legal review
2. Conduct regular compliance audits in all international markets
3. Create country-specific contract templates to address local requirements
4. Develop clear policies to prevent control-based relationships with contractors

Regardless of business size, keep comprehensive digital records of agreements, correspondence, invoices, and payment confirmations. Use standardized agreement templates that clarify independent status and project details, and regularly review all contractor relationships to catch compliance issues early.

These processes protect the business during audits and create clarity for both you and your contractors.

Best practices for paying international contractors

Setting up good systems and clear communication from the start will save time, prevent headaches, and create positive working relationships with the international team. Here are some best practices to consider:

• Keep detailed records: Store digital copies of all signed agreements, invoices, payment confirmations, and tax documents in a secure, centralized system. Use consistent naming conventions for files to make audits and reviews easier, and log payment dates, amounts, and exchange rates for each transaction to create a clear audit trail.
• Set clear payment timing: Discuss payment timing expectations up front. Contractors in different regions may have different norms. Some may prefer monthly payments, while others expect payment after each milestone.
• Accommodate payment preferences: Payment method preferences vary by region. Contractors in areas with limited banking access may want digital payment platforms, while those in established markets might prefer traditional bank transfers for larger sums.

Pay vendors almost anywhere—with Ramp Bill Pay

Ramp Bill Pay is your all-in-one hub for managing accounts payable and vendor payments—no matter where your contractors are or how they prefer to get paid. It replaces fragmented tools and manual workflows with a single system built for speed, accuracy, and control.

Whether you're paying international contractors, cutting a check for a one-time gig, or covering recurring invoices, Ramp lets you move money the way that makes sense for your business.

Choose from a range of payment options:

• International wire transfers: Ramp supports payments to vendors abroad in U.S. dollars or payments to international vendors in their local currency
• Domestic wire transfers: Great for large, time-sensitive payments. Ramp enables same-day domestic wires for eligible transactions, with secure processing through the FedWire network.
• ACH (Direct deposit): Ideal for payroll, recurring vendor payments, and predictable disbursements. Ramp supports both regular and same-day ACH for faster delivery on eligible bills.
• Ramp cards: Pay vendors by card—either with your existing cards or one-time-use Ramp cards—to earn cashback for vendors that accept Visa
• Check payments: For US-based vendors who still prefer checks, Ramp can issue and mail checks on your behalf.

Ramp gives you full visibility and control over every payment—so you can keep vendors happy, close the books faster, and never worry about missed deadlines or clunky workarounds.

Whatever the need, Ramp Bill Pay makes it easy to pay your vendors.