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How to Pay Independent Contractors in North America: An Easy Guide

Don’t let the complexities of contractor management get to you! Learn how to pay independent contractors in North America.

Gabriele Culot
Written by Gabriele Culot
February 21, 2024

Key takeaways

  1. North American 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

Navigating the intricacies of payroll processing systems and contractor payments in North America can be challenging for many business owners. With a diverse workforce that includes full-time employees, part-time staff, and independent contractors, understanding the differences in pay rates, tax obligations, and employment laws is paramount.

Moreover, with digital nomadism and unconventional work setups on the rise, ensuring legal compliance and working relationships that are adaptable and easy to manage is a way to build the foundations for the success of your business. Not all payment methods are global; some that work seamlessly in Canada may not be available in France, so understanding the landscape of international payment options is essential.

This guide dives deep into the mechanisms of paying contractors efficiently and compliantly, giving you an overview of the options available when paying your self-employed workforce based in North America.

Digital payment platforms

A digital payment platform is an online or electronic system that facilitates money transfers between individuals, businesses, or entities through digital channels.

These platforms leverage technology to enable secure and convenient financial transactions, replacing traditional forms of payment such as cash or checks. Users can make payments, receive funds, and manage their financial transactions electronically, contributing to the efficiency and convenience of modern financial interactions.

Here’s a breakdown of some of the most prominent platforms available in North America.

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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 an excellent 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


Primarily popular in the United States for its social payment features, Venmo is a mobile-first platform that enables quick and informal transactions between individuals. Its integration with PayPal extends its utility to small businesses looking for a convenient method of payment.


  • User-friendly
  • Social features
  • Quick transfers


  • Mainly suitable for smaller transactions
  • Limited to the US

Cash App

Developed by Square, Cash App offers a robust platform for sending and receiving funds, investing in stocks, and buying cryptocurrency. It's known for its simplicity and efficiency.


  • Direct deposit options
  • Allows stock and cryptocurrency transactions
  • Instant payments


  • Limited to US residents
  • Some privacy concerns


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


Beyond its reputation for point-of-sale solutions, Square offers invoicing and payment services ideal for small businesses and individual contractors. It stands out for its comprehensive approach to business financial services.


  • Integrated invoicing and payment solutions
  • User-friendly interface
  • Acceptance of credit card payments


  • Fees for credit card transactions
  • More suitable for small businesses than large corporations

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


Stands for Cobro Digital (Digital Charge), an initiative by Banco de México (Mexico's Central Bank) aimed at promoting financial inclusion and electronic payments. It uses QR codes and NFC to facilitate transfers and payments between individuals and businesses.


  • No fees for users or businesses
  • Instant transfers
  • Backed by the government for security


Bank transfers

Direct bank transfers are a fundamental method for processing contractor payments across North America, appreciated for their dependability and straightforward process. Within this region, each country has its own systems to facilitate these transactions, which can vary in terms of speed, cost, and accessibility.

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Automated Clearing House (ACH) - United States

ACH is an electronic network used in the United States to conduct financial transactions, including direct deposits and payments.


  • Cost-effective
  • Suitable for regular, non-urgent payments
  • Widespread use across the US


  • Transactions typically take 1-3 business days to process
  • Not suitable for urgent transfers

Electronic Funds Transfer (EFT) - Canada

EFT is the Canadian equivalent of the ACH system in the U.S., enabling domestic bank transfers within the country.


  • Secure and efficient for handling various transactions
  • Relatively low cost


  • Can be slow, with transfers sometimes taking a few business days to complete

SPEI - Mexico

The Sistema de Pagos Electrónicos Interbancarios is a system designed by Banco de México (Mexico's Central Bank) to facilitate real-time electronic money transfers.


  • Real-time transfers; operates 24/7
  • Secure and widely accepted within Mexico


  • Requires a Mexican bank account
  • Not suitable for international transfers directly through SPEI without intermediary services.

Wire Transfers - (US, Canada, Mexico)

Wire transfers offer a real-time settlement solution for both domestic and international transactions in North America.


  • Fast and reliable, typically completed within the same day
  • Suitable for urgent and large transactions


  • Higher fees compared to ACH, EFT, and SPEI
  • Receiving banks may also charge an incoming wire transfer fee

Interac e-Transfer - Canada

A popular Canadian network used for sending money between domestic bank accounts.


  • Fast, often instant transactions
  • Wide acceptance among Canadian banks and credit unions
  • Security through email or mobile phone


  • Primarily available within Canada
  • Limits on transfer amounts

Zelle - United States

A digital payments network that allows customers of participating banks and credit unions in the U.S. to send money to one another.


  • Instant transfers between bank accounts
  • Easy to use through banking apps
  • No fees for sending or receiving money through Zelle


  • Requires both sender and receiver to have accounts with participating banks
  • Transfer limits may apply

Other payment methods available in North America

Beyond the options mentioned above, more traditional methods like cash, credit card payments, and checks continue to play a role in the North American contractor payment landscape. However, it’s essential to weigh their practicality against the backdrop of modern business transactions. 

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.

The complexities of contractor relations: The example of the US

Unlike regular employees, whose taxes are often handled through payroll services by their employer, independent contractors are considered non-employees. Thus, they are required to manage and pay their due taxes to the Internal Revenue Service (IRS). This distinction brings to light several key aspects to be mindful of:

  • Self-employment tax: Contractors are required to pay self-employment tax, which covers Social Security and Medicare. This tax is a fundamental responsibility for contractors.
  • Form 1099-NEC: US companies engaging with contractors must issue Form 1099-NEC (Nonemployee Compensation) to any individual or entity they have paid $600 or more during the tax year. This form serves as an official record of the income earned by the contractor, replacing the previous use of Form 1099-MISC for reporting non-employee compensation. Contractors use this form to report income earned from contracting work when filing their taxes.
  • Taxpayer identification number & W-9 form: At the beginning of a contractor relationship, contractors are typically required to provide a US company with a completed W-9 form containing their taxpayer identification number (TIN). This information is crucial for the business to accurately prepare and file the required 1099 forms with the IRS.
  • IRS form and reporting obligations: While contractors are responsible for paying their taxes, including the self-employment tax and federal income tax, it's the responsibility of the contracting company to ensure proper reporting of payments made to contractors to the IRS. Failure to accurately report these payments through the correct IRS forms can lead to penalties for the company.
  • W-8BEN form: For foreign contractors, a US company may instead require the completion of Form W-8BEN to report payments to non-US individuals accurately. This form provides the necessary information for tax withholding as dictated by applicable tax treaties and regulations.

Learn more about how to hire and pay independent contractors in the US.

✨ 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, Turing

Contractor-related FAQs

What is a contractor agreement?

A contractor agreement is a written contract outlining the working relationship between contractor and client or employer. A comprehensive contractor agreement should include the following information.

  • Scope of work: Detailed description of the project or 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

Why is a contractor agreement important when hiring a contractor?

Creating a contractor agreement is crucial for several reasons.

  • Clarity: It ensures both parties understand the expectations and responsibilities, minimizing misunderstandings.
  • Legal protection: It provides legal protection for the contractor and the employer, detailing the agreed-upon terms and conditions of the work arrangement
  • Compliance: It helps establish that the worker is an independent contractor, aiding in compliance with tax and labor laws

Payroll compliance checklist_A

What is misclassification?

Misclassification occurs when an employer incorrectly classifies an employee as a contractor. This distinction is crucial because it affects tax obligations, employee benefits eligibility, and labor law compliance.

Why is it important to avoid misclassification?

  • Legal and financial consequences: Misclassification can lead to penalties, back taxes, and legal repercussions
  • Compliance with labor laws: Correct classification ensures adherence to applicable labor laws, including minimum wage, overtime, and employee benefits
  • Reputation: Proper classification practices uphold a business's reputation and integrity in its professional relationships and with regulatory bodies

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.

Take the quiz

What functionalities should I look for in a payroll software solution?

While the best tool for each business’s needs will differ, some factors are crucial for everyone to consider when selecting payment options. These include:

  • Tax compliance: Your chosen solution should offer automated calculations and filings for various taxes to ensure compliance with IRS (U.S.), CRA (Canada), or SAT (Mexico) regulations
  • Direct deposit and payment options: It should have the ability to process payments through direct deposit, checks, or digital platforms
  • Reporting: It should offer detailed reporting features for payroll history, tax filings, and contractor payments
  • Integration: It should be compatible with existing accounting or human resource management systems

Looking to simplify your US payroll operations? Download the Deel guide to running US payroll.

✨ Discover how Divbrands saves 8+ hours weekly with Deel’s compliance & global payments.

Deel for us is dealing with the entire complexity of our HR, contracts, and payments in a very efficient and fast manner

Daniel Aksioutine, COO, DivBrands

Can an employer based in North America hire contractors abroad?

Yes, employers in North America can hire contractors from other countries. This is increasingly common with the rise of remote work and global collaboration. However, it's essential to be mindful of the legal, tax, and payment implications involved in international hiring.

Are you a US employer looking to broaden your talent pool and access new hiring grounds?

Discover how to easily hire contractors all over the world in our guide.

What should I consider when hiring a contractor abroad?

Hiring a contractor abroad can be greatly beneficial, but requires careful consideration. When hiring an international contractor, keep the following things in mind.

  • Legal and tax implications: Understand the legal and tax requirements both in your country and the contractor's country. This includes income tax, withholding taxes, and any treaties between the countries.
  • Payment methods: Choose a payment method that accommodates currency conversion and is accessible to the contractor. Options may include wire transfers, international banking systems, or global payment platforms like PayPal or Wise.
  • Contract terms: Clearly agree on the scope of work, payment terms, confidentiality provisions, and dispute resolution mechanisms, taking into account any cross-border legal differences.
  • Communication: Establish effective communication channels across time zones and potentially different languages to ensure smooth collaboration and understanding.

Don’t have time to learn all about international hiring? Do you have more urgent matters to think about? Let us take care of the practicalities so you can focus on finding the right people for the job.

Hire contractors globally, easily.

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 North America. Whether dealing with direct deposit methods, navigating the complexities of payroll taxes, or understanding the functionalities of digital payment platforms, the goal remains the same: to foster seamless, compliant, and mutually beneficial relationships between businesses and their diverse workforce.

By integrating a solid understanding of tax forms, regulatory requirements, and the nuances of labor laws into their 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 time you spend on contractor administration, the risk of misclassification, 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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