Employer of Record, Contractor or Direct Hire: How Should You Pay a Latin American Accountant?

Team Cadre
November 11, 2026

Back

There are three ways to do this, and they differ on three things: who is the legal employer, who carries the employment obligations in the worker’s country, and who is exposed if the arrangement is later reclassified.

The short version. Direct employment means opening an entity in the worker’s country, which almost nobody does for one hire. Independent contractor is the simplest to start and carries the most risk, because the classification is tested under the worker’s local labor law and not under yours. An Employer of Record puts a legal employer in place in country without you forming an entity, which is why most US companies hiring one or two people in Latin America end up there.

What follows is the detail worth knowing before you sign anything, including the US tax paperwork, where misclassification risk actually sits, and the one scenario that catches companies off guard.

This article is not legal or tax advice. Employment and tax rules differ by country and by state and they change. Run your specific arrangement past your own counsel and your tax advisor.

The three structures side by side

	Independent contractor	Employer of Record	Direct employment
Who is the legal employer	Nobody. It is a service relationship.	The EOR, or its in country entity	You
Entity needed in their country	No	No	Yes
Who runs payroll in country	They invoice you	The EOR	You
Who handles local taxes and statutory benefits	They do, in theory	The EOR	You
Who bears misclassification exposure	You	The EOR, contractually	Not applicable
Setup time	Days	Days to weeks	Months
Typical cost structure	Lowest nominal rate	Rate plus EOR margin	Lowest at scale, highest to set up
Realistic fit	Genuinely project based, short, autonomous work	One to a few long term, full time roles	Many hires in one country

The row that decides most of these is the fifth one.

The US paperwork is simpler than people expect

This surprises people, so it is worth being precise.

You generally do not issue a Form 1099 to a foreign contractor working entirely outside the United States. Form 1099 reporting applies to US persons. A non US person performing all services from outside the US is earning foreign source income, which falls outside that reporting regime.

What you collect instead is a Form W-8. Form W-8BEN for an individual, Form W-8BEN-E for a foreign business entity. These are certificates of foreign status, not reporting forms. They establish that the payee is a non US person and support any applicable tax treaty position.

Collect it before the first payment. This is the part worth acting on. Without a valid Form W-8 on file, IRS presumption rules can treat the payee as a US person, which can trigger backup withholding and 1099 reporting, and can leave the payer exposed to 30 percent withholding on the payments. The form costs you one email. The exposure does not.

The scenario nobody warns you about

The analysis above holds only while the person is performing services outside the United States. If they travel to the US and work while they are here, payments attributable to that period become US source income. Those specific payments get reported on Form 1042-S, with default withholding of 30 percent unless a tax treaty reduces it, and claiming the treaty rate requires a Form 8233.

So the week your remote accountant flies in for an onsite planning session and works while they are here, you have created a different tax event. Not a catastrophic one, and not one that should stop you from bringing someone in, but one you want to know about in advance rather than discover at year end.

Related: if the person’s status changes, for example they relocate to the US, their Form W-8 is no longer valid. They complete a Form W-9 and subsequent payments fall under the ordinary 1099 rules. And US citizens and green card holders receive a Form 1099-NEC no matter where in the world they live, which catches companies hiring US expatriates in Latin America.

Where misclassification risk actually sits

This is the part most US companies get backwards. They evaluate contractor classification under US standards, conclude they are fine, and stop.

The risk exists under both US law and the law of the worker’s home country, and the local standard is frequently different from the US one. A worker properly classified as a contractor under US law may still be considered an employee under the law of their own country, and it is their country’s labor authority that will make that determination.

The factors that tend to create local employee status are the same ones that make a remote hire useful to you: they work full time for you and nobody else, you set their hours, you direct how the work is done, they use your systems, they have been there for years, and they look to any observer like a member of your team. Every one of those is a point against contractor status almost everywhere.

Put plainly: if you hire someone as a contractor and then treat them exactly like an employee for three years, you have an employee. The paperwork does not change that.

What goes wrong when it is reclassified. Consequences under local law typically include unpaid taxes, overtime, statutory benefits and penalties. The exposure usually reaches back across the whole relationship rather than starting from the finding, which is why a three year arrangement produces a far worse outcome than a three month one. Latin American labor codes are generally more employee protective than US law, and several countries have mandatory benefits with no US equivalent.

And the exposure follows the relationship, not the invoice. This is the point of the EOR structure. Someone has to be the legal employer. If nobody is, and local law decides someone should have been, that liability lands on the company that received the work.

Which structure fits which situation

Independent contractor fits genuinely project scoped work with a defined end, where the person controls how and when they work, serves other clients, and uses their own tools. A fractional CFO advising you six hours a month is a real contractor. A full time staff accountant working your hours in your systems is not, whatever the agreement says.

An Employer of Record fits one to a handful of long term, full time roles where you want an ordinary employment relationship without forming an entity. For a property management company adding a remote accountant or two, this is almost always the answer. You get to direct the work, set the hours, and integrate the person into your team, which is exactly what you wanted and exactly what would have undermined a contractor classification.

Direct employment fits once you have enough people in one country to justify the entity, the local payroll and the ongoing compliance. The crossover point varies by country. If you are at one or two hires, you are not near it.

What an Employer of Record does not do

Three honest limits, because the structure is often oversold.

It does not make the person your employee. They are the provider’s employee. That has practical consequences: you are not setting their benefits, you cannot unilaterally change their employment terms, and ending the engagement runs through the provider’s process and the notice and severance rules of their country.

It does not eliminate your obligations, it relocates them. You still owe a safe and lawful working relationship, you still carry data protection obligations for whatever the person can access, and you still own whatever your own state and industry rules require of you. Nothing about an Employer of Record touches, for example, a broker’s responsibility for a trust account.

It is not free. The provider’s margin is real. The comparison worth making is not the Employer of Record rate against a contractor’s invoice, it is that rate against the fully loaded cost of the alternative, including the entity you did not have to open and the misclassification exposure you did not take on.

Questions to ask any provider

Who is the legal employer of record, and in which country is that entity registered?
Is the worker an employee of that entity or an independent contractor of it? These are not the same and the answer changes who carries the risk.
Which statutory benefits and employer contributions are included in the rate, and which are billed separately?
Who indemnifies whom if the arrangement is challenged by a local labor authority?
What are the notice and severance obligations in that country, and who pays them when an engagement ends?
What happens to the worker’s employment if I end the contract early?
Will you provide the Form W-8BEN or W-8BEN-E, or does that come from the worker?
If the worker travels to the US for onsite work, who handles the Form 1042-S reporting?

Question four is the one to press on. A provider who will not put indemnification in writing is asking you to hold a risk they are describing as theirs.

Frequently asked questions

Do I need to issue a 1099 to a contractor in Colombia or Argentina?

Generally no, if they are a non US person performing all services outside the United States. Collect a Form W-8BEN instead, before the first payment. Confirm with your tax advisor, and note the exceptions: a US citizen or green card holder gets a 1099 wherever they live, and work performed while physically in the US is reported on Form 1042-S.

Is an Employer of Record the same as a staffing agency?

Not necessarily, and the distinction matters. A staffing agency finds the person. An Employer of Record is the legal employer. Some providers do both, some only recruit and leave employment to you or to a third party. Ask which one you are buying.

Can I just pay someone through a payment platform and skip all this?

The payment mechanism does not determine the employment relationship. How you send the money has no bearing on whether a labor authority considers the person an employee. That is decided by how the relationship actually works.

What is permanent establishment risk?

It is the concern that having people or activity in a country creates a taxable presence for your company there. Whether a single remote accountant creates one depends on the country, the treaty and what the person actually does, particularly whether they can bind your company contractually. It is a real question for your tax advisor and a common reason companies prefer an Employer of Record to direct hiring.

Does any of this affect my state licensing or trust account obligations?

No. Employment structure and licensing are separate. A broker’s responsibility for a trust account does not change based on who employs the bookkeeper.

Working with TeamCadre

TeamCadre places full time remote accounting and finance professionals from Latin America with US companies, with a focus on property management, and has been doing it since 2018.

Placements are made through an Employer of Record arrangement, so payroll, HR and compliance are handled in country rather than falling to you. The rate is all in, with no placement fee and no upfront cost. Every one year contract includes a three month evaluation period during which you pay only for hours worked, so you can evaluate the person in the role before committing to the year.

If you are deciding how to structure a Latin American hire, get in touch and we will walk you through how ours works.