Hiring European contractors is a smart move if you want access to top-notch talent and fresh perspectives.
Europe is packed with skilled professionals in areas like tech, design, and marketing thanks to its strong education systems and innovative work culture. Plus, many European contractors are multilingual and have deep knowledge of their local markets
However, paying contractors in European countries involves first understanding local regulations, payment methods, currencies, and compliance considerations.
Key takeaways:
- Employment laws governing European contractor payments will depend on which country they live in.
- Every European country has specific laws governing whether a worker is considered a contractor or an employee.
- Many payment methods are available to pay foreign contractors in Europe, including some unique to the region.
» Manage contracts, expenses, payments, and more — here’s how to do it with our contractor solution
What Countries Are Considered Part of Europe?
Before we dive into how to pay your global contractors, let's first go over which countries are considered part of Europe, as well as some of the nuances of the European Union (EU) and European Economic Area (EEA), which could impact the regulations you need to follow when paying your European contractors.
Europe encompasses 44 countries. The majority are part of the EU, including Germany, France, Italy, Spain, Portugal, the Netherlands, and Poland.
The EEA includes EU countries, plus Iceland, Liechtenstein, and Norway. Switzerland has bilateral agreements with the EU but is not part of the EEA.
Here is a breakdown of European countries that are not part of the EU by region, as well as the microstates:
Western Europe
- United Kingdom: Left the EU in 2020 (Brexit)
- Switzerland: Not an EU member but closely associated through bilateral agreements
- Norway: Not in the EU but part of the European Economic Area (EEA)
- Iceland: Part of the EEA but not an EU member
- Liechtenstein: Part of the EEA but not an EU member
Eastern Europe
- Ukraine: Not an EU member, although it has applied for EU membership
- Moldova: Not in the EU, although it has applied for EU membership
- Turkey: Not an EU member, although it has applied for EU membership
- Belarus: Not an EU member
- Russia: Not an EU member
Balkans
- Albania: Not in the EU but a candidate for membership
- Bosnia and Herzegovina: Potential EU candidate country
- Serbia: EU candidate
- Montenegro: EU candidate
- North Macedonia: EU candidate
- Kosovo: Potential EU candidate
Caucasus Region
- Armenia: Not in the EU, has stated they may apply in the future
- Azerbaijan: Not in the EU
- Georgia: Not in the EU. The country was exploring potential EU membership, which paused in late 2024.
Microstates
- Andorra: Not an EU member but has agreements with the EU
- Monaco: Not in the EU but uses the euro and has agreements with the EU
- San Marino: Not in the EU but closely aligned with EU policies
- Vatican City: Not an EU member but uses the euro
Regulations Governing Contractor Payments in Europe
A mix of local labor laws, tax regulations, and international agreements dictates European contractor payments. While the specific rules can vary by country, some key legal frameworks and considerations apply.
Classification Laws: Distinguishing Contractors from Employees
One of the most critical aspects of contractor payments is ensuring proper classification. Each European country has specific criteria to distinguish independent contractors from full-time employees. Misclassification can result in legal penalties, back taxes, and fines.
Key considerations that determine worker classification include:
- Level of control: How much control the company has over the contractor's work schedule and methods
- Exclusivity: Whether the contractor works for multiple clients or solely for one company
- Provision of tools: Whether the contractor uses their own equipment or relies on the company
The penalties for worker misclassification vary by country. For example, misclassifying a contractor in France can result in reclassification as an employee, leading to additional taxes and benefits obligations.
Meanwhile, in Germany,"false self-employment" (Scheinselbstständigkeit) can lead to a company being obliged to pay back taxes and late-payment penalties and even legally required to hire the freelancer as a full-time employee.
Taxation and Withholding Laws
Tax laws for contractor payments differ across Europe. Generally, freelancers are responsible for their own tax filings and social contributions. However, in some cases, companies may have reporting or tax obligations.
Some examples include:
- United Kingdom: Contractors fall under the IR35 rules. If deemed a "disguised employee," the company may be required to withhold taxes and National Insurance contributions.
- Italy: Contractors must issue invoices with VAT, and companies may need to retain a portion of the payment for tax purposes.
- Spain: Contractors register as "autónomos" (self-employed) and handle their own taxes, but companies must ensure contractors provide valid tax IDs and invoices.
Cross-Border Tax Treaties
Double taxation treaties often apply when working with contractors in different countries. These treaties prevent contractors from being taxed twice on the same income. Companies must check whether the contractor's country has a tax treaty with the company's jurisdiction.
Tax and Social Security Obligations
While contractors typically handle their own social security payments, some countries may impose employer contributions if the contractor's work closely resembles employment.
For example, under France's "micro-entrepreneur" system, contractors pay reduced social security contributions but must comply with local thresholds, while German contractors must register for VAT if earning above the threshold.
GDPR Compliance & Data Protection
The General Data Protection Regulation (GDPR) governs the handling of contractors' personal data, including payment information in several European nations.
When paying European contractors, companies must ensure that payment systems and data storage comply with GDPR by:
- Obtaining explicit consent to process the contractor's personal and payment information
- Using secure, GDPR-payment platforms
- Implementing robust data protection measures
- Limiting access to sensitive data to authorized personnel only
Invoice Requirements
In addition to employment laws employers must follow, independent contractors across Europe also have regulations they need to adhere to, including issuing legally compliant invoices.
Required information often includes:
- Contractor's VAT number (if applicable)
- Detailed description of services provided
- Payment terms and methods
Late Payment Directives
The EU Late Payment Directive requires companies to pay invoices to contractors within 30 to 60 days unless otherwise agreed in the contract. Contracts are entitled to statutory interest and compensation for recovery costs if payments are delayed.
European Currency Considerations
Companies need to factor in exchange rates and currency conversion fees when paying contractors, particularly if payments are not made in the local currency of the contractor's home country.
Europe has a mix of currencies, which can impact how contractors are paid:
- Euro (EUR): Used by 20 EU member countries, including Germany, France, and Spain
- British Pound (GBP): Used in the United Kingdom
- Swiss Franc (CHF): Used in Switzerland
- Nordic Currencies: Danish Krone (DKK), Norwegian Krone (NOK), and Swedish Krona (SEK)
- Eastern European Currencies: Polish Zloty (PLN), Hungarian Forint (HUF), and Czech Koruna (CZK)
Common Payment Options for European Contractors
There are numerous international payment methods for paying your European independent contractors, including:
- Wire transfers (also known as bank transfers)
- International money order or check
- Employer of Record (EOR)
- Digital wallet (PayPal, Venmo, Google Pay, Apple Pay)
- Wise
- Payoneer
- Stripe
- Cryptocurrency
- Western Union
- Moneygram
You can also use several payment methods designed specifically for European transactions. For example, SEPA (Single Euro Payments Area) simplifies euro transactions across 36 countries, including the EU and some non-EU states.
Sofort, iDEAL, and EPS are widely used across the continent for online payments and offer a convenient and secure way for money transfers between European countries.
Mobile apps like Revolut and N26 are gaining traction for international contractor payments due to their low fees and multi-currency capabilities.
Do your research before choosing a payment method, as some can involve significant bank fees, transfer fees, and other transaction fees.
You can learn more specifics about payment methods in our article How to Pay International Contractors in 2025.
Employ and Pay Your European Contractors with RemoFirst
Partnering with an Employer of Record like RemoFirst ensures your contractors are correctly classified and paid compliantly.
In addition, RemoFirst assumes responsibility for tax withholdings and social security contributions, provides GDPR-compliant payment solutions, and manages currency exchanges and local banking requirements.
