You're ready to expand into new markets and know the talent is out there. The challenge? Figuring out how to hire employees in different countries without jumping through endless hoops.
In the past, one of the only ways to hire internationally was by establishing a legal entity first. It's a process that's costly, time-consuming, and not exactly flexible if you're testing the waters in a new market.
A better way to hire internationally without getting bogged down in bureaucracy (not to mention time, money, etc.) is working with an Employer of Record (EOR).
EORs act as partners that manage human resources tasks such as compliance and global payroll.
Key takeaways:
- There are many challenges when hiring internationally, including compliance with labor and tax laws and avoiding permanent establishment.
- An EOR simplifies global hiring by taking on your business's legal and compliance responsibilities.
- With RemoFirst, you can scale globally quickly, efficiently, and cost-effectively.
Why Hiring Internationally Without a Legal Entity Is Challenging
If you've ever considered hiring in another country, you know it's not as simple as posting a job, interviewing candidates, and extending an offer. There are several roadblocks to overcome first.
Local Labor Laws Are a Maze
Every country has unique regulations governing working hours, minimum wages, employee benefits, and termination rules. For example:
- In Australia, it's mandatory for employers to contribute at least 11% of an employee's earnings base to a registered superannuation fund.
- In China, the amount of sick leave an employee is entitled to is based on years of service.
- In Mexico, employees are entitled to a 25% premium on their standard salary if they work on a Sunday.
- In France, there is no at-will employment, and an employee can't be let go without a concrete reason.
As you can see, it's a lot to keep track of — especially if your employees are based in multiple countries. And most small companies and startups probably lack the resources to become experts on labor laws in multiple countries.
International Payroll and Taxes Are Anything but Straightforward
Companies employing international employees must adhere to the local laws, rules, and regulations governing payroll taxes in every country where they employ staff. Otherwise, the company might face audits, penalties, or legal disputes if found to be non-compliant.
Imagine managing payroll across five countries, each with its own tax systems, reporting requirements, and constantly evolving laws. It can be a lot to keep tabs on, especially if you have a lean HR team.
Unsurprisingly, when global companies were asked about their biggest payroll challenges in a Future of Payroll Survey, 43% cited compliance issues, 34% pointed to the complexities of multi-jurisdictional payroll, and 27% struggled with inefficient processes.
Risk of Permanent Establishment
A permanent establishment (PE) refers to a fixed location where a company carries out all or part of its business operations. This can include physical sites like offices, factories, warehouses, or branches and dependent agents operating in the host country on the company's behalf.
The criteria for PE include (with some exceptions):
- The business has a fixed location in a foreign country.
- The location is used on an ongoing basis.
- Business activities are conducted entirely or partially at this location.
When a PE is established, the host country gains the right to tax the profits attributed to it, following its domestic tax rules or any relevant tax treaties.
If the government of a country determines that you created a PE (even if that wasn't your intent), you could be on the hook for back taxes, hit with penalties and fines, and potentially suffer reputational damage.
Worker Misclassification Is Risky (and Costly)
If you think that hiring international contractors instead of employees will shield you from risk, think again.
For one, every country has its own laws determining if someone is considered an employee versus a contractor. If you mess up, it can cost your company in many ways, from fines to back wages owed.
For example, misclassifying employees in the U.S. can sometimes be considered wage theft — deliberately misclassifying employees as independent contractors to avoid contributing towards taxes and benefits, paying overtime, etc.
Ultimately, misclassification penalties often cost more than hiring the worker as an employee in the first place would have.
What Is an Employer of Record, and How Does It Work?
An Employer of Record (EOR) helps companies expand internationally by acting as the legal employer for international hires — employing and paying workers on the company's behalf.
An EOR enables companies to hire employees in other countries legally and efficiently without the time and cost commitment of establishing local entities.
With that said, while the EOR is the "legal employer" on paper, you'll still oversee the employee's day-to-day responsibilities.
Here's how an EOR supports your business:
- Local compliance expertise: EORs bring in-depth knowledge of labor laws and regulations in each country, ensuring your company meets all legal requirements.
- Employment contracts: The EOR creates contracts that adhere to local legal standards.
- Payroll and benefits management: EORs handle employee payroll, tax filings, and benefits administration in accordance with local regulations.
- Risk reduction: By taking responsibility for compliance, EORs help minimize exposure to legal risks, fines, and other penalties.
How Businesses Use EORs to Grow Globally
The global EOR platform market was valued at $5.23 billion in 2024 and is expected to grow to $9.17 billion by 2033. There's clearly a growing demand for their services, and for good reason.
Some of the benefits of using an EOR include:
- Expedite hiring in new markets: When entering a new market, timing matters. Let's say you've found the perfect candidate in Australia, but setting up a local entity would take months. An EOR lets you bypass that delay, enabling you to hire and onboard the candidate within weeks if not days.
- Save on operational costs: Setting up a legal entity isn't cheap. By working with an EOR, you avoid these upfront costs. Additionally, an EOR eliminates the ongoing expenses of maintaining a legal entity, such as registration fees, compliance costs, and administrative overhead, allowing you to allocate your budget more efficiently.
- Scale your team with flexibility: Need to hire one employee in Brazil to test market demand? Or quickly onboard a team of five in India for a new project? An EOR allows you to scale up or down based on your needs without committing to permanent infrastructure.
- Maintain compliance without hiring a legal team: EORs handle compliance with local labor laws, tax regulations, and employment standards, potentially eliminating the need for companies to hire an in-house legal team. Your EOR ensures you comply with all local labor laws, no matter how complex.
Finding the Right EOR for Your Business Needs
Choosing an EOR is a big decision that can shape your global hiring success. But how do you decide which one is the best fit?
EOR Operating Models: Which is Right for You?
There are three distinct EOR operating models:
- Direct EORs establish their legal entities in each country where they operate. Direct EORs have more control over all aspects of their operations since there is no go-between. However, opening multiple entities is expensive, which can increase the cost of their services.
- Indirect EORs don't own legal entities in the countries where they operate — instead, the EOR partners with local providers in each country to provide the necessary employment services. There may be communication lags since the EOR serves as a bridge between the client and their partners, but on the flip side, indirect EORs are more cost-effective due to lower overhead.
- Hybrid EORs combine elements of both the direct and indirect models. Since hybrid EORs have both entities and third-party partners, it can be challenging to maintain a consistent level of service. However, the advantage of the hybrid model is that EORs can tailor their services to specific client requirements.
Check out our article Which EOR Operating Model is Right for Your Business? to learn more.
RemoFirst is an indirect EOR. That means we collaborate with a trusted network of partners in over 180 countries to provide our clients with cost-effective solutions for hiring international staff without breaking the bank.
We believe the indirect model is the best choice for many businesses for several reasons, including:
- Greater country coverage. Because we don't open an entity in every country where we offer EOR services, we can provide more options than direct model EORs, who must invest in infrastructure in every country where they operate.
- Enhanced compliance. We're not here to knock direct model EORs, but some may not have a lot of experience running day-to-day operations in every country where they operate, which can lead to potential errors. In contrast, our partners are embedded within their local markets and have the experience to handle complex compliance requirements.
- Cost-effectiveness. As we already covered, because we don't need to invest the time and expense of incorporating an entity in every country where we operate, we can keep our costs low, offering a better value to our customers. In contrast, direct model EORs must pass the costs of running multiple entities along to their customers.
Read The Benefits of Having an Employer of Record (EOR) that Works With Partners to learn more about the advantages of the partnership model.
What Questions to Ask Yourself (and the EOR) During Your Decision-making Process
Now that you're an expert on indirect and direct EOR models, and have decided which model is best for your business, it's time to compare your EOR options.
Some questions to keep in mind during your research include:
- Do they offer services in the countries where you’re hiring?
- Can they share real-world examples or success stories from these regions?
- Do they have a good track record when it comes to compliance?
- Do they manage payroll taxes, benefits, and social security contributions accurately?
- Are they up-to-date on changing regulations in each country?
- Is their pricing straightforward?
- Do they give a clear breakdown of fees?
- Are there any hidden charges or vague terms?
- Can they grow with you?
- Are they flexible enough to support both small teams and big moves into new markets?
- Is their support reliable?
- Is customer service quick and responsive?
- Will you have a dedicated point of contact for consistent communication?
- Will employees have a good experience?
- Is onboarding smooth and professional?
- Do they prioritize employee satisfaction and support?
Build Your Global Workforce With RemoFirst
Expanding your team globally doesn't have to be complicated. With RemoFirst, you can compliantly hire international remote employees in 180+ countries and manage contractors in 150+ countries — all on one platform.
We oversee onboarding, global payroll, compliance, and employee benefits like health insurance. Pricing starts at $199 per employee per month and at $25 per contractor per month, with no hidden fees or minimums. Put simply, whether you’re scaling a startup or testing new markets, RemoFirst makes global hiring simple, efficient, and affordable.
Book a demo today to learn how we can help simplify your hiring needs.
