11 min read

How to Pay Contractors in Europe: A Comprehensive Guide

Contractor management


Gabriele Culot


March 06, 2024

Last Update

July 08, 2024

Table of Contents

Europe or EU? Understanding the political structure of the region

Brexit and its impact on paying international independent contractors

Contractor payment methods available in Europe

Digital platforms and e-wallets

Understanding European payment regulations

Examples of regulation diversity across the EU

Navigating VAT and tax obligations

Privacy and data protection compliance

The importance of an independent contractor agreement

Supercharge your contractor management with Deel

Key takeaways
  1. European businesses have a diverse range of options when it comes to paying their contractors, each with specific features and limitations
  2. Ensuring contractor relations, including payment and classification, are legally compliant is vital to the success of any business
  3. Understanding the regulatory landscape demands staying informed on tax obligations, including self-employment tax and accurate contractor reporting practices

With its varied cultural and economic landscape, Europe is a crucial market for many businesses, many needing a presence on location or hiring local contractors to support their operations. While both options have unique advantages and qualities, this guide addresses the payment process for independent contractors in Europe by exploring effective solutions and examining the legal landscape that governs these transactions.

Europe or EU? Understanding the political structure of the region

Understanding the distinctions between various regional and economic unions, such as the European Union (EU), the European Economic Area (EEA), and others, is crucial when working with contractors from different countries within Europe. While there is a broad level of uniformity, particularly among EU and EEA countries, slight differences in regulations, local currency, and tax reporting policies can add complexity to how you handle business in the region.

Here’s a look at these different entities and how they may impact working relationships with contractors.

European Union (EU)

The EU is a political and economic union of 27 member states. It operates as a single market that allows the free movement of people, goods, services, and capital between member states (a crucial advantage with the increase in remote work and digital nomadism). For contractors and businesses, this means simplified legal and regulatory procedures across these countries.

Hiring contractors within the EU typically allows for easier payment transactions and a harmonized legal framework. The euro (€) is the official currency for most of these countries, further simplifying monetary transactions.

European Economic Area (EEA)

The EEA includes EU member states and extends the union’s single market to Iceland, Liechtenstein, and Norway. The EEA Agreement allows for the extension of the EU’s single market to these non-EU member states. For contractors, this means that there is little difference in terms of market access and economic cooperation between working with someone from an EU country versus an EEA country. The same freedom of movement and business operation rules generally apply, although there may be variations in local laws and currency.

European Free Trade Association (EFTA)

EFTA is a regional trade organization and free trade area consisting of Iceland, Liechtenstein, Norway, and Switzerland. It participates in the EU's single market through the EEA Agreement for its member states, except Switzerland, which has established its own set of bilateral agreements with the EU. When working with contractors from EFTA countries, the conditions can be very similar to working with contractors from EU/EEA countries. However, EFTA countries are not bound by all EU laws and regulations, which can introduce differences in legal frameworks that businesses may need to navigate.

Foreign independent contractors from the broader European region

Some European nations are not part of the agreements discussed above. This group includes countries such as the UK, Kosovo, Bosnia and Herzegovina, Serbia, Montenegro, Ukraine, and others. While hiring independent contractors from European countries outside the EU, EEA, or EFTA may offer certain advantages, such as access to new markets and talents, it also comes with a set of challenges primarily associated with financial transactions, legal compliance, and potentially more complex administrative processes, so it’s essential to carefully consider options and ensure the proper legal and administrative support.

Discover the keys to managing contractors efficiently to stay compliant and protect your business from critical legal and financial issues

Brexit and its impact on paying international independent contractors

Hiring and paying international contractors

Post-Brexit, businesses in the UK that deal with contractors in the EU, and vice versa, face added bureaucratic challenges. Payments to and from the UK now often involve international transaction fees and might require additional paperwork due to no longer being domestic payments within the EU.

Moreover, Brexit has altered the taxation landscape for businesses operating between the UK and the EU. VAT (Value Added Tax) processes, for instance, have seen changes.

Worker classification

The regulatory divergence following Brexit might lead to different interpretations of worker classifications between the UK and EU member states. Worker classification affects contractor rights, tax obligations, and access to social security, among other things. For example, a contractor classified as a freelancer in the UK might be considered a full-time employee under stricter EU criteria, affecting how they're taxed and what employee benefits they're entitled to.

Take Deel’s misclassification test to further mitigate risk

We created a quick test, blending AI and hundreds of real-life misclassification cases, to help you better navigate the correct classification of your workforce.

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Contractor payment methods available in Europe

Bank transfers

Two payment systems are available in Europe to streamline and secure the process of transferring money across borders: SWIFT (Society for Worldwide Interbank Financial Telecommunication) and SEPA (Single Euro Payments Area). Both systems serve distinct but complementary functions in facilitating payments worldwide and within Europe, respectively.

SEPA transfers

SEPA facilitates bank-to-bank Euro (EUR) international wire transfers within the 36 SEPA countries and territories (the 27 EU member countries, plus Andorra, Iceland, Lichtenstein, Monaco, Norway, San Marino, Switzerland, United Kingdom, and the Vatican City). It serves as the standard for Euro transactions, offering a streamlined process for cross-border payments within the Eurozone.


  • SEPA simplifies international bank transfers across Europe, treating them as domestic payments regardless of location within the Eurozone
  • Transfers are relatively inexpensive, often matching the fees of domestic transactions
  • SEPA transfers typically clear within one banking day


  • SEPA is designed for euros; converting from other currencies can add costs and complexity
  • Businesses and international contractors in foreign countries outside of the SEPA area or without a local bank account must seek alternative payment methods

SWIFT transfers

SWIFT offers a network enabling financial institutions worldwide to send and receive financial transaction information. It’s a standard for international money transfers, including those to and from European countries.


  • SWIFT accommodates cross-border payments, reaching beyond the SEPA zone
  • It allows for the transfer of various currencies, accommodating Europe’s currency diversity
  • Renowned for being secure and reliable.


  • SWIFT transfers can be expensive due to bank and intermediary fees
  • It may take several days for transactions to clear, especially for currencies needing conversion
  • The need for precise banking information and the possibility of intermediary banks add layers of complexity

Digital platforms and e-wallets


One of the most widely recognized digital payment platforms, PayPal offers easy-to-use payment solutions across borders. It supports multiple currencies and provides options for direct deposit, making it a good choice for businesses and contractors.


  • Widely accepted
  • Secure transactions
  • Support for international payments


  • Transaction fees can be high, especially for currency conversion and cross-border payments

Wise (formerly TransferWise)

Specializing in international money transfers with transparent fees, Wise is ideal for businesses and contractors working across borders. It supports multi-currency accounts, making receiving and managing payments in different currencies easier.


  • Transparent pricing on currency exchange rates
  • Supports multi-currency accounts
  • Lower fees than traditional banks


  • Not a direct payment processing platform
  • Setup might be complex for some users


Focusing on facilitating global commerce, Payoneer is a financial services company that offers comprehensive, cross-border payment solutions for businesses and freelancers.


  • Streamlines the process of receiving payments from abroad
  • Offers multi-currency receiving accounts
  • Competitively low fees compared to traditional banking options
  • Provides additional services such as tax solutions and risk management


  • Exchange rates include a markup over the mid-market rate
  • Not all features are available in every country
  • Some users find the interface less intuitive


Stripe is an advanced payment platform designed for online businesses, providing a suite of tools for managing online transactions, including billing and subscription services. It's known for its developer-friendly approach and global reach.


  • Extensive API and e-commerce integration
  • Supports international payments
  • Reliable and secure
  • Primarily aimed at businesses rather than individual freelancers


  • Complex to set up


Revolut has rapidly evolved from a digital banking alternative into a robust platform offering extensive financial services for both individuals and businesses. It’s particularly appealing for contractors and companies engaged in international operations, providing the ability to hold funds in a digital wallet or exchange and transfer them in multiple currencies without exorbitant fees.


  • Offers real-time spending analytics and budgeting tools
  • Supports holding and exchanging various currencies at interbank exchange rates
  • Provides international money transfers at low costs
  • Includes additional financial services such as cryptocurrency exchange and savings vaults


  • Limited free foreign exchange transactions per month, with fees applying thereafter
  • Customer support can be hard to reach during busy times
  • Not all features, like cryptocurrency services, are available in every country

Other payment methods available in Europe

Beyond the options mentioned above, more traditional methods like cash, credit card payments, money orders, and checks continue to play a role in the European contractor payment landscape. However, depending on the country, their spread and availability may vary.

While small businesses or individual contractors who prefer traditional banking relationships and straightforward transactions might find these methods align with their operational style, these traditional methods may not mesh well with modern compliance requirements, increasing the risk your business may be exposed to.

Moreover, the evolving digital economy and the push toward electronic payments suggest that the relevance of cash and checks may continue to wane in favor of more secure, efficient, and traceable payment solutions.

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The platform experience is great, and not only for me but also for our team members who use it. They are always saying how easy it is to add things like hours or expenses, and they find it great that they can withdraw their money in crypto

Lizette Kuld,

Head of People & Culture

Understanding European payment regulations

Europe's legal landscape is characterized by a combination of EU directives and individual country laws that govern financial transactions, including those between businesses and independent contractors.

Failing to adhere to these mandates can result in hefty penalties, legal challenges, and damage to business reputation. Therefore, businesses must stay informed about both overarching EU regulations and the nuanced payment laws of the countries where their contractors reside.

EU legislation

Payment services in Europe are strongly shaped by the Payment Services Directive (PSD2), which aims to make payments across the EU more secure and efficient. This directive influences payment processing, emphasizing user security through strong customer authentication (SCA).

National laws

Within this European framework, individual countries implement laws governing contractor relationships, taxation, and payment services. The interpretation and application of EU directives can vary, leading to differences in payment processing requirements, taxation, and contractor classification across countries.

Examples of regulation diversity across the EU

As mentioned above, the complex landscape of contractor payment regulations in Europe presents a unique challenge for international businesses, as laws and practices can differ dramatically from one country to another. Below are some contrasting examples that highlight these differences.

Germany vs. Spain: Invoice payment terms

In Germany, the law mandates that invoices must be paid within 30 days unless otherwise agreed upon in a contract. This regulation is strictly enforced, and any delay beyond this period allows contractors to charge interest on the overdue payments. It's a clear-cut system that aims to protect the financial interests of contractors.

Conversely, Spain has a more lenient approach towards invoice payment terms. While Spanish law also sets the default payment period at 30 days, it is not uncommon for this period to be extended up to 60 days, especially in dealings with large companies or the public sector. This flexibility can sometimes lead to extended payment cycles, impacting contractors' cash flows.

France vs. Poland: Social security contributions

In France, contractors must manage their own social security contributions, including health insurance, retirement, and unemployment insurance through the social security system for self-employed workers (Sécurité Sociale pour les Indépendants. This system places a significant financial and administrative burden on contractors, who must ensure they are adequately covered.

Poland, however, operates under a different system where the responsibility for social security contributions is more flexible. Contractors can choose to be covered by the National Health Insurance (NFZ by paying their contributions or opt for private insurance. This offers a degree of flexibility and can reduce the financial load on contractors, allowing for more manageable payment structures.

Italy vs. Netherlands: VAT requirements*

Italy has stringent value-added tax (VAT) requirements for contractors. All contractors must register for VAT, charge it on their invoices, and regularly file VAT returns. The Italian system is known for its complexity, especially for contractors new to the business, making compliance a significant issue.

In contrast, the Netherlands offers a VAT exemption for small businesses under certain conditions, known as the \"kleineondernemersregeling\" (KOR. This exemption means that if a contractor's VAT taxable turnover is below a specific threshold, they might not have to charge VAT on their invoices or file regular VAT returns. This can simplify the financial and administrative burden on contractors significantly.

Understanding the Value Added Tax (VAT) system and local tax obligations is vital when engaging with independent contractors. VAT is a consumption tax attached to a product every time value is added at a stage of production and at the point of retail sale. For businesses paying contractors in Europe, the implications of VAT can vary significantly depending on the nature of the services provided and both parties' locations.

Contractors providing services to businesses in another European country may be required to charge VAT; however, this often depends on whether they are VAT-registered and if the Reverse Charge Mechanism applies. This mechanism moves the responsibility of accounting for VAT from the supplier (contractor) to the customer (business). Moreover, businesses must consider whether the services rendered fall into the category of goods or services for VAT purposes, as different rules may apply.

Tax obligations extend beyond VAT. Employers must correctly distinguish between employees and contractors to comply with tax laws and avoid misclassification penalties.

✨ Discover how Turing expedited monthly payments from days to an hour for +500 contractors by using Deel.

When we came to understand the importance that Deel places on individual country laws and making sure that contracts are structured in the right way, Deel really stood out. And even though some of your competitors have payments, it wasn’t with the same ease at which we could do it with Deel.

Sudarshan Sivaraman,

Head of Customer Success & Sales

Privacy and data protection compliance

The General Data Protection Regulation (GDPR) imposes a strong standard for privacy rights, security, and compliance across Europe, impacting how businesses collect, store, and process personal data in payments to contractors.

Compliance with GDPR requires meticulous attention to consent, data minimization, and a clear purpose for processing personal data. Businesses must ensure that contracts with independent contractors explicitly state the legal basis for processing their personal data, which might include payment information, tax IDs, and contact details.

Given the hefty fines for GDPR violations, businesses cannot afford to overlook these obligations. Creating a GDPR compliance checklist and appointing a Data Protection Officer (DPO) can help ensure contractor payments are handled securely and lawfully.

The importance of an independent contractor agreement

Having a well-drafted contractor agreement is one of the first steps you should take when beginning a business relationship with self-employed workers in Europe. This document not only defines the scope of the work and the expectations from both parties but also provides a legal framework that can protect the interests of both the hiring company and the contractor. A comprehensive contractor agreement should include the following information:

  • Scope of work: Detailed breakdown of the services to be provided
  • Payment details: Payment amounts, schedule, and method (e.g., direct deposit, check)
  • Duration: Start and end dates of the contract or project milestones
  • Confidentiality and intellectual property rules: Terms regarding the use of confidential information and ownership of work
  • Termination clause: Conditions under which the contractor agreement can be terminated

Supercharge your contractor management with Deel

In the current landscape of business relations, the adherence to employment laws, the clarity of contractor agreements, and the effective management of contractor pay significantly affect the operational success of businesses in Europe.

By integrating a solid understanding of tax forms, regulatory requirements, and the nuances of labor laws into their global payroll systems, business owners can avoid common pitfalls like a misclassified workforce, ensuring compliance and fostering a productive, efficient, and compliant working environment.

Deel offers solutions to all your contractor management needs. Cut the hassle of contractor onboarding and administration, and the complexity of using multiple platforms and systems. From easy contract creation to seamless payments, we can handle it all. 

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