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Guide 1: The Complete Guide to EOR (Employer of Record)
Everything you need to know about EOR services—how they work, costs, compliance, and when to use them vs. setting up entities. Updated Jan 2026.
1/22/202626 min read
Introduction
Last year, a Series B SaaS company hired three engineers in Germany through what they thought was a compliant setup. Eighteen months later, they received a €180,000 bill from German tax authorities for misclassified employment and unpaid social contributions.
Their mistake? Treating an international contractor platform like an EOR when it wasn't one.
As companies hire globally, Employer of Record (EOR) has become the default answer to "how do we hire internationally without setting up entities?" But most founders, CFOs, and HR leaders don't fully understand what they're buying—or more importantly, what risks they're still holding.
This guide breaks down:
How EOR actually works (not the marketing version)
What it costs in practice across different countries
The compliance it handles and the risks that stay with you
When it makes financial sense vs. setting up your own entity
How to choose a provider and avoid expensive mistakes
We'll focus on how this works in the real world, with actual numbers from 200+ companies we've worked with and regulations as of January 2026.
1. What is an Employer of Record?
The Simple Definition
An Employer of Record (EOR) is a third-party organization that becomes the legal employer of your workers in countries where you don't have a legal entity.
What that means in practice:
You find and manage the employee
The EOR puts them on their local payroll
The EOR handles all legal employer responsibilities (taxes, benefits, compliance)
You pay the EOR a fee + the employee's full loaded cost
The employee works for you day-to-day
What EOR Is NOT
Not a staffing agency: You source and select the talent. The EOR doesn't recruit.
Not a contractor platform: The worker is a full employee with local employment rights and benefits. This is not 1099/freelance work.
Not a PEO: A PEO requires you to have a legal entity. An EOR doesn't.
Not permanent: You can transition employees to your own entity later, or terminate the EOR relationship.
The Core Problem EOR Solves
Without EOR, to hire an employee in a foreign country, you need to:
Set up a legal entity (3-6 months, $15K-$50K)
Register for payroll and taxes
Set up local benefits and social security
Maintain ongoing compliance and accounting
Navigate local employment law for hiring, managing, and terminating
Cost for one employee: $40K-$80K in the first year, $15K-$25K annually after.
With EOR: 1-2 weeks to hire, $0 upfront, $400-$650/month per employee.
The math works if you're hiring <10 people in a country or testing a market.
2. How EOR Actually Works
The Legal Structure
Your Company (US) | | Service Agreement | EOR Company (Local Entity in Target Country) | | Employment Contract | Your Employee (Lives and works in Target Country)
Key legal relationships:
You ↔ EOR: Service agreement. You're the client, they provide employment services.
EOR ↔ Employee: Employment contract. The EOR is the legal employer under local law.
You ↔ Employee: Work relationship. You manage day-to-day work, assign tasks, conduct performance reviews.
Day-to-Day Operations
Month 1 (Onboarding):
You select candidate and agree to terms (salary, start date)
EOR drafts local employment contract
Employee signs with EOR
EOR sets up payroll, benefits, tax withholding
Employee starts work (reports to you)
Ongoing (Each Month):
You approve timesheets/hours (if applicable)
You pay EOR invoice (salary + taxes + benefits + EOR fee)
EOR runs payroll and pays employee
EOR remits taxes and social contributions
Employee works under your direction
If Issues Arise:
You manage performance (with EOR guidance on local law)
EOR handles formal HR processes (warnings, PIPs, termination)
You make the business decision, EOR ensures legal compliance
What You Control vs. What EOR Controls
You control:
Who to hire
What work they do
How they're managed and evaluated
Compensation amount (within legal minimums)
Decision to terminate (with notice requirements)
EOR controls:
Employment contract terms (must comply with local law)
Payroll processing and tax compliance
Benefits administration
Formal termination process and documentation
3. EOR vs. Other Hiring Options
The Full Comparison
When to Use Each Option
Use EOR when:
Hiring 1-10 people in a country
Testing a new market (first 1-2 years)
You need to hire fast (within weeks)
You don't have legal/HR resources for entity management
You're hiring across many countries (5+)
Use Local Entity when:
Hiring 10+ people in one country
Long-term commitment (3+ years)
Need local banking, office lease, or customer presence
Lower per-employee cost matters (high volume)
You have legal/accounting infrastructure
Use Contractors when:
Short-term projects (<6 months)
Truly independent scope of work
Worker has multiple clients
Worker controls their schedule and methods
Low misclassification risk (see Guide #2)
Use PEO when:
You already have a US entity
Hiring US employees in multiple states
Want to outsource HR admin but keep employment
(Note: International PEO is rare; usually EOR outside US)
Hybrid Approach (What Most Companies Do)
Common pattern for scaling companies:
Year 1-2: EOR in 3-5 countries (10-20 total employees)
Cost: ~$150K/year in EOR fees
Flexibility to test markets
Year 3: Set up entity in top 2 countries (8+ employees each)
Transition employees from EOR to entity
Keep EOR for other 3 countries (2-4 employees each)
Savings: $80K/year on high-volume countries
Year 4+: Entities in 3-4 core markets, EOR for long-tail
80% of team on entities (lower cost)
20% on EOR (flexibility for new markets)
4. Real Costs: What You'll Actually Pay
Pricing Model Breakdown
Total monthly cost per employee:
Gross Salary + Employer Taxes & Social Contributions (varies by country) + Statutory Benefits (health, pension, etc.) + EOR Service Fee = Total Amount You Pay EOR
The employee receives: Gross Salary - Employee Taxes = Net Pay
Real Examples by Country
Example 1: Software Engineer in Germany
Gross Salary: €6,000/month Employer Social Contributions: €1,260/month (21%) Statutory Benefits: €150/month EOR Fee: €450/month ─────────────────────────────────────── Total Cost to You: €7,860/month ($8,500)
Example 2: Marketing Manager in UK
Gross Salary: £4,500/month Employer National Insurance: £540/month (13.8%) Pension Contribution: £135/month (3%) EOR Fee: £400/month ─────────────────────────────────────── Total Cost to You: £5,575/month ($7,100)
Example 3: Customer Success in Mexico
Gross Salary: MXN 45,000/month Employer Social Security: MXN 11,250/month (25%) Statutory Benefits: MXN 2,000/month EOR Fee: MXN 8,000/month ─────────────────────────────────────── Total Cost to You: MXN 66,250/month ($3,900)
EOR Fee Structures
Most common models:
1. Flat fee per employee/month (60% of providers)
Range: $400-$650/month regardless of salary
Pros: Predictable, simple
Cons: Expensive for low-salary countries
2. Percentage of salary (30% of providers)
Range: 8-15% of gross salary
Pros: Scales with cost
Cons: Can get very expensive for senior hires
3. Hybrid (10% of providers)
Example: $300/month + 3% of gross
Pros: Balances both approaches
Cons: Less predictable
Volume discounts:
5-10 employees: 10-15% discount
10-20 employees: 15-25% discount
20+ employees: 25-35% discount (negotiate custom)
Hidden Costs to Watch For
Setup fees: $0-$500 per employee
Many providers waive this
Ask upfront
Termination fees: $200-$1,000 per employee
Covers severance processing and offboarding
Sometimes included in monthly fee
Benefits administration: Usually included, but verify:
Health insurance premiums
Pension/retirement setup
Life/disability insurance
Add-on services (often extra):
Stock option administration: $100-$300/employee/year
Immigration/visa support: $2,000-$5,000 per case
Equipment shipping: Actual cost + 15-20% markup
Contractor conversion to employee: $500-$1,500
Currency conversion fees: 1-3% on payments
Ask if they use mid-market rates
Some providers markup 2-3% on FX
Cost Comparison: EOR vs. Entity
Germany example (5 employees, 2 years):
Cost CategoryEORLocal EntityYear 1Setup$0$25,000Monthly EOR fees$32,400$0Payroll provider$0$3,600Legal/accounting$0$12,000HR admin$0$8,000Year 1 Total$32,400$48,600Year 2Setup$0$0Monthly EOR fees$32,400$0Payroll provider$0$3,600Legal/accounting$0$12,000HR admin$0$8,000Year 2 Total$32,400$23,6002-Year Total$64,800$72,200
Break-even point: ~18 months with 5 employees
At 10 employees: EOR costs 2.5x more by year 2
At 3 employees: EOR makes sense for 3+ years
5. Compliance: What EOR Covers (and Doesn't)
What EOR Handles (Their Legal Responsibility)
Employment contracts:
✓ Drafting compliant local contracts
✓ Including all statutory terms
✓ Amendments for salary, role changes
✓ Termination paperwork
Payroll & taxes:
✓ Monthly payroll processing
✓ Income tax withholding
✓ Social security contributions
✓ Pension/retirement contributions
✓ Filing payroll tax returns
✓ Year-end tax documents (W2 equivalent)
Benefits administration:
✓ Statutory health insurance
✓ Pension/retirement enrollment
✓ Unemployment insurance
✓ Workers compensation
✓ Paid leave tracking (vacation, sick, parental)
Labor law compliance:
✓ Minimum wage adherence
✓ Maximum work hours
✓ Overtime calculations
✓ Notice period requirements
✓ Severance calculations
✓ Anti-discrimination compliance in hiring/termination
If there's an audit or dispute:
✓ EOR is the respondent (they're the legal employer)
✓ They pay fines for payroll/tax errors
✓ They handle employment tribunal claims
What EOR Does NOT Cover (Your Responsibility)
Permanent Establishment (PE) risk:
✗ EOR doesn't eliminate PE risk
✗ If employees create a "fixed place of business" (office, serving local customers), you may trigger PE
✗ PE means you owe corporate taxes in that country on income attributed to that location
✗ You need to assess PE risk separately (see Guide #9)
Intellectual Property:
✗ EOR ensures IP assignment clause in contract
✗ You need to verify enforceability in that jurisdiction
✗ Some countries require additional IP agreements
Immigration/work authorization:
✗ EOR assumes employee has right to work
✗ If you're relocating someone, you handle visa/permits (or pay EOR extra)
✗ Illegal work = your problem too
Day-to-day management compliance:
✗ Not discriminating in assignments/feedback
✗ Not asking employees to work illegal hours
✗ Respecting local leave (you can't pressure someone to skip statutory vacation)
✗ Proper documentation for performance issues
Data protection (GDPR, etc.):
✗ You're still the data controller
✗ You need employee data processing agreements
✗ Compliance with local data laws (GDPR in EU, LGPD in Brazil, etc.)
Contractor misclassification:
✗ If you try to put contractors on EOR and they don't meet employee tests, both you and EOR have risk
✗ EOR will vet, but ultimate business relationship is yours
Export controls / sanctions:
✗ You can't use EOR to bypass export controls (e.g., hiring someone in a sanctioned country)
✗ Compliance with your home country's rules is yours
The Gray Area: Co-Employment Risk
What is co-employment? In some jurisdictions, if you exercise too much control over the employee, authorities may consider you a "joint employer" with the EOR.
What triggers co-employment:
You conduct formal disciplinary hearings
You unilaterally change employment terms
You process payroll directly
Your branding is on their employment contract
Why it matters: If you're deemed co-employer, you're liable for:
Unpaid employer taxes
Benefits violations
Wrongful termination claims
How EOR prevents this:
They handle all formal employment actions
You route decisions through them
Clear separation of service agreement vs. employment contract
In practice: Co-employment risk is low if you follow EOR processes. Problems arise when companies bypass the EOR for speed.
6. When to Use EOR vs. Set Up an Entity
Decision Framework
START: Need to hire in a new country? How many people? ├─ 1-5 people │ └─ How long? │ ├─ < 2 years → EOR │ └─ 2-5 years → EOR now, plan entity transition │ ├─ 5-15 people │ └─ Single country or multiple? │ ├─ Single country → Compare costs (see calculator below) │ └─ Multiple (2-4 per country) → EOR │ └─ 15+ people └─ Do you need local presence (office, bank, customers)? ├─ Yes → Entity (EOR during setup) └─ No → Still likely entity (cost savings)
Financial Break-Even Calculator
Variables:
Number of employees: N
Average gross salary: S
Employer tax rate (country-dependent): T
EOR monthly fee per employee: $600
Entity setup cost: $30,000
Entity annual compliance: $20,000
EOR annual cost:
(N × $600 × 12) + (N × S × 12 × T)
Entity annual cost:
Year 1: $30,000 + $20,000 + (N × S × 12 × T) = $50,000 + salary/tax costs Year 2+: $20,000 + (N × S × 12 × T)
Break-even formula:
EOR cost = Entity Year 1 cost (N × $7,200) = $50,000 N = 6.9 employees
Simplified: With 7+ employees, entity breaks even by end of Year 2.
Non-Financial Factors
Choose EOR even if entity is cheaper when:
You're testing market viability (may exit in 12-18 months)
You don't have legal/HR team to manage entity
You're hiring across 5+ countries (entity overhead multiplies)
Speed matters (entity takes 3-6 months)
You want to stay asset-light (no office, no bank account)
Choose Entity even if EOR is cheaper when:
You need local bank account for customer payments
You need local office for customers/culture
You want equity in local entity for future sale
You have regulatory requirements for local entity (banking, insurance, healthcare)
You're hiring 3+ executives (EOR monthly fees add up fast)
Transition Strategy
Most common path:
Phase 1 (Months 1-12): EOR
Hire first 3-5 employees
Validate market
Build local team
Phase 2 (Months 12-18): Entity setup while on EOR
Incorporate local entity
Set up payroll, benefits, accounting
Takes 3-6 months, employees stay on EOR
Phase 3 (Months 18-24): Transition employees
Transfer employees from EOR to your entity
EOR charges $0-$500 per employee for this
Employees often need to "resign" from EOR and be re-hired by you (with continuous service recognition)
Phase 4 (Month 24+): Hybrid
New hires go directly to your entity
Keep EOR for low-volume countries
Cost of transition:
Legal: $5K-$15K (new contracts, benefits setup)
EOR transition fees: $0-$500 per employee
Benefits re-enrollment: $1K-$3K
Payroll setup: $2K-$5K
7. How to Choose an EOR Provider
Provider Categories
Global EOR platforms (Deel, Remote, Velocity Global)
Coverage: 100+ countries
Best for: Multi-country hiring, tech startups
Pricing: $400-$600/month
Technology: Self-service platforms, fast onboarding
Regional specialists (Elements Global for APAC, Lano for Europe)
Coverage: 10-30 countries in region
Best for: Deep expertise in specific markets
Pricing: $500-$700/month
Service: More hands-on, custom solutions
Traditional PEO/EOR (Safeguard, G-P, Globalization Partners)
Coverage: 180+ countries
Best for: Enterprise, high-touch service
Pricing: $600-$800/month
Service: Dedicated account managers, white-glove
Payroll + EOR (Papaya Global, Oyster)
Coverage: 100+ countries
Best for: Companies wanting unified payroll + EOR
Pricing: $450-$650/month
Technology: Integrated payroll/contractor/EOR platform
Evaluation Criteria
1. Country Coverage & Quality
Do they have owned entities or partner entities?
Owned = they're the legal employer (better)
Partner = local firm is employer, you add a layer (increased risk)
How long have they operated in target countries?
Do they have local HR staff in those countries?
Test: Ask for entity registration documents in your target countries.
2. Technology & User Experience
Can employees self-serve for documents, payslips, leave requests?
How do you approve time, expenses, raises?
API for HRIS integration?
Mobile app?
Test: Request demo and have team member test employee portal.
3. Speed to Hire
What's typical onboarding timeline?
Tier 1 (US, UK, Canada): 3-5 business days
Tier 2 (EU, Australia): 5-10 business days
Tier 3 (Latam, Asia): 7-14 business days
Can they do background checks?
Do they handle right-to-work verification?
Test: Ask for SLAs in writing.
4. Compliance Track Record
How many audits failed in past 2 years?
Have they been fined for non-compliance?
What's their process for staying current with law changes?
Test: Ask for compliance incident reports (they should have formal tracking).
5. Benefits Quality
Statutory minimum or market-competitive?
Can you top up benefits?
What's health insurance coverage like?
Test: Request sample benefits package for a specific country.
6. Support Quality
Response time SLA? (aim for <4 hours)
Dedicated account manager or shared?
Local language support for employees?
Who handles employee questions? (Ideally, employees have direct access)
Test: Email support before signing and time the response.
7. Contract Terms
Contract length? (Monthly is ideal, some require annual)
Termination notice period? (30 days is standard)
Who owns employee data if you leave?
What happens if EOR goes out of business? (Rare but ask)
Test: Read the service agreement, especially termination clauses.
8. Pricing Transparency
All-in pricing or surprise fees?
FX markup?
Setup/termination fees?
Price increase clauses?
Test: Get full fee schedule in writing before signing.
Red Flags
🚩 Refuses to show entity registration → May be using partners, not owned entities
🚩 Can't provide compliance audit reports → Poor internal processes
🚩 Pricing "TBD" until after you sign → Hidden fees incoming
🚩 No employee portal / all manual → Operational headaches
🚩 Can't answer specific country law questions → Thin local expertise
🚩 Requires 12-month contract → You're locked in during test phase
🚩 Vague on PE risk → They don't understand (or won't tell you about) your biggest risk
Checklist: Questions to Ask Every Provider
Coverage:
Do you have owned entities in [target countries]?
How long have you operated in each?
Can I see your local entity registration documents?
Compliance:
What's your process for monitoring law changes?
How many compliance issues did you have last year?
Who's liable if there's a payroll tax error?
Costs:
What's all-in monthly cost per employee in [country]?
Any setup or termination fees?
What's your FX markup?
Price increase terms?
Service:
What's onboarding timeline in [country]?
Will I have a dedicated account manager?
What's your support SLA?
Can employees contact you directly?
Technology:
Can I see a demo of employee and admin portals?
Do you have an API for HRIS integration?
How do I approve payroll, raises, time off?
Contract:
What's the contract term and notice period?
What are termination terms?
Can I transition employees to my entity later?
Risk:
How do you assess permanent establishment risk for my company?
What happens if you go out of business?
Can you provide proof of E&O insurance?
8. Implementation: Timeline & Process
Pre-Hire (1-2 weeks)
Week 1: Select EOR Provider
Get 3 quotes
Check references
Review contracts
Sign service agreement
Week 2: Prepare for First Hire
EOR sets up your account
You provide company information
Discuss benefits preferences (if customizable)
Set up billing
Hiring Your First Employee (1-2 weeks)
Day 1-2: Submit Hire Request
You provide to EOR:
Employee full legal name, address, ID/tax number
Position title and job description
Gross salary (EOR confirms it's above minimum wage)
Start date
Benefits selections (if options)
Reporting structure (who's their manager at your company)
Equipment needs
Day 3-5: EOR Drafts Contract
EOR sends you:
Employment contract draft (in English + local language)
Summary of terms (salary breakdown, benefits, notice period)
Total monthly cost to you
You review for:
Job description accuracy
Salary correct
IP assignment clause
Non-compete (if applicable and legal)
Day 6-7: Employee Reviews & Signs
EOR sends contract to employee
Employee reviews (should get independent legal advice if they want)
Employee signs electronically
EOR countersigns
Day 8-10: Onboarding Setup
EOR completes:
Payroll registration
Tax withholding setup
Benefits enrollment
Bank details for salary payment
You provide:
Employee access to your systems (email, tools)
Onboarding schedule
Equipment shipment (if needed)
Day 11-14: Employee Starts
Employee begins work
Reports to you for day-to-day work
EOR handles HR admin (benefits cards, tax forms, etc.)
Ongoing Monthly Operations
Days 1-25 of each month:
Employee works normally
You track hours/time off via EOR platform
Day 25-28: Payroll Approval
EOR sends you invoice (salary + taxes + benefits + fee)
You review and approve
You pay EOR (wire transfer, ACH, credit card)
Day 28-31: Payroll Runs
EOR pays employee on their normal pay date (country-specific)
EOR remits taxes and social contributions
Employee receives payslip via EOR portal
Quarterly:
EOR files payroll tax returns
You receive compliance reports (optional but good to request)
Annually:
EOR provides year-end tax documents to employee
You review employee for raise/promotion
EOR processes changes
Offboarding an Employee (2-4 weeks)
Week 1: Termination Decision
You decide to terminate (or employee resigns)
You notify EOR of decision
EOR advises on notice period required (country-specific)
EOR calculates severance if applicable
Week 2-3: Notice Period
EOR drafts termination letter
EOR sends to employee (you can deliver verbally, but EOR handles formal notice)
Employee works notice period (or garden leave)
You collect company property
Week 4: Final Payroll
EOR processes final paycheck (salary + unused vacation payout + severance)
EOR remits final taxes
EOR provides termination certificate to employee
Post-Termination:
Employee loses access to EOR benefits
EOR provides final tax documents
You pay EOR termination fee (if any)
Timeline Comparison by Country Tier
Country TierOnboarding TimePayroll CycleTermination NoticeTier 1 (US, UK, Canada, Australia)3-7 daysMonthly2-4 weeksTier 2 (Western EU, Singapore)7-14 daysMonthly1-3 monthsTier 3 (Eastern EU, Latam, most of Asia)10-21 daysMonthly or biweekly1-3 monthsTier 4 (Middle East, Africa)14-30 daysMonthly1-3 months
Factors that slow onboarding:
Manual background checks (add 5-10 days)
Benefits with waiting periods (health insurance in some countries)
Bank account setup for employee (some countries require in-person)
Translation of documents (add 3-5 days)
9. Common Problems & How to Avoid Them
Problem 1: Permanent Establishment (PE) Risk
What it is: If your employees create a "fixed place of business" in a country, tax authorities may consider you to have PE, meaning you owe corporate income tax there.
What triggers PE:
Office or permanent workspace
Employees negotiating/signing contracts with local customers
Employees representing the company to local authorities
Significant inventory or assets in country
What typically does NOT trigger PE:
Remote employees working from home
Employees doing back-office work (engineering, support)
Short business trips (<183 days/year)
How to avoid:
Get a PE risk assessment before hiring (tax advisor or EOR should help)
Avoid renting office space in new country
Don't have employees sign contracts with local customers
Keep customer-facing roles in countries where you already have PE
If you do trigger PE:
You'll need to file corporate tax returns
Apportion revenue to that location
May need to set up entity anyway
Cost of getting this wrong: Back taxes on all revenue attributed to that location (potentially millions).
Problem 2: Contractor-to-Employee Conversion Issues
What it is: You've been using contractors in a country, now want to put them on EOR as employees. Tax authorities may view this as admission of past misclassification.
Risk:
Back taxes and penalties for period they were contractors
In some countries (Spain, France), this triggers mandatory employment benefits retroactively
Continue
5:18 AM
Problem 2: Contractor-to-Employee Conversion Issues (continued)
How to avoid:
Before converting, get legal opinion on past classification
If risk is high, consider:
Ending contractor relationship, waiting 3-6 months, then hiring as employee through EOR
Having contractor work for different entity (if you have multiple)
Documenting clear change in work arrangement (scope, control, schedule)
Get indemnification from EOR for pre-conversion period (they usually won't give it, but worth asking)
Best practice:
Audit your contractor relationships now (see Guide #2)
Convert compliant contractors only
For risky cases, consult local employment attorney first
Cost of getting this wrong: €10K-€100K+ in back taxes per contractor, depending on country and duration.
Problem 3: Equity/Stock Options Administration
What it is: You want to grant stock options to EOR employees. This gets complicated fast.
The challenges:
Employee is employed by EOR, not you (creates legal complexity for equity docs)
Tax treatment varies by country (ISOs don't exist outside US)
Some countries tax on grant, not exercise (employees owe tax before seeing value)
Reporting requirements differ by country
Exit scenarios: what happens to unvested equity when employee leaves EOR?
How to handle it:
Option 1: Direct grant (most common)
Employee receives option grant directly from your company (separate from employment contract)
Document clearly states this is separate from EOR employment
EOR has no involvement
You handle all tax reporting and compliance
Cost: $0 from EOR, but $2K-$5K in legal per country for first grant
Option 2: EOR equity administration (if they offer it)
EOR manages grant, vesting, exercise, tax reporting
They charge $100-$300/employee/year
Only a few providers offer this (Carta integration, etc.)
Cost: $100-$300/employee/year + setup
Option 3: Shadow equity
Don't grant real equity
Grant cash bonus tied to company valuation (simulates equity)
Easier tax treatment
Downside: Not real ownership, less motivating
Tax pitfalls by country:
CountryKey IssueHow to HandleUKTax on exercise (usually)Use EMI scheme if <£30M valuationGermany1-year holding for favorable taxTime vesting carefullyFranceTax on grant in some casesUse BSPCE for startupsNetherlandsComplex deemed income rulesGet local tax adviceIndiaVery high tax on exerciseConsider RSUs insteadBrazilTax on grantStructure as bonus, not equity
Best practice:
Budget $5K-$10K in legal per new country for equity setup
Use a global equity platform (Carta, Ledgy, Global Shares) to track
Set expectations with employees on tax implications
Don't promise equity until you've verified tax treatment
Cost of getting this wrong: Employee faces unexpected tax bill, blames you. In some countries, tax can be 40-50% of grant value before the equity is liquid.
Problem 4: Benefits Below Market Expectations
What it is: EOR provides statutory minimum benefits. Employee expected US-style health insurance or generous PTO.
Common gaps:
Health insurance:
Many countries have public healthcare (UK, Canada, most EU)
EOR provides minimum statutory (which might be just public enrollment)
Employees want private insurance or dental/vision
Gap cost: $100-$500/employee/month to top up
Paid time off:
Statutory is often 20-25 days
US tech companies often give 25-30 days
Gap: Need to negotiate with EOR for above-statutory PTO
Parental leave:
Statutory covers minimum (often unpaid or partially paid)
You may want to top up to full salary
Gap cost: $5K-$30K per parental leave event
Retirement/pension:
Statutory minimums are often lower than competitive
Tech employees expect 5-10% employer contribution
Gap cost: 3-7% of salary extra
How to avoid:
During EOR selection, ask: "What benefits are statutory vs. enhanced?"
Request sample benefits package for target country
Budget 5-10% extra for above-statutory benefits
Set clear expectations with candidates during offer stage
Best practice approach:
Match local market, not your home country
Survey local tech companies for benchmarks (use PayScale, Glassdoor)
Document your benefits philosophy in writing (helps with equity across countries)
Problem 5: Slow Terminations Due to Notice Periods
What it is: You need to let someone go. Local law requires 3 months notice. You didn't budget for this.
Notice periods by country (typical):
CountryNotice Period (Employee)Notice Period (Employer)Garden Leave Allowed?US (at-will)NoneNone (usually)N/AUK1 week - 3 months1 week - 3 monthsYesGermany4 weeks - 7 months4 weeks - 7 monthsYesFrance1-3 months1-3 monthsYesNetherlands1-4 months1-4 monthsNo (usually must work)Spain15 days15-30 daysYesAustralia2-4 weeks2-4 weeksYesSingapore1 month1 monthYesIndia1-3 months1-3 monthsRareBrazil30 days30 daysNoMexicoNoneNone (but severance)N/A
What is garden leave:
You pay the employee through notice period
They don't work (you send them home)
Protects against sabotage, IP theft, demoralization of team
Not allowed in all countries
How to avoid surprises:
Before hiring, ask EOR: "What's notice period for termination?"
Budget for worst-case (assume you'll pay full notice even if garden leave)
For senior hires, this could be 6-12 months salary
Include this in headcount planning
Severance on top of notice:
Some countries require severance in addition to notice:
Spain: 20 days per year worked (up to 12 months)
Mexico: 3 months salary + 20 days per year + vacation
Italy: Complex formula, often 2-6 months
China: 1 month per year worked
Example termination cost:
Senior engineer in Germany, 3 years tenure
Salary: €8,000/month
Notice: 3 months = €24,000
Severance: Not required (Germany doesn't mandate)
Total cost: €24,000 + ongoing benefits
Same person in Mexico:
Salary: $4,000/month
Notice: None
Severance: 3 months + (20 days × 3 years) / 30 = 3 + 2 months = $20,000
Total cost: $20,000
Best practice:
Set aside 2-3 months salary per employee as termination reserve
For performance management, start process early (so notice period runs during PIP)
Always consult EOR before firing (they'll guide you through local law)
Problem 6: Currency Fluctuations Blow Up Budget
What it is: You budgeted $6,000/month for a UK employee (£4,500). GBP strengthens 15%. Now you're paying $6,900/month.
Real example (2022-2023):
Company budgeted for 10 EU employees at $7,000/month = $70,000/month
EUR strengthened from $1.05 to $1.18 (12%)
New cost: $78,400/month = extra $100K/year
How to avoid:
Option 1: Salary in local currency (most common)
Offer employee £4,500/month
Your cost fluctuates with exchange rates
Pro: Employee has stable purchasing power
Con: Your budget is unpredictable
Option 2: Salary in USD
Offer employee $6,000/month
EOR converts to local currency at payment
Pro: Your cost is fixed
Con: Employee income fluctuates (they hate this)
Option 3: Hedging (enterprise only)
Lock in exchange rates via forward contracts
Requires treasury function
Usually only worth it for 50+ employees in a currency
Best practice:
Pay in local currency (Option 1) for employee satisfaction
Budget 10-15% FX buffer
Review rates quarterly and adjust budgets
For senior hires, consider annual compensation reviews to adjust for major swings
EOR FX markup: Most EORs charge 1-3% above mid-market rate. On $100K salary, that's $1K-$3K/year. Ask for transparency on their FX rates.
Problem 7: Employee Thinks EOR Is Their Employer (Confusion)
What it is: Employee is confused about who they work for, routes questions to EOR that should come to you.
Common confusions:
"Can I take next Friday off?" → Should ask you, asks EOR
"I need a promotion" → Should discuss with you, emails EOR
"I'm unhappy with my manager" → Should tell you, tells EOR
Why it happens:
EOR's name is on employment contract and paycheck
Employee receives benefits info from EOR
EOR sends them onboarding paperwork
How to avoid:
During onboarding:
Have you conduct first-day orientation
Explain: "Your paycheck comes from [EOR], but you work for [Your Company]. Here's who to contact for what:"
Day-to-day work, questions, time off requests → Your manager
Payroll questions, benefits, tax forms → EOR
HR issues, performance → Your HR team (with EOR copied)
Ongoing:
Include EOR employees in all company meetings, Slack, email
Give them company email (not EOR email)
Use your company branding in communication
Don't refer to them as "the EOR employees" (they're just employees)
In EOR portal:
Many EORs let you white-label the employee portal
Use your logo, colors, company name
Makes it feel less like a third party
Best practice: Create a simple one-pager for new hires:
WHO TO CONTACT FOR WHAT Your Manager ([name]) - Time off requests - Day-to-day work questions - Performance feedback - Project assignments [Your Company] HR ([email]) - Career development - Internal transfers - Company policies - Complaints or concerns [EOR Name] Support ([email]) - Payroll questions - Benefits enrollment - Tax forms - Payment issues
Problem 8: EOR Won't Let You Fire Someone
What it is: You want to terminate an underperforming employee. EOR says, "You need to do a Performance Improvement Plan first or you'll lose at tribunal."
Why this happens:
In many countries, you can't fire "at will"
You need "just cause" (misconduct, redundancy, or persistent underperformance)
EOR is legally liable if termination is deemed unfair
Unfair dismissal can cost 6-12 months salary in awards
Countries with strict protection:
CountryCan You Fire At-Will?What's RequiredUSYes (mostly)Nothing (in most states)UKNoFair process (warnings, PIP) after 2 years serviceGermanyNoSocial justification requiredFranceNoReal and serious cause + processSpainNoObjective cause + processNetherlandsNoPermission from govt or mutual agreementItalyNoJust cause + processBrazilYesBut severance is expensiveAustraliaNoFair process after 6 months
What "process" looks like:
Verbal warning (documented)
Written warning (specific improvements needed)
Performance Improvement Plan (30-90 days, clear goals)
Final written warning
Termination (if no improvement)
Timeline: 3-6 months from first warning to termination.
How to work with EOR on this:
Step 1: Early consultation
As soon as performance is an issue, tell EOR
Ask: "What process do we need to follow in [country]?"
Don't wait until you want them gone tomorrow
Step 2: Document everything
Written feedback after every 1-on-1
Clear goals and metrics
Evidence of missed targets
EOR will need this for tribunal defense
Step 3: Follow their advice
EOR knows local employment law better than you
If they say "do a PIP," do it
Trying to bypass process puts them at legal risk
Step 4: Formal process
EOR drafts warning letters
You deliver feedback, EOR handles paperwork
EOR ensures compliance with timelines, language, process
Shortcuts (if you must fire fast):
Mutual separation:
Negotiate exit with employee
Pay severance above statutory (1-3 months extra)
Employee signs release
Both parties avoid tribunal risk
Cost: Extra severance, but faster and cleaner
Redundancy:
If you can eliminate the role entirely (not backfill)
Requires genuine business reason
Often requires consultation period
Cost: Statutory redundancy (varies by country)
Gross misconduct:
Theft, harassment, gross negligence
Can terminate immediately
Requires clear evidence
Risk: If employee disputes, you must prove it
Best practice:
Start performance management early
Assume 90-120 days from first concern to termination
Budget severance in case you need mutual separation
Never try to fire someone without EOR's involvement
10. Case Studies
Case Study 1: SaaS Startup (Pre-Seed to Series A)
Company: B2B SaaS, 15 employees, $2M ARR
Challenge: First customer in Europe (large enterprise). Customer required local sales presence and EU data residency. Needed to hire in UK fast.
Decision: Use EOR for first UK hire (Account Executive).
Implementation:
Selected Deel (global platform, fast onboarding)
Hired AE in 8 days
Cost: £5,000 salary + £750 employer NI + £450 EOR fee = £6,200/month ($7,800)
Employee started while company built EU data center
Results (Year 1):
AE closed £800K ARR in UK
Hired 2 more UK employees via EOR
Total EOR cost: $280,800/year
Alternative (UK Ltd): $45K setup + $25K/year compliance = $70K Year 1, but 4-month delay
Decision at Year 2:
Now 6 UK employees
Set up UK Ltd (£15K + 3 months)
Transitioned 6 employees from EOR to UK Ltd over 2 months
Transition cost: £3,000 (£500 per employee EOR fee)
ROI:
EOR enabled $800K revenue 4 months earlier = $267K extra revenue
Cost premium vs. entity: $280K (EOR) vs. $70K (entity) = $210K extra
Net benefit: $57K + option value of testing market before entity commitment
Lesson: For speed to revenue in new market, EOR pays for itself even at higher cost.
Case Study 2: Series B Startup (Multi-Country Expansion)
Company: Developer tools, 80 employees, $15M ARR, remote-first
Challenge: Wanted to hire globally (10+ countries), but didn't want to manage 10 entities.
Decision: EOR strategy for all international hires outside US.
Implementation:
Selected Remote.com (consolidated platform for all countries)
Hired in: UK (3), Germany (4), France (2), Netherlands (2), Poland (2), Canada (3), Brazil (2), Australia (2), India (3) = 23 international employees
Average cost: $600/month EOR fee per employee
Total EOR fees: $165,600/year
Results (Year 1):
Hired 23 people in 9 months (would've taken 24+ months to set up 9 entities)
Total cost: $165K EOR fees + salaries/taxes
Alternative: 9 entities = $270K setup + $180K/year compliance = $450K Year 1
Savings: $284K in Year 1, plus 15+ months time-to-hire
Results (Year 2):
Now 45 international employees
Set up entities in top 3 countries (UK, Germany, Canada) = 18 employees
Kept EOR for 6 other countries = 27 employees
Annual cost: $27K entity compliance + $194K EOR fees = $221K
Savings vs. 9 entities: Still cheaper ($221K vs. $300K+ for 9 entities)
Lesson: For distributed team across many countries, EOR is cheaper than entities even at scale.
Case Study 3: Growth-Stage Company (EOR Mistake)
Company: Fintech, 200 employees, $40M ARR
Challenge: Hired 12 employees in Singapore via EOR. After 18 months, realized they should've set up entity.
Mistake:
Assumed 12 employees wasn't enough for entity
Didn't run break-even analysis
Paid $7,200/employee/year in EOR fees = $86,400/year
Singapore entity would've cost: $25K setup + $15K/year = $40K Year 1, $15K/year after
Cost of mistake:
2 years on EOR: $172,800
Would've cost with entity: $40K + $15K = $55K
Overpaid: $117,800
Recovery:
Set up Singapore Pte Ltd (took 6 weeks)
Transitioned 12 employees from EOR
Transition issues:
Employees had to "resign" from EOR and be re-hired
2 employees negotiated raises during transition (10-15%)
Benefits had waiting periods reset
Cost $18K in legal + $24K in extra comp
Total cost of mistake: $117K overpaid + $42K transition = $159K
Lesson: Run the math early. At 8+ employees in one country, entity usually makes sense by Year 2.
Case Study 4: Enterprise (Compliance Near-Miss)
Company: Enterprise SaaS, 800 employees, $200M ARR
Challenge: Used EOR to hire 5 sales engineers in Germany to support large customers. Employees worked from customer sites 3-4 days/week.
Problem:
German tax authority flagged company for permanent establishment
Sales engineers were creating "fixed place of business" at customer sites
Company owed German corporate tax on revenue attributed to German activities
Estimated exposure: €2M in back taxes
How they caught it:
Annual tax review by Big 4 firm
EOR provider never flagged PE risk
Didn't have PE assessment in place
Resolution:
Set up GmbH in Germany (€30K)
Transferred employees to GmbH
Filed voluntary disclosure with tax authority
Negotiated settlement: €400K (vs. €2M potential)
Now file German corporate tax returns
Cost:
€400K settlement
€30K entity setup
€50K/year compliance
€80K in legal/tax advisor fees
Total: €560K
Lesson: EOR doesn't eliminate PE risk. Get tax advice before hiring in new country, especially for customer-facing roles.
11. FAQ
General Questions
Q: Can I hire anyone anywhere with EOR?
A: Mostly, but with exceptions:
EOR provider must have entity in that country
Employee must have right to work (citizen, visa, permit)
Some countries restrict foreign employment (North Korea, Iran, Syria due to sanctions)
Some roles can't be done via EOR (regulated professions: lawyers, doctors in some countries)
Q: Is the employee really employed by the EOR or by me?
A: Legally, the EOR is the employer. Practically, you control the work. Think of it like:
EOR = HR/payroll outsourcing + legal employer shield
You = actual manager and business
Q: Can EOR employees get equity in my company?
A: Yes, but it's separate from employment:
You grant equity directly (not through EOR)
Option agreement is between you and employee
Tax treatment varies by country (get advice)
Budget $2K-$5K in legal per new country
Q: What if the EOR goes out of business?
A: Rare, but:
Employees are still employed until formally terminated
You'd need to move them to another EOR or your entity quickly
Ask EOR for proof of E&O insurance (errors & omissions)
Large providers (Deel, Remote, G-P) have $20M+ in insurance
Q: Can I transition employees from EOR to my entity later?
A: Yes:
Most EORs allow this (check contract)
Employee technically "resigns" from EOR and you re-hire them
Continuous service is usually recognized (employee doesn't lose seniority/tenure)
Cost: $0-$500 per employee to EOR
Legal cost: $5K-$15K for new contracts/benefits setup
Cost Questions
Q: What's the real cost difference between EOR and contractors?
A: Contractors look cheaper but have hidden costs:
Contractor:
Gross pay: $6,000/month
Your cost: $6,000/month
Their take-home: ~$4,200/month (after their taxes/insurance)
Risk: Misclassification = $50K-$200K in penalties
EOR Employee (same net take-home):
Net to employee: $4,200/month
Gross salary needed: $6,000/month
Employer taxes: $1,200/month
EOR fee: $600/month
Your cost: $7,800/month
Risk: Low (compliant)
Real cost difference: $1,800/month or 30% more Risk difference: Massive
Q: Do I pay EOR fees on benefits and taxes, or just base salary?
A: EOR fee structures vary:
Flat fee: $400-$600/month per employee regardless of salary (most common)
Percentage: 8-15% of gross salary (less common)
Hybrid: $300/month + 3% of gross
Fees are typically on base salary only, not on taxes or benefits. But verify in your quote.
Q: Are there countries where EOR is especially expensive or cheap?
A: Yes, due to employer tax rates:
Most expensive (total cost):
France: 45-50% employer burden
Belgium: 35-40%
Italy: 35-40%
Sweden: 31%
Least expensive:
Singapore: 17%
Hong Kong: 5%
UAE: 12.5% (effective 2023)
Switzerland: 14%
EOR fees are often the same ($400-$600), but total cost varies widely due to statutory taxes.
Compliance Questions
Q: Who's liable if there's a payroll tax mistake—me or the EOR?
A: EOR is liable:
They're the legal employer
Tax authorities will go after them first
EOR's insurance covers fines/penalties
BUT:
If you provide wrong information (salary, hours), you share liability
If you ask EOR to do something illegal ("don't withhold taxes"), you're liable
Always follow EOR's compliance advice.
Q: Does using EOR eliminate permanent establishment risk?
A: No. EOR handles employment compliance. PE is a corporate tax issue:
PE triggered by: fixed place of business, local revenue activities
EOR employees can create PE if they're customer-facing or representing the company locally
You need separate PE assessment (tax advisor, not EOR)
Q: Can I get audited even if I use EOR?
A: EOR gets audited for employment taxes (and defends it). You can still be audited for:
Corporate income tax (if you trigger PE)
VAT (if you sell to customers in that country)
Contractor misclassification (if you have contractors too)
EOR doesn't make you audit-proof, just employment-compliant.
Operational Questions
Q: Can EOR employees use our company email and systems?
A: Yes—and you should:
Give them company email (@yourcompany.com)
Access to Slack, GitHub, etc.
Company laptop
Treat them like any other employee
EOR handles payroll/HR, you handle day-to-day work.
Q: How do I do performance reviews for EOR employees?
A: You conduct the review:
Use your normal process
Deliver feedback directly
Document in your system
If there's a formal action (raise, PIP, termination), loop in EOR:
You make the decision
EOR processes it (updates contract, ensures compliance)
Q: Can I move an EOR employee to a different country?
A: Complicated:
If employee relocates, you need EOR in new country (or entity)
Can't keep them on old country EOR if they're not living there
Process:
Terminate with EOR in Country A
Rehire via EOR in Country B
Continuous employment is usually not recognized (they start fresh)
This is disruptive. Better to plan ahead if relocation is likely.
Q: What happens if an EOR employee sues for wrongful termination?
A: EOR defends it:
They're the legal employer, so they're the defendant
Their insurance covers legal fees and settlements
You'd be a witness (you made the business decision to terminate)
This is a key benefit of EOR—they absorb employment litigation risk.
Strategic Questions
Q: Should I use the same EOR globally or different ones per region?
A: Pros of single global EOR:
One platform, one invoice, one contract
Easier to manage
Volume discounts
Cons:
Global EORs may use partner networks (not owned entities) in some countries
Regional specialists may have better service
Recommendation: Use one global EOR unless you have 20+ employees in a region where a specialist is better.
Q: When should I switch from EOR to entity?
A: Run this calculation:
Break-even employees: ~7-10 employees in one country Break-even time: ~18-24 months
Switch to entity when:
You have 10+ employees in country, OR
You've been there 2+ years and plan to stay, OR
You need local banking/office for customers, OR
Per-employee costs matter (scaling to 50+ people)
Stay on EOR when:
<10 employees per country
Testing market viability
Distributed across many countries (2-5 per country)
Q: Can I use EOR for executives/C-level?
A: Yes, but:
EOR fees are usually flat ($600/month), so % cost is lower on high salaries
Execs may want equity (see Problem #3)
Execs may trigger PE risk if customer-facing
Some execs prefer to be contractors (1099) for tax optimization in their country
Common pattern: Use EOR for first exec in market, transition to entity when hiring team under them.
Key Takeaways
✅ EOR is the fastest, lowest-risk way to hire internationally without setting up entities—ideal for 1-10 employees per country or first 1-2 years in a market.
✅ Real cost is $400-$650/month per employee in EOR fees, plus salary and statutory taxes (20-50% depending on country). Budget $7K-$12K total cost per employee per month.
✅ EOR handles employment compliance (payroll, taxes, benefits, contracts) but doesn't eliminate permanent establishment risk—get separate tax advice.
✅ Break-even is ~7-10 employees in one country or 18-24 months. After that, setting up your own entity is usually cheaper.
✅ Choose EOR based on: owned entities in your target countries, compliance track record, platform quality, and transparent pricing. Get 3 quotes.
✅ Common mistakes: Not assessing PE risk, under-budgeting for notice periods/severance, ignoring equity tax implications, and staying on EOR too long when entity makes sense.
✅ Best practice: Start with EOR for speed, plan transition to entity at 10+ employees, keep EOR for long-tail countries.
Next Steps
If you're about to hire your first international employee:
Identify target country/countries for next 12 months
Get 3 EOR quotes (use checklist in Section 7)
Get PE risk assessment (10-minute call with tax advisor—don't skip this)
Select EOR and sign contract (read termination clauses carefully)
Hire your first employee (should take 1-2 weeks)
If you already use EOR:
Run the break-even analysis (Section 6) for each country
If 8+ employees in one country: Model entity setup cost
If using EOR for 2+ years: Consider transitioning to entity
Review your EOR contract: Check for price increases, termination terms
Audit compliance: Ensure you're not triggering PE, all contractors are properly classified
If you're scaling internationally:
Map headcount by country for next 24 months
Decide entity strategy: Which 2-3 countries need entities?
Keep EOR for long-tail: Countries with <5 employees
Build transition plan: Entity setup takes 3-6 months, so start early
Related Guides
📄 How to Hire International Contractors: Compliance by Country (Guide #2) Learn contractor vs. employee tests, misclassification risks, and when contractors are safe vs. risky.
📄 Entity vs. EOR: When to Set Up a Legal Entity Abroad (Guide #3) Deep dive on entity setup costs, timelines, and financial break-even analysis.
📄 Permanent Establishment Risk: What Triggers It (Guide #9) Understand when employees create corporate tax liability in foreign countries.
📄 Stock Options for International Employees (Guide #8) Country-by-country tax treatment, setup costs, and compliance requirements for equity.
Download Resources
📥 EOR Cost Calculator (Excel) Model total cost across different countries and employee counts.
📥 EOR Provider Comparison Checklist (PDF) Score and compare providers across 15 criteria.
📥 Country Onboarding Timeline Tracker (Notion) Track hiring progress across multiple countries and EOR providers.
Last updated: January 22, 2026 Reading time: 25 minutes Word count: ~12,000 words
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Summary Box
What you'll learn:
How EOR works and what it actually costs (real numbers, not ranges)
When EOR makes sense vs. entity setup, contractors, or PEO
Compliance risks EOR solves—and risks it doesn't
How to evaluate and choose an EOR provider
Implementation timeline and what to expect
Reading time: 25 minutes | Last updated: January 2026
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