How to hire International Employees without an Legal entity

Finding the right people is harder than ever. About three in four (around 74%) small and mid-sized employers struggle to fill full-time skilled roles. To close these talent gaps, companies are increasingly looking beyond national borders, but many hesitate to take the leap.

The concern is valid: setting up a foreign subsidiary means navigating high overhead costs, complex compliance requirements, and the risk of misclassifying workers or triggering permanent establishment rules. These missteps can lead to significant fines and operational disruptions.

However, there's a more efficient path forward. Companies can access global talent without establishing a local entity by hiring international contractors or partnering with an Employer of Record (EOR).

In this article, we'll explore both approaches to hiring internationally without an entity, outlining the compliance considerations, operational differences, and strategic implications of each option.

How to Hire Without a Legal Entity

To reduce the discussed risks and simplify international onboarding without establishing a legal entity, global companies can either partner with an Employer of Record or hire foreign contractors. 

#1 Partnering with an EOR

An Employer of Record(EOR) is a firm that acts as legal employers for a company and handles the process of onboarding, paying, and managing employees on their behalf. They take responsibility for handling payroll, benefits administration, and tax documentation of employees. They also handle compliance with local labor and tax legislation.

Hiring employees with an EOR can offer a wealth of benefits, some of which include:

• Access to a global talent pool: Through EORs, companies have access to a variety of talent from different locations with unique skill sets. 
• Lower costs: An EOR allows you to hire workers in a country for a lower, fixed monthly fee without having to incur heavy costs for setting up and managing a local entity.
• Guaranteed compliance: An EOR can help companies navigate the complexities of legal and tax regulations of each country, ensuring maximum compliance. 

#2 Hiring international contractors

Companies enjoy several benefits from hiring international contractors instead of hiring employees through local entities:

• For starters, they offer more flexibility in project-based engagements, and the workforce can be scaled up or down based on demand, seasonality, and project requirements. 
• They ensure maximum cost-efficiency as they are not subject to the same payroll structure as employees, allowing companies to avoid spending on benefits, healthcare, and even office overhead.
• The hiring process for contractors is relatively faster than for full-time employees as there are fewer onboarding formalities. Also, since they are responsible for managing their taxes and benefits, the administrative burden on the HR department is reduced. 

Companies can also leverage the contractors’ knowledge of local markets. Their insights into customer preferences and local trends will provide them with the ground-level knowledge needed for market entry strategies. 

For example, a tech company looking to launch its latest app in a new market such as Brazil can hire a Brazilian contractor to understand the local culture and customer preferences. 

Through surveys and focus groups, the contractors will gather data on app usage habits, issues, and consumer behavior. This will allow the company to tailor the app and refine its marketing campaigns to create awareness and attract Brazilian consumers. 

Top Countries for Hiring International Contractors

While there are no boundaries to hiring international contractors, companies favor certain countries because of factors like cost-effectiveness, specialized skills, and time zone compatibility. Here are the top five destinations to consider: 

1.India

India is one of the largest outsourcing hubs in the world, boasting a skilled IT workforce and competitive labor costs. More than 50% of the Indian workforce is under 30 years of age and they demonstrate high-level proficiency in technical skills such as cloud computing, AI, full-stack development, etc.

2.Poland

Poland stands out among European countries as a hub for tech talent and has a diverse remote workforce in sectors like banking, finance, retail, manufacturing, etc. The country also boasts a strong education system, particularly in STEM fields. Additionally, its low employment costs and fast-growing economy make it an attractive option for companies looking to hire remote contractors. 

3.Brazil

Brazil’s diverse workforce, competitive labor costs, and growing tech sector make the country one of the best options for hiring contractors. Their proficiency in digital technologies and engineering, as well as creative skills such as graphic design and social media management, make them well-suited for tech companies. The country’s lower cost of living can also provide cost-effective remote talent.

4.Philippines 

The Philippines is known for its well-educated English-speaking workforce with diverse skills in fields like customer service, software development, and creative design. Additionally, they offer competitive rates compared to Western markets.

These factors make the Philippines a standout option for companies looking for BPO contractors.

5.Nigeria

Nigeria offers a large talent pool of young workers — 70% of the country’s population is under the age of 30. The country is showing rapid development in remote services such as digital marketing and financial analysis. In addition, competitive labor costs make Nigeria an attractive choice for hiring contractors. 

To get a comprehensive overview of how and what you should pay your international employees and contractors, you can use our Salary Calculator to determine median salary figures for different countries and roles, ensuring fairness and competitiveness in the global market. 

Problems with hiring contractors

Hiring contractors comes with several challenges companies need to consider carefully:

1. Limited control: Companies have limited control over the contractor’s work schedules and performance. The lack of direct supervision and their commitment to other clients can compromise the timely delivery and quality of work.
2. Employee misclassification: Companies that misclassify their contractors as employees will face legal consequences from the Ministry of Labor of their corresponding countries and incur heavy fines and penalties. To avoid these, companies must adhere to local labor laws and seek guidance from local compliance experts.  
3. Permanent establishment risks: The risk of permanent establishment exists when a business has established an office in another country and has dependent contractors who conduct substantial business operations there. As a result, the company is subject to local tax laws and must ensure compliance with local regulations. 

When to Choose an EOR and International Contractors?

Selecting the right approach depends on your specific business needs, the nature of the work, and your long-term hiring strategy. Here's how to evaluate which option fits your situation:

Choose an EOR when you need:

• Long-term employment relationships: If you're hiring for ongoing, indefinite roles rather than project-based work, an EOR provides the employment structure necessary for full-time team members.
• Greater control over work: EORs enable you to manage work schedules, performance expectations, and day-to-day responsibilities as you would with any employee.
• Employee benefits and protections: When roles require statutory benefits, health insurance, paid leave, and other employment protections, an EOR ensures full compliance with local labor laws.
• Reduced compliance risk: For companies entering markets with complex labor regulations, an EOR takes on the legal responsibility and helps avoid misclassification issues.

Choose international contractors when you need:

• Project-based or specialized expertise: Contractors work well for defined projects, seasonal demands, or accessing niche skills without long-term commitments.
• Maximum flexibility: If your workforce needs fluctuate or you're testing a new market, contractors offer the ability to scale quickly without employment obligations.
• Lower administrative overhead: Contractors manage their own taxes and benefits, reducing your HR workload and administrative complexity.
• Cost efficiency for short-term needs: For temporary or part-time work, contractor arrangements typically cost less than employing through an EOR.

Key questions to ask:

1. How long will this role exist? (Ongoing roles favor EOR; fixed-term projects favor contractors)
2. How much direction and control do you need over the work? (High control requires an employment relationship via EOR)
3. What are the misclassification risks in the target country? (High-risk jurisdictions benefit from EOR clarity)
4. Does the role require employee benefits and protections? (Yes means EOR is necessary)
5. What's your budget and expected ROI? (Consider both direct costs and compliance risk costs)

Many companies use a hybrid approach, employing core team members through an EOR while engaging contractors for specialized projects or market testing. This strategy provides workforce stability while maintaining flexibility for fluctuating needs.

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Case Study: How Gloroots Helped PriceLabs Scale to 80+ Employees in India

PriceLabs needed to expand rapidly in India but faced compliance complexities with local taxation and hiring regulations. By partnering with Gloroots as their EOR, they onboarded quality talent quickly while ensuring full compliance. 

The result: Their Indian team grew from 5 to 80 employees in just 1.5 years, saving nearly 250 person-hours monthly on administrative work.

Learn more about PriceLabs' success story with Gloroots

How does partnering with an EOR work?

EOR providers are responsible for undertaking the following responsibilities on behalf of a company:

• Ensuring compliance with local labor laws. 
• Helping the company mitigate legal and non-compliance risks such as employee misclassification, permanent establishment, and onboarding and offboarding risks. 
• Managing the payroll, taxes, and benefits administration of employees and contractors. 
• Reducing the administrative burdens of the HR. 

The company, on the other hand, is responsible for: 

• Defining the roles of employees and contractors. 
• Maintaining proper communication with them and the EOR. 
• Fostering employee engagement. 

Types of EOR pricing

Employer of Record (EOR) providers offer different pricing models and understanding them can help companies choose the right plans that suit their respective needs. 

Pay-per-employee model

This is a common EOR pricing model where businesses pay a flat fee for each employee the EOR provider manages on their behalf. The fee covers all HR-related services such as payroll management, benefits administration, and compliance management. Companies with a small or fluctuating workforce typically go for this model as they only pay for the services they need, as opposed to the percentage of payroll. 

Fixed pricing model

Under this model, companies pay a fixed fee for a certain number of HR-related services that cover a specified set of employees. This model is popular among companies with a stable workforce as it provides them with better cost control.

Custom pricing model

Some EOR providers offer customized service packages tailored to a company’s specific needs. The company works together with the EOR to determine the scope of services it needs for the specified number of employees it manages. 

Can a U.S. Company Hire a Foreign Employee in Another Country? What are the risks involved?

Yes, a U.S. company can hire foreign employees from other countries, although it can be a risky endeavor due to compliance issues. Some of the prominent risks U.S. companies face when hiring international employees include:

Permanent establishment (PE) risk

This is when a U.S. company has a fixed establishment and generates revenue in another country. In this case, the company is subject to local corporate taxation and if they ignore these obligations, they will be subjected to fines and tax arrears.

Misclassification risk

This occurs when a company incorrectly classifies a worker as an independent contractor rather than a full-time employee. For example, when contractors are paid a fixed salary or required to work fixed hours, local authorities regard them as full-time employees as per local labor regulations.

Misclassification can make your company liable for retroactive payment of employment taxes and benefits and legal fines.

Unfamiliar labor laws

Local labor and employment regulations in the U.S. differ significantly from those in other countries. To avoid the risk of penalties for non-compliance, U.S. companies must establish international employment contracts that satisfy certain factors like leave entitlements, overtime regulations, and statutory benefits for international employees. 

Payroll setup and accurate contributions

If a U.S. company fails to accurately calculate payroll taxes and contributions for foreign employees or fails to comply with local payroll regulations, they will be subjected to fines. To mitigate legal risks, they must follow the appropriate payroll cycle and reporting regulations.

How EOR and Contractors Replace the Need for a Local Entity?

Traditionally, international expansion required establishing a legal entity in each target country, a process costing $15,000-50,000 in setup fees, $5,000-15,000 monthly in operational costs, and 3-6 months of waiting time. Both EOR partnerships and contractor arrangements eliminate this burden entirely.

EOR as a Complete Entity Replacement

An Employer of Record becomes your legal employer presence in a foreign country, handling all functions a local entity would manage:

• Legal employer status: The EOR registers as the official employer with local authorities while you maintain operational control over your team's work
• Payroll and tax compliance: Processes all compensation, withholdings, and employer tax obligations through their existing infrastructure
• Benefits administration: Provides access to established health insurance, retirement plans, and statutory benefits required by local law
• Regulatory compliance: Monitors labor law changes and maintains all employment documentation to regulatory standards
• Full lifecycle management: Handles everything from compliant employment contracts to legally sound terminations and offboarding

Cost: Fixed monthly fee of $300-800 per employee depending on country, with no setup costs or waiting period.

Contractors as a Lightweight Alternative

Contractors offer a simpler path when full employment isn't necessary:

• Independent business relationships: Contractors operate as separate businesses, eliminating any need for employer presence
• Self-managed compliance: They handle their own taxes, registration, and regulatory obligations
• Minimal administration: You simply pay invoices—no payroll, benefits, or HR documentation required
• Immediate engagement: Sign an agreement and start work the same day

Cost: No platform fees beyond payment processing. Pure contractor rate with no employment-related overhead.

Which Approach Replaces Your Entity Need?

Choose EOR for:

• Full-time, long-term team members (1-100+ employees)
• Direct control over work schedules and performance
• Competitive benefits and career development paths
• High-risk compliance environments

Choose contractors for:

• Project-based or specialized expertise
• Market testing with minimal commitment
• Rapid scaling flexibility
• Independent professionals who prefer contractor status

Hire Globally Without Entity Setup With Gloroots

When hiring internationally through Gloroots, the entire process is managed for you end-to-end. You don't need to coordinate vendors, navigate local regulations, or manage administrative steps.

Gloroots runs the complete hiring workflow: 

• Candidate sourcing
• Background verification through interview coordination
• Offer issuance
• Compliant employment setup
• Statutory registrations
• Payroll setup
• Benefits enrollment
• Employee onboarding 

aligned with local labor regulations across 140+ countries.

Gloroots provides end-to-end EOR services, handling employment contracts, payroll processing, tax compliance, benefits administration, and statutory filings. Local compliance expertise ensures your hiring aligns with labor code requirements in each country, from contract drafting to termination procedures.

The platform combines self-service functionality (contract management, onboarding workflows, payroll visibility) with dedicated customer success support. You get audit-ready reporting, transparent cost breakdowns, finance-team-friendly invoicing with country-level detail, and GL mapping.

Whether hiring your first international employee or expanding a distributed team across multiple markets, Gloroots scales with you without the complexity of multi-entity management.

Schedule a demo with Gloroots to start hiring internationally in days with complete compliance confidence.

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