Hiring International Contractors vs. Local Workers: Which Is the Right Fit?

When your business is ready to bring on new talent, sometimes you have to think beyond the office walls and even beyond country borders. But with all of its complexities, you might wonder if the benefits of hiring international contractors make it the right fit for you, or if you should choose local talent.

On Upwork, you can hire both. With a network of contractors spanning over 180 countries and 10,000 skills, there is a professional fit for practically every business need. Given that 28% of U.S. knowledge workers currently freelance or work independently, there is a huge market of specialized talent in the States alone. Now, imagine the possibilities when you cast your net even wider.

If you're unsure how to decide between the two — or plan to hire a mix of both — here's how to break down the costs, benefits, and legal implications.

Defining international independent contractors

Simply put, a foreign independent contractor works outside of the client's home country. They are external vendors. Most of the time, they will have their own tax and legal obligations, as well as their own business setup.

Some of the key factors that define global contractors are:

• They are not employees. Much like local contractors, foreign contractors work independently. They will not be on the company payroll.
• They live in another country. International independent contractors may have a different country of residence from the hiring U.S. company.
• They have their own tax obligations. Global contractors will have their own tax laws, which they are responsible for following.
• They are usually paid per project. While terms can vary, contractors are often hired to deliver project-based work rather than for ongoing work.
• They adhere to a contract. Businesses often require an independent contractor agreement and an NDA to help protect their intellectual property (IP), outline the project scope, and define the working relationship.

Global vs. local talent: The benefits and drawbacks

Making a decision about hiring global talent vs. local freelancers often comes down to a few key considerations. Cost, communication, and access to skills are often the top factors. In particular, small businesses will need to weigh the following:

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Another drawback to be aware of when hiring international contractors is scams. As one user noted in the r/Entrepreneur subreddit:

"You need to make sure they are vetted. There are tons of stories in this sub from people who got scammed or got subpar quality for not doing proper vetting. You could give [global contractors] a short trial period before giving them longer contracts. Unless you are going with someone with a really good reputation or reviews."

One way around this is to partner with a platform like Upwork. Upwork helps vet contractors from all around the world with tools like talent badges and Job Success Scores, and can also help your company handle onboarding, tax forms, and compliance when doing global hiring.

Legal basics: Staying compliant with labor and tax laws

While hiring contractors can offer flexibility, there is no room for misclassification. Employment laws are strict, and failing to meet tax obligations can have serious repercussions. 

Let's break down how full-time employees and independent contractors can differ under U.S. law.

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Companies that hire foreign freelance talent should consider drafting an independent contractor agreement that outlines the nature of the role. Workers who are not U.S. citizens may also need to fill out IRS Form W-8BEN, which certifies that they are receiving income from a U.S.-based source and outlines certain tax treaty benefits.

Contractors based in the U.S. typically need to fill out IRS Form W-9. Each year, employers then need to report all nonemployee compensation over $600 via IRS Form 1099-NEC.

In most cases, companies are not responsible for withholding taxes for foreign contractors. Self-employed contractors are responsible for understanding their own local tax laws and income tax rules. However, clients should still collect the proper tax forms for recordkeeping and compliance.

If companies need help with compliance, they may also turn to an employer of record (EOR) service. EORs are usually used for managing compliance of full-time international workers. However, they can also be helpful if a contractor's country enforces strict tax laws or you're building a long-term working relationship.

How U.S. companies pay international contractors

Luckily, paying contractors from different countries is fairly easy, with plenty of global payment platforms to choose from:

• PayPal. PayPal has a complex and expensive cross-border fee structure. That said, it also offers fast transfer times and is one of the most widely used payment platforms available.
• Payoneer. If your recipient has a Payoneer account, you will pay up to 1% of the transaction amount with a minimum fee of up to $4. There is a 3% fee for sending money to non-Payoneer accounts.
• Wise. Fees vary depending on the currency exchange. Expect them to start at around 0.33%.
• Wire transfer. Wire transfers can be a secure, reliable way to send large payments, but they are notoriously expensive and can take several days. Transfer fees can be as high as $30. 

If you hire through Upwork, you'll gain access to a secure payment system that is built directly into the platform. You can easily pay international contractors from one comprehensive hub.

Reducing the risks of global hiring

According to Economist Impact, 53% of companies cite financial and legal risk reduction as the main reason they bring on external talent. But hiring international contractors is not without risks. Some of the biggest issues include:

• Misclassification risk. Treating foreign contractors like full-time employees can violate labor laws and cause a tax nightmare.
• Payment problems. Transaction fees can add up, and payment delays may be a cause of frustration.
• Intellectual property (IP) concerns. Company documents and trade secrets need to be protected. 
• Legal inconsistencies. Local labor laws will differ. What's standard in the U.S. may be completely different in the contractor's country.

As with many risks, there are ways to mitigate problems before they arise. Companies may be able to get ahead of these issues if they do the following:

• Create a strong contractor agreement. Protect your company's IP. Draft a contract that clearly defines deliverables, rights, jurisdiction, and any non-disclosure agreements (NDAs).
• Track payments carefully. Recordkeeping is key for paying contractors accurately and on time.
• Review tax and legal requirements. Before starting a relationship with remote contractors, consider consulting with a legal expert.
• Use a platform like Upwork. Built-in contractor payment and compliance tools streamline onboarding while minimizing risk.
• Consider an EOR service. For complex or high-stakes scenarios, it may be best to partner with an EOR to help you stay compliant.

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Which option is right for your business?

Choosing between global contractors and local contractors is not an either-or decision. Hiring foreign contractors, for example, might open the door to more candidates if a specific skill is needed. Meanwhile, U.S.-based workers may have the advantage when it comes to communication and legal requirements.

Often, the right answer is a mix of the two. With a blended model, companies can better tackle skill-specific tasks, maximize flexibility, and reduce overall costs. A working relationship with both types of contractors is a great way to maximize productivity and output.

If you're ready to hire U.S.-based or international contractors, Upwork has all of the tools to support a distributed team. Through the platform, you can source talent, manage and automate payments, and even keep compliance in check.

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This article is intended for educational purposes and should not be viewed as legal advice. Please consult a professional to find the solution that best fits your situation.

Upwork is not affiliated with and does not sponsor or endorse any of the tools or services discussed in this article. These tools and services are provided only as potential options, and each reader and company should take the time needed to adequately analyze and determine the tools or services that would best fit their specific needs and situation. 

Prices are current at the time of writing and may change over time based on each service's offerings.