The four ways to hire someone in another country
When a company hires its first remote employee, the question is rarely "can we?" — it's "how do we do this without paying lawyers $5,000 to figure it out?" Here are the four real options, ordered by effort.
1. Contractor (1099 / B2B invoice)
The candidate registers as self-employed in their own country, invoices you monthly, handles their own taxes. You pay them gross.
Pros:
- Simple. You don't need any presence in their country.
- Onboarding is the same as any vendor.
- Cheap relative to the other options.
Cons:
- Misclassification risk. If the contractor only works for you, follows your schedule, and uses your equipment, most tax authorities treat them as an employee — and you owe back taxes + penalties. The line is fuzzier than people admit.
- The contractor doesn't get your benefits.
- They can leave with one week's notice in most jurisdictions.
Use when: the work is genuinely project-based, the person works for multiple clients, or you're testing the relationship before formalising.
2. Employer of Record (EOR)
Companies like Deel, Remote, and Multiplier are the legal employer in the contractor's country. You pay them; they pay the contractor as a W-2/full-time employee with benefits and the right tax handling.
Pros:
- Truly compliant. Treats them as a real employee with the right benefits.
- They handle local payroll, tax filing, statutory insurance.
- You can hire in 100+ countries without setting up a legal entity yourself.
Cons:
- Cost: typically $400-700/month per employee on top of salary.
- You're tied to the EOR's stack — switching is painful.
- The EOR can have administrative quirks (sluggish onboarding, weird benefit packages).
Use when: you want one or two employees in a country and don't expect to grow there. This is the default choice for most SMBs hiring their first remote employee.
3. Set up a local entity
Open a subsidiary in the candidate's country, register for tax, set up a local bank account, hire them through the entity directly.
Pros:
- Fully compliant.
- Lowest per-employee cost long-term.
- Strategic if you plan to build out a team in that country.
Cons:
- Setup costs €5,000-15,000 in lawyer + accounting fees.
- Ongoing accounting + tax filing.
- You need to know the local labour law to draft contracts.
Use when: you're hiring 5+ people in a country, or you have a strategic reason (sales presence, R&D office) to be there.
4. Hire through your existing entity, ignoring the foreign tax problem
Some founders just put the foreign employee on US/UK payroll and tell them to handle their own taxes.
This is illegal in most cases. It creates permanent establishment risk in the employee's country (the local tax authority can argue you have a taxable presence there), payroll tax obligations you're missing, and personal tax issues for the employee. Don't do this.
The three things you actually need to think about
Misclassification
The simplest test: does this person work only for you, on your schedule, with your tools and processes? If yes, they're an employee — even if their contract says "contractor." Tax authorities don't care what the paperwork says; they care about the substance.
If the relationship looks employment-shaped, use an EOR.
Tax residency
If you have an employee in (say) France, the French tax authority may decide you have a taxable presence there. This is "permanent establishment" and it can cost you a lot of money in back-tax + penalties.
EORs solve this because the EOR — not you — is the legal employer.
Benefits parity
Your US team has 401k matching, your German EOR employee has automatic 9% pension contributions, your UK contractor has nothing. Be honest in the offer letter about which benefits apply where, and budget for the EOR's standard package.
A practical decision tree
- First remote hire, you're under 20 employees, candidate's country isn't where you live: use an EOR (Deel, Remote, Multiplier).
- Candidate is in the same country as your entity: hire them directly under your existing entity.
- You want a 5-person team in one country: open a subsidiary; pay the lawyer fees once.
- The work is genuinely project-based: contractor, with a real contract that survives a misclassification audit.
What Penroll handles
Penroll generates the offer letter with the country-specific clauses for any of the above setups. We don't act as an EOR; for that, plug into Deel or similar. The hiring funnel and contract language are ours; the legal-employer status stays with whoever you choose.