This article is general information, not legal or tax advice. Worker classification rules vary by jurisdiction and change over time, consult a qualified attorney or accountant for guidance specific to your situation.
If you're hiring talent based in Latin America for a U.S. company, the first question that comes up is almost always: is this person a 1099 contractor, or do they need to be a W-2 employee? The honest answer is: neither, in the traditional U.S. sense, a worker based outside the U.S. isn't a U.S. employee or a U.S. 1099 contractor by default.
Why the U.S. 1099/W-2 framework doesn't directly apply
1099 and W-2 are IRS classifications for workers inside the United States. A worker physically located in Colombia, Mexico, or Argentina isn't subject to U.S. payroll tax withholding the way a domestic hire is, but that doesn't mean there's no compliance obligation. A different framework applies: either an independent contractor agreement governed by local law, or local employment, typically facilitated through an Employer of Record (EOR).
The two real options
Independent contractor: Simpler to set up, but carries real misclassification risk if the worker is functionally treated like an employee (set hours, exclusive engagement, company equipment, ongoing supervision).
Employer of Record (EOR): A third-party entity that legally employs the worker in their home country on your behalf, handling local payroll, benefits, and compliance, while the worker reports to you day-to-day. See our companion guide: Employer of Record Explained.
Questions to ask before you hire
- Will this person work exclusively for you, or maintain other clients?
- Will you set their hours and provide equipment, or do they control how and when the work gets done?
- Does the role need to scale into a full local team, or is this a single contractor relationship?
FAQ
Do I need to withhold U.S. taxes for a contractor based in Latin America?
Generally no, but this depends on specifics of the engagement and the worker's own tax residency. Confirm with your accountant.
What's the risk if I misclassify a worker?
Misclassification risk is typically governed by the worker's local jurisdiction, not U.S. law, and penalties vary by country.
