Paying independent contractors correctly protects your agency from tax mistakes, late fees, and operational stress. Whether you're onboarding a single freelancer or managing a network of remote workers, the right payment method can save time, reduce costs, and keep your contractors satisfied.

This guide covers five common payment methods, helps you compare them, and shows how payroll software like Thera can help you simplify the entire workflow, from contractor onboarding to payout.

How to Pay Contractors: 5 Common Ways

Agencies today are expected to pay faster, across borders, and with fewer errors. But not all payment methods are equal.

1. Bank Wire Transfers

Bank wire transfers are still used in countries where digital payment infrastructure is limited. They are a common fallback option but come with delays and extra costs.

Pros:

• Supported by most banks worldwide
• Useful when contractors cannot access PayPal or local wallet services
• Standard option for high-value payments

Cons:

• Delays of 3 to 5 business days are common
• Both sender and contractor often pay fees that are not always disclosed
• Unpredictable FX conversions can significantly reduce contractor earnings
• Tracking and status updates are limited

Wire Transfer for Contractors

2. PayPal

PayPal is widely used by freelancers and self-employed professionals. It is convenient, but the fees and FX rates can be costly over time.

Pros:

• Fast and accessible in most major currencies
• Allows payment via credit card or debit
• Simple user setup for contractors

Cons:

• Transaction fees can be over 5 percent
• Poor FX rates impact what contractors receive
• Account limitations may delay transfers
• Not available in every country

How to Pay Contractors with PayPal

3. ACH Payments (Direct Deposit)

ACH transfers are the most efficient way to pay U.S.-based contractors, especially for repeat work and hourly rate projects.

Pros:

• Low-cost and widely trusted for domestic payouts
• Integrates with most payroll systems and accounting tools
• Ideal for consistent payment cycles

Cons:

• Only available to U.S. bank accounts
• May require setup time and contractor verification
• Typically takes 1 to 3 business days to settle

4. Freelance Marketplaces

Platforms like Upwork or Fiverr handle payment processing, escrow, and dispute resolution, but they offer less flexibility for agencies with ongoing contractor relationships.

Pros:

• Fast onboarding and milestone-based payments
• Security for both parties through built-in workflows
• Great for testing out short-term hires

Cons:

• High platform fees reduce take-home pay for contractors
• Limited customization of payment terms or retainers
• Communications must stay on-platform

5. Contractor Payroll Software

Specialized payroll software helps agencies manage taxes, deliverables, and non-employee payouts without manual effort.

Pros:

• Automatically sends 1099-NEC forms, collects W-9s, and supports compliance
• Provides global payout coverage with fast delivery
• Supports clear documentation for audits and reporting
• Reduces the risk of errors like incorrect backup withholding

Cons:

• Requires initial setup and onboarding
• Platform features and costs vary, not all are optimized for international contractors

Thera is built for agencies needing a faster, more organized way to pay contractors while supporting IRS and international compliance requirements.

Steps to Set Yourself Up for Success

Understand Local and International Payment Laws

Each country has different contractor classification and tax laws. Agencies that ignore this risk fines, audits, and strained relationships.

• United States: You must issue Form 1099-NEC or 1099-MISC to contractors paid 600 dollars or more in a tax year. Contractors are responsible for own taxes, including income tax, self-employment taxes, Medicare, and social security
• United Kingdom: IR35 rules determine if the contractor should be treated like an employee
• Canada: Misclassifying a non-employee can result in back payments and payroll tax penalties

To stay compliant:

• Have a formal contractor agreement
• Collect a completed W-9 form with a valid taxpayer identification number
• Use software to file forms and flag risks early

Choose the Right Payment Method for Your Contractors

Select a payment method based on:

• Contractor location and local banking capabilities
• How often you pay (one-time vs monthly retainer)
• Whether compensation is fixed or by hourly rate
• Fees and FX rates that affect how much is actually payable to the contractor
• Whether your contractors need real-time payment updates

Ensure Compliance and Accurate Tax Reporting

Reliable online payment systems help ensure nothing slips through the cracks. Use a tool that:

• Collects and stores W-9 forms
• Tracks and prepares tax forms for all eligible contractors
• Applies backup withholding automatically when needed
• Integrates with your accounting tools for visibility

Choose Contractor Payroll Software Wisely

A good payroll software platform does more than automate payments. It removes friction from compliance, tax season, and day-to-day operations.

Avoid Hidden Fees and Costs

Watch for:

• Markups on foreign currency exchange
• Extra charges for international payouts or ACH transfers
• Fees that reduce what your contractor receives at withdrawal

Thera provides clear pricing and helps contractors keep more of what they earn.

Help Contractors Get the Max Payout

Contractors should not lose income to slow processing or surprise deductions. Thera supports:

• Fast payout timelines, often within the same business day
• Lower FX rates than most traditional banks or PayPal
• Full payout tracking from payment platform to bank account

These details build trust and improve long-term collaboration.

Simplify How You Pay Contractors

Paying contractors can feel complicated, but it does not have to be. With the right tools and strategy, your agency can avoid delays, reduce manual work, and meet contractor needs with confidence.

Explore Thera’s contractor management platform to see how we support secure, fast, and organized online payment solutions.

With Thera, you can hire and pay contractors in the US and across the world while reducing compliance complexity.

‍See how it works and book a call with us today