He's an Indian citizen--not a U.S. citizen. I'd appreciate it if you could share any other general best practices with this sort of arrangement as well.
I have established off-shore development relationships with individuals and firms in India, Ukraine, Belarus, Russia and Korea going back to 1996.
You might find it a lot smoother to have them work through an established firm in India that is already set up with all appropriate licenses, tax-reporting, payment systems, and so on.
It can be tricky enough to communicate the software requirements and other specifics of your project without you and them also learning and implementing processes to respect domestic and foreign regulations.
If you'd like more information, feel free to set up a call.
I am also a NY state company -- you have to be careful about W-2 employees versus 1099. I would suggest what others have -- You should hire this guy as a 1099 and make him responsible, otherwise NYS can ding you for SUI, Disability and more -- including international taxes. I would also suggest if you don't have a payroll service or someone who is an expert in payroll then you should use the 1099 path
In addition to what everyone else has said you need to be careful because depending on the nature of his work if you've got an employee over there you could end up with corporate income tax obligations in India as well as the US, which is simply way more trouble than you want to deal with.
I would agree with the other comments concerning employee versus subcontractor status. It's certainly easier to simply hire a subcontractor and pay him a fixed hourly rate without having to be concerned with payroll taxes, federal income tax withholding, employee health insurance, fringe benefits, etc.
If you hire him as a subcontractor and he is a nonresident for U.S. tax purposes, you need to collect an IRS Form W-8BEN from him to confirm his nonresident status.
If you don't collect this withholding certificate, the gross payments made to the contractor will be subject to backup withholding.
Nonemployee compensation paid to him during the tax year would likely be reported on a Form 1042-S and not a Form 1099-MISC. Forms 1099-MISC are used for U.S. tax residents.
If you decide to formally hire the individual as an employee and not a subcontractor, you'll need to analyze whether to withhold taxes on the employee's wages. U.S. employers are required to withhold payroll taxes at source on wages paid to employees. However, wages under Section 3401(a)(6) do not include remuneration paid for services performed by a nonresident alien individual. So long as you can confirm he is nonresident for federal income tax purposes, you won't be required to withhold payroll taxes on his wages. The greater issue, however, is what type of tax exposure you create in India by having an employee physically based in India. This could create payroll tax obligations in India, and could trigger corporate income tax obligations in India for your company.