Hiring independent contractors in the U.S. is a smart way to grow. And it’s a great option for international businesses looking to access top talent and break or grow into the U.S. market.
But here’s the catch.
While 1099 contractors offer flexibility, speed and cost advantages, U.S. worker classification laws are becoming increasingly complex and not just at a federal level. Each state is adding its own rules into the mix, making DIY contractor hiring riskier than ever.
In this guide we provide a practical breakdown of what you need to know to grow your operations in the US and how you can grow your global teams confidently and compliantly.
W2 vs 1099: What’s the difference when hiring in the U.S?
In the U.S., there are two main ways to engage talent:
- W2 employees: These are full-time or part-time employees on payroll. You, as the employer, handle taxes, benefits and contributions.
- 1099 contractors: These are independent workers responsible for their own taxes, equipment, benefits and time. You pay them by invoice, and they receive a 1099 form (the U.S. version of an earnings summary) at year-end
When growing in new markets, businesses tend to prefer 1099s as these are a flexible and cost-effective choice. But you can’t just pick and choose. If you treat a contractor like an employee, you could be opening yourself up to fines, audits and back payments.
1099 Misclassification Risks When Hiring U.S. Contractors
Misclassification happens when a worker is labelled a contractor but behaves like an employee. Think fixed working hours, being under direct supervision, or being restricted from working for others.
In the U.S., the IRS uses a three-part test to evaluate whether a contractor is actually an employee. These are:
- Behavioural control: Do you control how the work is done?
- Financial control: Do you dictate payment terms and expenses?
- Relationship type: Is this an ongoing role integral to the business?
If the individual walks, talks and works like an employee, chances are they should be on the payroll.
Now add 50 US states to the mix
Here’s where things get even more complicated.
Each U.S. state is now introducing its own classification rules.
- California uses a stricter “ABC” test to define contractors and most freelancers don’t pass.
- New York, New Jersey, Massachusetts and Illinois are all cracking down on misclassification too.
- What qualifies as a contractor in Texas might not in Illinois.
This state-by-state variability means that even if you meet federal standards, you can still be out of compliance at state level. For non-U.S. companies without local legal expertise, this can be a minefield.
As well as misclassification, states are also rolling out their own employment laws and the scenario is fast becoming One Country with Fifty Sets of Rules.
Employment legislation at state level
Here’s just a few of the things that you’re up against when hiring in multiple states:
- Pay transparency: Several states now require salary ranges in job posts
- AI in hiring: New rules on automation and algorithmic bias
- Non-competes: Are banned or heavily restricted in a growing number of states
A non-compete clause prevents someone from working for a competitor or launching a similar business after leaving a role—often for a set time or within a specific region.
- Paid leave: Different entitlements, different requirements, state by state
If you’re hiring contractors in the U.S., especially across multiple states, compliance isn’t just a box to tick, it’s a moving target.
U.S. Contractor Tax Forms and deadlines: What you must file and can’t ignore
If you’re paying U.S. contractors, there’s a lot more to do than just send the money. You need to:
- Collect signed W-9 forms from each contractor.
- Ensure you have a U.S. Employer Identification Number (EIN).
- File 1099-NEC forms (the tax reporting document for independent contractors) for every contractor you’ve paid $600 or more during the year—by 31 January.
- Keep accurate records for IRS audits.
Missing these steps or making errors can trigger penalties, late fees, or worse, an IRS investigation.
So, can’t you just handle US payroll and compliance yourself?
In theory, yes. In reality, it’s risky, time-consuming and expensive.
For non-U.S. businesses the hiring process involves:
- Understanding complex and ever-changing legislation across 50 states
- Setting up a U.S. entity or partnering with a local accountant
- Navigating U.S. tax compliance and employment law
- Managing contractor onboarding and payments in USD
Most companies simply don’t have the resources, infrastructure or legal coverage to do this confidently on their own.
That’s where Project Global comes in
At Project Global, we make U.S. contractor hiring simple and compliant.
Through our existing U.S. infrastructure, we:
- Classify contractors correctly based on role and location
- Issue contracts that align with local laws
- Manage W-9s, 1099s and tax compliance
- Handle payments, timelines and currencies
We do the heavy lifting, so you can focus on growing your team, not your admin.
Ready to hire in the U.S. without the stress?
Get in touch with our team to see how our fully managed service and smart tech can help you build your U.S.-based team, compliantly, confidently, and without the admin overload.
