EOR vs Contractor vs Entity — Three Ways to Hire Internationally

The three paths, compared

1. International contractor

The worker is paid as an independent contractor in their country. The US company wires them a monthly invoice payment in USD or local currency. The worker handles their own local taxes and any required business registration.

Pros: Simplest to start. Cheapest to operate. No HR overhead on your side.

Cons: Classification risk in their country (most countries have their own version of the ABC test — the UK's IR35 is the most famous). Worker gets no benefits, which limits who you can hire. Worker may eventually demand conversion to employee, and that conversion may come with legal costs.

Best for: Short-term engagements (under 12 months), genuinely independent workers with multiple clients, project-based work with defined scope.

2. Employer of Record

A third party (the EOR) is the legal employer in the worker's country. The EOR runs payroll, withholds tax, provides mandatory benefits, and handles local compliance. The US company directs the work.

Pros: Legal employment without setting up an entity. Access to talent pools that require employment. Worker gets benefits and protections. Classification risk shifts to the EOR.

Cons: Monthly cost — typically $300-$900 per worker per month at traditional providers, or a flat markup (around 17% at HQ Simple). Less direct control over payroll timing. Some countries have EOR legal ambiguity.

Best for: 1-15 workers per country, medium-term engagements (12+ months), hiring candidates who want employment benefits.

3. Local legal entity

The US company registers a subsidiary or branch in the worker's country and directly employs them.

Pros: Cheapest per-worker cost at scale. Full control over employment arrangement. Brand presence in the local market.

Cons: High setup cost ($5K-50K depending on country), 3-6 month timeline, ongoing local accounting and tax compliance, risk of triggering permanent establishment for corporate tax purposes.

Best for: 5+ workers in one country, long-term commitment to the market, revenue presence in the country.

A rough decision tree

• Less than 12 months, genuinely independent worker, defined project: Contractor.
• 12+ months, worker wants employment, fewer than 5 in the country: EOR.
• 5+ workers in one country, 2+ year horizon: Start planning the entity while using EOR today.

What usually goes wrong

Companies start everyone as a contractor because it's cheapest on day one. Eighteen months later, a contractor demands benefits, files a local labor complaint, or gets audited by their country's tax authority. The back tax and penalty bill is often 2-4x what EOR would have cost from the beginning. The cheap option is usually cheapest only if the engagement stays short.

If the worker is in the US

EOR is less commonly used — most US workers fit one of two patterns: W-2 employee (through your own payroll) or 1099 contractor. EOR in the US is typically used when you want the worker on benefits but don't want to set up full US payroll (common for non-US parent companies with a small US team).