How to Hire International Employees: Entity, EOR, or Contractor?

Why Companies Hire International Employees

You gain multiple benefits when you hire remote workers. It goes hand-in-hand with hiring international employees and all the advantages of a global workforce.

Despite a trend of many companies enforcing a return to office, remote work has become an ingrained part of the working world post-COVID-19. According to Forbes, 12.7% of full-time employees in the U.S. work from home, while 28% follow a hybrid model. What’s more, a whopping 98% of workers want to work remotely at least some of the time – it will remain an integral part of the future of work.

• Access Global Talent: When you expand your search beyond borders, you unlock skills that might be rare in your region. Whether you need a specialist developer, marketer, or designer, global hiring means more qualified options, including foreign nationals and workers from another country.
• Expand Your Market Reach: Hiring employees in new regions brings local insights that help you understand customers, build brand trust, and adapt your offerings to local tastes while complying with local regulations.
• Boost Team Diversity: A diverse team enriches your company culture with fresh ideas, different problem-solving approaches, and broader perspectives. 
• Remote Work is Here to Stay: Even as some companies bring employees back to the office, remote work remains popular. Surveys show nearly all workers want remote flexibility at least some of the time. Offering this boosts employee happiness and retention. Employees have a strong preference for remote work, with 66% preferring fully remote work and 32% preferring hybrid. 

Challenges of Hiring International Employees 

• Legal Complexity: Every country has unique labor laws, tax codes, and compliance requirements. Staying on the right side of these rules requires expert knowledge of the Department of Labor regulations and other governing bodies.
• Operational Costs: Setting up in a new country means investing in local legal entities, HR, and finance infrastructure. This can be costly and time-consuming, though solutions like an Employer of Record (EOR) can offer significant cost savings.
• Cultural Differences: Managing a global team means navigating language barriers, cultural norms, and differing work styles. Strong communication and cultural sensitivity are essential for maintaining a positive company culture.
• Risk of Misclassification: Hiring contractors instead of employees can reduce costs, but treating contractors like full-time staff risks fines and penalties. Proper classification and contracts are crucial in the hiring process.
• Payroll and Benefits Administration: Local payroll taxes and mandatory benefits vary widely. Ensuring employees are paid accurately and on time requires a reliable international payroll process or a trusted global payroll management solution.
• Avoiding Permanent Establishment Risks: Having employees actively working in a country can create a “permanent establishment,” triggering local tax and reporting obligations. Missteps here can result in penalties and reputation damage.

Many businesses opt to use Employer of Record services for the reasons listed above, especially if they don’t have a large number of employees in a country. Here are a few ways using an EOR differs from establishing an entity:

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4 Different Ways to Cheaply Hire International Employees

Hiring international employees offers exciting opportunities, but it also brings challenges, including legal compliance to managing costs. Fortunately, there are several effective ways to build a global workforce, each with its own pros and cons. Choosing the right method depends on your business needs, budget, and growth plans.

Here are four common approaches to how to hire international employees in different countries:

• Setting Up a Local Legal Entity
• Hiring Independent Contractors
• Leveraging Global Professional Employer Organizations (PEOs)
• Using an Employer of Record (EOR)

1. Setting Up a Local Entity 

This approach means establishing a formal business presence, a legal company, in the country where you want to hire. Once set up, you can directly employ people there, manage payroll locally, and comply fully with local laws.

Advantages and Cost Considerations:

• Full control over hiring, payroll, and compliance.
• Enables proper local payroll and helps avoid permanent establishment risks.
• Acts as a separate legal entity, protecting the parent company from compliance issues.

Costs and Challenges:

• Setup can take several months and involves high upfront costs (more than $20k).
• Operating expenses can exceed $50k per year per location.
• Requires local HR, legal, and finance staff to maintain compliance.

This approach suits businesses with long-term plans to hire many employees in a particular market. However, it may be costly and slow for companies looking to quickly explore new regions or hire just a few international workers. Affordable alternatives exist that still ensure compliance without heavy upfront investment.

💡Tip: For a deeper comparison between using an EOR and setting up a legal entity, check out this guide.

2. Using an Employer of Record (EOR) 

Another way to overcome the challenges associated with international hiring is to use an EOR, an increasingly popular solution for businesses that are expanding globally. An EOR legally employs your international workers for you, managing contracts, payroll, taxes, and benefits, allowing you to focus on your business and team.

Instead of setting up local entities, which can be costly and slow, EORs like Playroll let businesses of all sizes expand quickly into new markets. Traditionally, only large companies could afford the local HR, tax, and legal experts needed to operate overseas. An EOR removes those barriers by:

• Creating employee contracts that follow local laws.
• Automating payroll in multiple currencies.
• Managing local benefits.
• Navigating tax compliance and permanent establishment risks.

The usual pricing plan involves paying a monthly or annual fee per employee, instead of the steep setup and operating costs of establishing a legal entity. This offers significant cost savings when hiring a foreign employee.

When Should You Use an Employer of Record?

EORs are perfect when you want to:

• Test new markets without the risk or cost of setting up and closing local offices.
• Hire your first international employees without needing a full legal entity.
• Easily convert contractors to full-time staff without relocating them.
• Let your team work remotely from anywhere.
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Learn how Playroll made TecEx’s worldwide expansion possible

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How To Choose The Right Employer of Record Solution For Your Remote Workforce

Choosing the right Employer of Record (EOR) plays a crucial role for companies aiming to expand internationally while maintaining compliance, operational efficiency, and employee satisfaction. But not all EOR providers are created equal; each offers different levels of service and support, so it's important to make your choice with care.

When evaluating potential EOR partners, look for flexibility in transferring employees to your own legal entity as your organization scales. Transparent pricing without hidden costs is equally important as it simplifies budgeting and helps build trust. Also, consider the quality of customer support. Having a partner with responsive, knowledgeable HR and legal teams can make all the difference in managing your global workforce smoothly and avoiding compliance pitfalls.

📖 Read the full guide to choosing an EOR provider

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🌍 Ready to Hire Global Talent Without the Hassle?

Learn how Playroll’s EOR services can help you expand into new markets, stay compliant, and onboard top talent in days, not months.

🔗 Book a Demo

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3. Hiring Independent Contractors

Hiring contractors means engaging freelancers or specialists for short-term projects or specific tasks, without creating a full employment relationship. This method suits businesses needing flexible, short-term talent but should be used cautiously to avoid legal risks.

Advantages:

• Quick access to skilled professionals globally, including workers from another country.
• Lower tax and benefits costs since contractors aren’t full employees.
• Flexibility for project-based or seasonal work.

Risks and Considerations:

• Long-term use as “employees” risks misclassification and legal penalties.
• Contracts must be carefully crafted to comply with local laws and protect IP.
• Contractor management solutions like Playroll help manage contracts and transitions from contractors to employees.

Use this table as a guide to decide whether you require an employee or a contractor for your needs:

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4. Leveraging Global Professional Employer Organizations (PEOs)

A PEO is a service that acts as co-employer to handle HR management, payroll, and compliance on your behalf. It's a good fit for companies that already have a legal presence in a country, but are looking for comprehensive HR support and cost savings on benefits, and prefer to retain control over daily operations.

Advantages and Cost Considerations:

• PEOs leverage economies of scale to offer competitive employee benefits and insurance plans.
• PEOs provide a wide range of HR services, including payroll processing, tax filing, benefits administration, and compliance assistance.
• PEOs typically charge a service fee ranging from 3% to 15% of total gross payroll, in addition to standard employee-related costs.
• While PEOs may entail higher upfront costs, they can lead to long-term savings by reducing the need for in-house HR departments and minimizing compliance risks.
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Need HR, payroll, and compliance support for your U.S. team?

Playroll’s U.S. PEO services give you expert-backed solutions to streamline operations while staying fully compliant, without the complexity of going it alone.

Learn More

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Legal, Tax, and Compliance Requirements

Hiring employees across borders involves navigating a complex web of legal, tax, and compliance obligations. Getting a handle on these basics is super important if you want to grow your global team without running into expensive issues:

Visa Types and Work Permits

One of the first hurdles in international hiring is securing the right visa or work permit for your employee to work in the United States or other countries. Common U.S. visa categories include:

• H-1B Visa: For specialized workers in fields like IT, engineering, or finance, the H-1B allows U.S. employers to hire foreign workers or foreign employees for a specific period, usually up to six years.
• L-1 Visa: This visa facilitates intracompany transfers, enabling employees to move between a parent company and its foreign branch or subsidiary.

Other countries have their own visa systems with varying requirements. It’s critical to comply with these by making use of immigration services to avoid fines or legal action.

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Get detailed visa guidance by country

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Country-Specific Labor Laws

Employment laws vary widely around the world. These include regulations on contracts, probation periods, notice for termination, working hours, and employee rights such as paid leave and health benefits. For example, European countries generally enforce strong worker protections and generous leave policies, while other regions may have more flexible arrangements.

Failing to comply with these local laws can lead to penalties and damage your company’s reputation. It’s essential to draft contracts that reflect the legal standards of the employee’s country and to keep abreast of ongoing legislative changes. 

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Learn how to avoid compliance risks and mistakes when scaling globally

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Tax Implications and Double Taxation Agreements

When you employ staff internationally, tax responsibilities become more complex. Employers must withhold income tax, social security contributions, and other mandatory payments based on local laws. 

Additionally, some countries have agreements to prevent double taxation. This ensures that employees and employers aren’t taxed twice on the same income when working across borders.

Understanding and leveraging these double taxation treaties can reduce tax burdens and simplify payroll administration. 

Partnering with knowledgeable payroll providers or EORs, like Playroll, ensures you meet all tax obligations accurately and on time.

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Step-by-Step: How to Hire an International Employee

Once you’ve settled on your method of how you’ll hire remote workers, there are important preparations and research you should do as a business before getting stuck into the hiring process: 

1. Determine Your Hiring Strategy

Get clear on your goals: are you expanding into new markets, filling specific skill gaps, or testing remote work? Align your team on timelines, budgets, and the exact roles you want to fill. This focus helps make hiring and onboarding smoother and more efficient.

📖 Check out our full guide and make sure your team’s on the same page before you start hiring internationally.

2. Understand Local Labor Laws

Take time to understand the labor laws in the country you’re hiring from. Pay attention to working hours, mandatory benefits, termination rights, and contract requirements. Skipping this can lead to costly legal trouble. If needed, consult local experts or partner with an Employer of Record to navigate these complexities.

3. Draft Compliant Employment Contracts

Craft employment agreements that meet local legal standards and clearly outline job duties, salary, pay schedules, benefits, confidentiality, and termination policies. Clear contracts protect both your company and your new hires by setting the right expectations.

4. Set Up Compliant Payroll

Put in place a payroll system that automates tax withholdings, social security, and other legal contributions based on local laws. Make sure employees are paid on time in their local currency and that your tax filings are accurate. Using a global payroll provider, like Playroll,  can take much of this off your plate.

Learn more about setting up global payroll

5. Offer Competitive Compensation and Benefits

Research salary ranges factoring in cost of living, required employer contributions, and typical local benefits like health insurance or paid leave. Competitive pay helps attract and keep top talent. 

Tools like Playroll’s employee cost calculator and cost-of-living databases, like Numbeo ,can help you budget smartly.

6. Manage Onboarding and Cultural Integration

Build an onboarding process that welcomes new hires warmly and introduces them to your company values and remote work expectations. Include virtual meet-and-greets, thorough training, and open communication channels. Encouraging cultural integration helps build a strong, connected team even across distances.

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Building an International Workforce with Playroll

Your search for great talent shouldn’t stop at your borders – the best people are everywhere.

With skill shortages growing and competition for top talent heating up, hiring remote workers is becoming a must for businesses worldwide. Navigating the complexities of compliant international hiring can feel daunting, but it doesn’t have to be.

Playroll’s mission is to make borderless work easy and accessible for companies of all sizes. As your trusted Employer of Record partner, we take care of onboarding, payroll, and benefits in over 180 regions, freeing you to focus on growing your business and connecting with your team.

Our platform also ensures built-in compliance and protects your intellectual property within employment contracts. Plus, our team of legal, financial, and HR experts is with you every step of the way.

With Playroll, building your international team is simpler, safer, and more efficient than ever.

Get in touch to learn more about how to hire international employees without the red tape.