How to Get Paid as an Independent Contractor
Need help onboarding international talent?
- Negotiate payment terms and include them in an independent contractor agreement.
- Choose a cost-effective and convenient payment method and send your clients professional invoices.
- Fulfill tax obligations and save the necessary tax forms.
How are independent contractors paid? Unlike regular employees, independent contractors are not paid a salary through a company’s payroll. Instead, a hiring company compensates contractors through the contractor’s preferred payment options. These payment options depend on the unique terms of the work arrangement, the contractor’s country of residence, and the most cost-effective and efficient payment methods available.
Below we go over the steps involved in how to get paid as a contractor:
Step 1: Negotiate payment terms
Contractors have greater control over how a client pays them. Before embarking on a work project, contractors must first agree upon the terms of the work arrangement and sign an independent contractor agreement, a written contract outlining their desired pay rate, schedule, and payment method.
There are different ways to request payment as a contractor, including the following:
- Upfront payments: Some independent contractors require payments from their clients before starting a project
- Milestone/project completion payments: Contractors may require the client to make payment after they achieve a milestone or deliver the work
- Down payments: Contractors may require a partial payment up-front
- Hourly, weekly, biweekly, or monthly payments: Contractors may want to agree upon a payment schedule to receive money regularly
Step two: Arrange the payment method
For contractors residing in the same country as their clients, direct deposit, personal checks, domestic wire transfers, and payment apps like PayPal are common and effective ways to receive payment.
However, contractors that live in different countries to their clients have additional exchange rates, conversion fees, and bank charges to consider that impact both the payer and the contractor.
Note: Some jurisdictions require clients to pay contractors in their local currency. Check your local labor laws to ensure you receive compensation in line with these requirements.
Below we share some different payment options and how they fare for international payments:
Payoneer is one of the favorite options to get paid because of its availability and easy options to transfer funds to your bank account. In addition to this, Payoneer offers its own Master Card that can be used across the globe for credit card payments, as well as online shopping. The card can be shipped worldwide at your own expense. You’ll need to wait several weeks, depending on your location. Notably, their fees are higher than the average.
Countries supported: 200+
Currencies supported: 25
Fees: 2.9% + $0.30 (typically, but varies on the country). Deel users have a special reduced fee of 2.5% globally.
PayPal has dominated the market for a while. PayPal is present in many countries, very easy to use, and offers discounts and special deals for business users.
However, it comes with a few restrictions, one being that you can’t get paid through the Friends & Family option. In addition, PayPal isn’t insured by FDCI, meaning that if it becomes insolvent, you will lose all of your money.
The biggest benefit of using Wise is its significantly lower fee. Wise transfers money from its UK headquarters to one of its local partners, enabling you to receive the funds in your chosen currency. Users can also see the exchange rates and fees before sending the money. However, Wise isn’t present in that many countries, so it might be challenging for you to use it if your client’s country isn’t on the list.
Countries supported: 31
Currencies supported: 31
Fees: $0 fees unless you make a cross-currency transfer, which is 0.5% on any amount exceeding the free foreign exchange allowance. Your client must have a Revolut account to pay you.
More than 12 million customers are currently using Revolut. One thing that sets Revolut apart is that it has the option to provide gold and crypto payments. Revolut has no hidden fees, business and private customers can use the service, and it has a very user-friendly app. You can choose from one of the several subscription options and deals.
However, to get paid with Revolut, your client needs a Revolut Business account. They can open one if registered and have a physical presence within the European Economic Area (EEA) and Switzerland.
International bank transfer
Countries supported: all
Currencies supported: all (exchange rates apply)
Fee: For payments going through SWIFT, fees can be anywhere from $20-75$
If the payment options above are not feasible, an international wire transfer is often the only option. Processing money this way often goes through SWIFT. In this case, the banks take a fee for providing this service.
Wiring money internationally is not a very cost-effective payment method because both the sending and receiving banks charge high fees. Banks also have different exchange rates, and you could lose money in the exchange rate.
Step three: Send an invoice to the client
Sending invoices for services rendered is a key part of getting paid as an independent contractor. To avoid any errors, legal troubles, and misunderstandings and maintain a good professional image, it’s a good idea to send your clients invoices that contain the following key elements:
- Document name: Label the invoice document within the header using bold letters
Company logo: If you have a company logo, include this in the header to add a touch of personalization and trustworthiness
- Invoice number/ code: Assign dedicated numbers to each invoice to make record-keeping easier. Simple multi-digit numbers will do, but you can also create a special code system containing the invoice date and client name. This system is more complicated, but it can help you find the exact invoice you need quickly if there are many
- Invoice date: Include the sending date to prevent late payment and other miscalculations.
Your business details: Business name, your name, and contact information (email, phone number, and maybe address)
- Client’s contact information: The same information as in the previous step, but include billing contact or billing department of larger enterprises
- List of services: List each service you provided individually, along with a brief description of your work, amount of hours spent working (or word numbers, for writers), hourly rate (or price per word), and subtotal for each service
- Total amount due: Total cost for services listed above; you can also add applicable tax and flat rate if needed
- Payment terms: State the payment method you accept (PayPal, Payoneer, bank account, crypto address, or something else)
- Payment due date: Include a specific payment deadline to avoid confusion that may occur if you write something vague, such as “15 days from the invoice reception date”
- Late payments policy: If you have such a policy, write down the details and what happens in case of late fees.
Check out our invoicing guides for more information and free customizable templates:
Step four: Fulfill your tax obligations
Contractors are self-employed, which means they are considered nonemployees. Nonemployees are responsible for withholding and filing their own tax returns by the end of each tax year.
Instead of withholding payroll taxes, contractors must pay self-employment tax and income tax. These contributions pay for essential products and services like schools, emergency services, roads, and healthcare.
For example, in the US, a contractor’s federal taxes and state income tax contributions cover their Social Security and their national health insurance program, Medicare.
Contractors can also expect to receive certain tax forms from their clients depending on their tax residency and earnings.
In the US, if a contractor receives more than $600 per year from a client, they will receive IRS Form W-9 at the start of the relationship. Clients use this form to collect the contractor’s name, address, Social Security number, or taxpayer identification number and file the contractor’s earnings to the IRS.
Contractors may also receive IRS Form 1099-NEC, which indicates the amount paid to them during the previous year. Contractors can use these figures to calculate their total income.
If contractors fail to pay taxes correctly, their clients may be required to deduct backup withholding taxes from their earnings and report payments on their behalf.
Check out our complete guide for independent contractor taxes.
Note: Remember to reduce your taxable income with deductions. A deduction is a qualifying business expense such as:
- Home office expenses
- Office expenses
- Commissions and fees
- Legal, accounting, and tax professional services
Mix and match payment methods with Deel
With Deel, you and your client can choose how to process payments. That means the two of you can have different payment methods. For example, your client can pay with a wire transfer, and you can choose how you want to withdraw as soon as you have an available balance. Moreover, you can decide how much you wish to withdraw in which currency and by what method (bank transfer, PayPal, Payoneer, and even crypto).
Deel users can now get Deel Cards for instant access to funds and global spending. Deel always tries to optimize for a local payout, which minimizes the fees and allows withdrawals in more than 150 local currencies. It makes the whole process favorable for both parties.