By Jay KT
Hiring abroad without a local entity works a bit like staying in a serviced apartment. The building, the utilities and the cleaning belong to somebody else, and you still have to behave like a responsible tenant. You live there for real, and the landlord keeps the deed.
A seed-stage company with a backend engineer in Pune, a designer in Toronto and a customer-success lead in Singapore meets this the first time the second offer letter is due. Registering a subsidiary in each country takes months of paperwork and a bank account that needs its own approvals. A startup with a runway measured in quarters cannot wait for that. So the question becomes which arrangement lets the work start now while keeping the legal footing sound.
Two routes that skip the entity
There are two. The first is the independent contractor: the person invoices from their own business, pays their own tax and social contributions, and decides how the work gets done. The second is an employer of record, a local company that signs the employment contract, runs payroll, files the statutory returns and stays the legal employer, while you direct the daily work.
Both are legitimate, and they are different tools. Which one applies depends on what the relationship looks like in practice, and the label in the contract carries little weight. The ILO’s Employment Relationship Recommendation (No. 198) tells states to look at the facts of how work is performed, and tax authorities do the same. In the United States the IRS weighs behavioural control, financial control and the nature of the relationship before it settles between a Form W-2 employee and a Form 1099 contractor. Other countries run their own tests with the same instinct underneath.
A contractor route suits a defined piece of work: a three-month build, a rebrand, a security audit. An employer of record suits a standing role with a title, a manager and a salary review next spring. Putting a standing role on a contractor invoice is the mistake that causes trouble later.
Where contractor arrangements stop working
You can feel the drift when you look at the person’s week. They log into your Slack every morning. They have a Google Workspace account on your domain. They sit in the Monday stand-up on Zoom, their tasks live in your Notion, and a manager rewrites the priorities every few days. The word “employee” appears on no document, and the job looks like one anyway.
The United Kingdom gives the sharpest example. IR35 is the set of rules HMRC uses to decide whether a worker supplying services through their own company would be an employee if engaged directly, and the test turns on control, substitution and mutuality of obligation. A founder in Austin hiring a developer in Manchester does not need the case law memorised. The founder does need to know that a monthly invoice with a company name on it settles nothing.
Contractors also carry a cost that the first invoice hides: they price their own pension, sick days and downtime into the day rate. A contractor who is happy at one rate in month two may ask for a different arrangement in month ten, when the role has grown but the contract has not.
Before the offer goes out, run the candidate through six questions. Each one is a short conversation with the candidate and with your own advisers.
· Does the person choose their own hours and tools?
· Is the work a project with an end date?
· Does the person also work for other clients?
· Does the country attach statutory pay or contributions to employment, such as India’s EPF, Singapore’s CPF for citizens and permanent residents, or Brazil’s 13th-month pay?
· Which tax forms exist at year end for this person: a W-2, a 1099 or a local equivalent?
· What are the notice and severance rules if the role ends in a year?
Three “yes” answers to the first three questions point to a contractor. Three “no” answers point to employment. The mixed results are the interesting ones, and they signal a role that needs rewriting before it needs a contract. A developer who sets her own hours but works for one client, on a role with no end date, is a conversation to have with an adviser in her country before anything is signed.
The last three questions matter whichever way the first three land. They decide what the arrangement costs and what happens at the exit, and a founder who has priced the monthly fee and nothing around it has priced about half of it.
Benefits are where budgets drift
Salary gets negotiated. Benefits get discovered. A startup that sets one number for a Pune hire and another for a Toronto hire finds that the statutory layer underneath differs in each country, before any private health cover or equipment budget is added. A guide to global employee benefits is useful here because it separates what the law requires, such as provident-fund contributions in India or the mandatory 13th-month payment in Brazil, from the extras employers add to compete for talent.
That separation changes the spreadsheet. The statutory layer is a cost of employing in that country and sits in the offer whether or not the candidate asks about it. The extras are choices: a Culture Amp survey budget, a wellness stipend, a laptop refresh cycle, a co-working desk in Singapore. Pricing the two layers separately lets a founder see which part of the package is fixed and which part is a lever.
Contractors fall outside the statutory layer by design. Under an employer-of-record arrangement, the statutory benefits are built into the employment contract and paid through local payroll. A genuine contractor, whether engaged directly or through an agent-of-record arrangement that handles the agreement and the payments, covers the equivalent from the fee. Neither is wrong. The mistake is comparing a contractor’s day rate to an employee’s salary as though the two figures described the same cost.
Compliance after the start date
Signing takes an afternoon. Compliance runs for as long as the employment does: registering the employee with the right tax and social-security bodies, issuing payslips in the local format, tracking working-time and leave rules, and handling the person’s data lawfully. If the person lives in the EU, or the data touches it, GDPR governs how you store their records, and a SOC 2 report or ISO 27001 certificate on your HR systems is the kind of detail a candidate’s lawyer may raise.
The employment compliance requirements that sit beneath each contract are held by different parties depending on the route. With a genuine contractor, they sit with the contractor. With an employer of record, the local employer carries the filings and statutory duties, and the startup supplies accurate information about the work and the hours. Startups on this route keep decisions that cannot be delegated: who gets hired, what the role is, how performance is judged, when it ends.
Right-to-work checks and onboarding paperwork follow the same split. A hire in Toronto and a hire in Pune each arrive with different identity documents, different tax registration numbers and different first-month forms, and somebody has to collect them before the first payslip, not after it. In an employer-of-record arrangement the local employer collects them. In a contractor arrangement the startup asks for an invoice and a tax identifier, and keeps the file thin on purpose, because a thick file of onboarding paperwork can read as evidence that the relationship has become employment.
A separate question, whether the startup’s own activity makes the company taxable in that country, belongs to your tax and legal advisers whichever route you pick. Neither route settles it for you, and advice is needed whether or not an employer of record is involved.
What no arrangement settles
Classification looks different at month nine than it did on day one. A role that began as a three-month project can turn into a standing job without anyone deciding it, and the contract keeps describing the old arrangement. The mismatch tends to surface when a payroll question forces someone to read the contract.
So put a date in the calendar, six months after the start, and ask the six questions again. Some hires need to move from contractor to employment, and some stay exactly where they are. A startup that cannot say which is which by then has a documentation problem, and a change of provider leaves that gap where it was.
Candidly, I do not have a rule that removes the judgement. Greenhouse or Lever can hold the offer and the interview notes, Workday or a spreadsheet can hold the cost, and none of them tells you whether a role has quietly become a job. Someone has to look.
