Employer of record or contractor? How to hire your first person abroad

Your first hire abroad is often someone you already know you want, like a developer in another country or a designer who used to freelance for you. The question is not whether to hire them but how, and the answer decides most of what it will cost and how much risk you carry.

There are four ways to do it, and they differ on one thing above all: who is legally the employer.

The four ways to pay someone abroad

Fees are Deel's and Remote's published list prices, checked on October 13, 2026. See Deel vs Remote for the full breakdown.

What each route looks like day to day

A contractor you pay yourself

The person runs their own business, sends you an invoice each month and pays their own taxes where they live. You need a written contract that says what they deliver, who owns the work, and how either side ends the arrangement. A contractor platform adds the contract templates, collects the right tax forms, and pays out in the person's currency, which is most of what the $29 to $49 a month buys.

Paying a contractor directly by bank transfer costs nothing in platform fees, and plenty of small companies do it. The catch is that every safeguard is yours to set up, from the intellectual property clause to the record of invoices you will want if the arrangement is ever questioned.

A contractor of record

Here a provider stands between you and the contractor. It signs the contract with the person, checks that the arrangement passes the local tests for independent work, and carries part of the risk if it doesn't. It costs more than a plain contractor plan, from about $325 a month on both Deel and Remote, and suits someone who works mostly for you but still runs their own practice.

An employer of record

The provider employs the person in their own country, through its own local company, on a local employment contract. It runs payroll, deducts income tax, pays the employer's social contributions, and provides the benefits the law requires. You decide the work, the salary and the day-to-day management. The person gets everything an employee there is entitled to: paid leave, sick pay, a pension and protection against unfair dismissal.

Your own company in that country

You register a subsidiary, open a local bank account, and register as an employer with the local tax and social security authorities. From then on you run payroll yourself or through a local payroll provider. There is no per-person platform fee, but there is a fixed cost to set up and keep the company in good standing every year.

Contractor or employee? The questions that decide it

Every country has its own test, but they tend to ask the same things:

• Control. Do you decide how, when and where the work is done, or only what the result should be?
• Exclusivity. Do they work only for you, or do they have other clients?
• Tools. Do they use your laptop, accounts and systems, or their own?
• Duration. Is there an end date, or is this open-ended?
• Integration. Are they part of your team, in your stand-ups and on your org chart?

The more of these point towards you, the more the arrangement looks like employment. If a contractor relationship is reclassified as employment, the company can owe the taxes and contributions an employer would have paid, plus penalties.

The US version of the test is a good illustration of how these get weighed. The IRS groups the evidence into three categories: behavioral control (who directs how the work is done), financial control (who pays for tools and expenses, and how the person is paid), and the type of relationship (contracts, benefits, and whether the work is a core part of the business). No single factor decides it. The authorities look at the whole picture.

The UK has its own off-payroll rules, usually called IR35, and India looks at the substance of the relationship rather than the label on the contract. The words in your agreement help, but they don't override how the work actually happens.

What it really costs

The platform fee is the smaller part.

• Contractor: the fee plus their rate. They pay their own taxes.
• Employer of record: the fee, plus the salary, plus the employer's statutory costs in that country, plus any benefits you add on top.

Those statutory costs differ widely by country, which is why an EOR quote can look cheap in one country and expensive in the next. Two examples show the range.

The UK. Since April 6, 2025, an employer pays National Insurance at 15% on each employee's earnings above £5,000 a year. On a £60,000 salary that is £8,250 a year. The employer must also pay at least 3% of qualifying earnings into a workplace pension. Add Remote's EOR fee of $599 a month, about $7,200 a year, and the cost of the hire is well above the salary alone.

India. The employer pays 12% of the employee's basic wages into the Employees' Provident Fund. Since September 17, 2026, the wage ceiling for mandatory coverage is ₹25,000 a month, up from ₹15,000. Most employers also set aside money for gratuity, which an employee earns after five years. EOR providers usually show these as separate lines in the quote, so ask for the full employer cost, not just the fee.

To compare platform fees for your own mix of people, use the hiring-abroad cost calculator. For the salary side, ask each provider for a written quote for the specific country and salary before you make an offer.

The paperwork on your side as a US company

Most guides to hiring abroad stop at the worker's country. A US company has filings of its own, and they depend on the route.

Contractors abroad. Before the first payment, ask each foreign contractor for a Form W-8BEN (or a W-8BEN-E if they invoice through a company). The form certifies that they are not a US person. When the work is done entirely outside the United States, the payment is foreign-source income, so you don't withhold US tax and you don't file a 1099-NEC for it. Keep the form on file. If the same person later does work while visiting the US, that part can become US-source income, which is a question for your CPA.

An employer of record. The provider is the legal employer, so the person never appears on your US payroll and you file nothing for them in the US. You receive one invoice a month covering salary, employer costs and the fee, and you book it as a service expense.

Your own company abroad. A US company that owns a foreign subsidiary has US reporting obligations for it, starting with Form 5471 with your tax return. The penalties for missing it are steep, so bring a CPA in before you set the subsidiary up, not after the first year.

The obligations people miss

A few things catch out first-time employers abroad, whichever route they pick.

• Who owns the work. A contractor owns what they create unless the contract assigns it to you. Make sure the intellectual property clause covers code, designs and anything made before the contract was signed.
• Notice and termination. Employees in most countries can't be let go at will. Notice periods of one to three months are common, and some countries require a reason and a process. An EOR will tell you the rules before you sign, which is worth asking for.
• Equipment and data. If you send a laptop, decide who owns it and what happens to it when the person leaves. The same goes for access to your accounts.
• Permanent establishment. In some countries, a senior employee who signs deals on your behalf can make your company taxable there. EOR providers handle the employment side, but they can't remove this risk for you.

When to open your own company instead

An employer of record charges per person, every month. Opening your own company in that country means paying for set-up, local accounting, payroll and yearly filings instead. At $599 a month per person, an EOR costs about $7,200 a year for each employee. Once that total for one country is clearly larger than the yearly cost of running a company there, your own entity starts to make sense.

For most founders that point arrives somewhere between three and ten people in the same country, and only if you expect to keep growing there. Setting up takes weeks to months, so plan the move before the EOR bill forces it. For a first hire, or a team spread across several countries, an EOR is almost always simpler.

A simple way to decide

1. If the work is a defined project and the person has other clients, use a contractor through a platform.
2. If they work only for you but you want to keep them as a contractor, use a contractor of record or a tier with misclassification cover.
3. If the role is full-time and open-ended, use an employer of record.
4. Once you have several people in one country, price up your own company there.

Whichever route you choose, write down why. If the arrangement is ever questioned, a short note made at the time explaining the work, the hours and why you picked the route is far more convincing than an explanation put together afterwards.