Subsequently, a self-employed contractor may be considered a worker by the authorities of the host country during or after hiring, resulting in significant penalties for employers and reputational damage that far exceed the costs of employment. Professional assistance, well aware of the labour rights of the host country, is essential for the recruitment of self-employed contractors abroad. If a U.S.-based company hires U.S.-based contractors who earn more than $600 within a year, they should submit Form 1099-NEC (non-employee compensation) to the IRS. Starting in fiscal year 2020, companies working with contractors use Form 1099-NEC to submit payments to contractors, instead of Form 1099-MISC used in previous years. Effective for fiscal year 2020, what was previously box 7 on Form 1099-MISC becomes box 1 on Form 1099-NEC, and box 7 on 1099-MISC is removed. Form 1099-NEC was last used in 1982 and is now resurrected by the IRS. On this form, employers report the total payments made during the year to each contractor who received more than $600. Form 1099-NEC should be submitted to the IRS by January 31 for the previous year. In most countries (including the United States), it is not enough to define an employee as a contractor in a written agreement. Instead, countries examine the facts of the relationship in order to determine whether a worker is a contractor or an employee. Companies that hire independent contractors, local or global, are often motivated by financial reasons. Recruiting independent contractors is much cheaper than recruiting staff at a lower cost for social benefits, offices and equipment. In this article, we discuss the main legal issues you need to consider when considering using foreign contractors.
A U.S. citizen is subject to the same tax rules everywhere. Even if the service is provided outside the United States and the contractor spends enough time to reside for tax purposes in another country, he is a U.S. citizen in the eyes of the IRS. Therefore, the company would have to provide a Form 1099, as it would for all contractors based in the United States. Although PayPal is available in 202 countries as of December 2016, you can`t use it in some countries that employ a lot of talent. International transfers are often the only option.