I had an idea for a business idea that never got off the ground. However, before it flamed out, I wanted to hire some overseas people that I personally knew to help. However, I got conflicting advice about how to actually pay them. I wanted to do it the legit/legal way, so they would have taxable income and pay their withholding. I got advice from just pay them with PayPal to bank-to-bank-transfers to forming a back office in the foreign country.

I strongly suspect these distributed teams are taking shortcuts.

With contingent employees in the U.S., you can just 1099 them at the end of the year; W2 employees will require reporting and withholding depending on the state they live in. But what about foreign employees? I'd love to hear from anyone who has done this.

How would this actually work in practice? Do bank to bank transfers, or are all of the workers simply contingent employees that invoice and paid in USD or local currency? I suspect they are avoiding paying payroll taxes and not reporting to the foreign taxing authorities.