We don't need a one-shot collaboration (see elance.com, odesk.com) but a long-term remote developer.
We don't know, legally speaking, how to proceed and which are the needed steps.
India Hiring Outsourcing Legal Tax
You need an independent contractor agreement that assigns all rights to deliverables (including all intellectual property rights) to you, and you need to protect against losing your "family jewels" to the offshore developer.
These topics, and others, are discussed in "Top Ten Intellectual Property Mistakes of Startup Entrepreneurs " and the download to which that post refers.
Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.
I believe there are more TAX implications then legal. You can hire anyone anywhere in the world and Uncle Sam is OK with that but when it comes to money, that's where I'd suggest to give IRS a call and speak with one of the Small Business officers. this will only be relevant if you put someone on payroll.
By the way Elance.com does not have to be a one-time collaboration. I have done some repeat business through them and am happy to pay per project vs. having someone on retainer or hired.
Also, if you already have someone in mind, you don't really need Elance at all. I use PayPal to pay for my services and it works great in India.
It is legal and possible to hire a developer in India directly, and pay directly on a work-from-home basis.
At the next level, you can hire for X number of developer seats : through a Indian IT services company. The developer may quit, fall ill, go on a vacation : but you can get service 365 days if required, with appropriate amounts built into the fee.
Contact a Company and get a dedicated team or developer through them or its best to have a long term relationship with one company and outsource all your work.
We are working as offshore developer for UK company from past 1yrs and its going well for both of us.