I found my team members, I just want advice on paying them in a way that's legal. Does Paypal or a similar service suffice? The team is based in Easter Europe and I'm in the USA.
Eastern Europe is a big place and each country has different requirements and constraints for money transfer. So, it really depends on the desitnation you are sending money to.
The most common type of payment is wire transfer, as many countries in that region don't allow PayPal. If PayPal is available that's very popular, and after that you see everything from moneybookers to bitcoin being used as payment.
In our experience, it's best to ask your developers what they prefer and try to accommodate them. The reason is that it's usually (but not always) a bit more trouble for the offshore team to receive/handle the inbound payments than it is for you to send them.
For example, for some companies in Ukraine the easiest way is to receive wire transfers. But, they might need to to have a signed copy of the invoice that you are paying and present it to the bank each time you make a payment, just to get a released. There are also a lot of fees that your vendor might need to pay for inbound payments, etc.
Compare that to the US where you can easily send a wire transfer only and for a small fee.
Services like Skrill or PayPal are generally easier although it still might be tricky for the vendor to redeem money and sometimes it takes a while for them. The 2 or 3 percent fees with those services is frequently, but not always cheaper.
In terms of legality, this shouldn't really be a concern as any legitimate payment technique should be fine legally. Basically, if you are making a legitimate payment for a legitimate service to a legitimate vendor, there is no reason to think that any standard and reasonable payment system would not be appropriate legally. Just make sure that, in the event anyone were to ask, you could quite easily provide evidence that the services and payment were legit.
I disagree that you need to be concerned about money laundering as mentioned in another answer below. If you are legitimately engaged with an overseas software team and nothing illegal is going on, there should be plenty of documentation, emails, and delivered code to easily prove that what you are doing is legit in the very unlikely event that the IRS or government were to inquire.
Ensure you speak with your CPA but I'd imagine having an invoice receipt issued for the work done for money laundering purposes. If you were audited I'd imagine you'd need to show where the Paypal money went to, so having an invoice from the contractors would be required.