The short version
- A contractor is a self-employed person or business you pay against a commercial agreement. An employer of record (EOR) legally employs the person for you in their country.
- Contractors are quicker and simpler. An EOR costs more but gives the worker a local employment contract, payroll, taxes and benefits.
- What decides whether someone is really a contractor is how the work is done in practice, not what the contract calls it.
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You found the right person, but they live in another country. You have two common ways to work with them without opening a company there: engage them as an independent contractor, or employ them through an employer of record (EOR). Here is how the two compare and when each makes sense.
The two routes in one table
| Contractor | Employer of record | |
|---|---|---|
| Legal relationship | Commercial agreement between two businesses | Local employment contract between the worker and the EOR |
| Taxes | The contractor handles their own taxes and insurance | The EOR runs payroll and pays employer taxes and contributions |
| Benefits | None by default | Statutory benefits of that country, sometimes extras |
| Speed to start | Days | Usually longer: contracts and onboarding in the local system |
| Cost | The agreed fee, plus payment costs | Salary and employer costs, plus the EOR's service fee |
| Main risk | Misclassification if the person works like an employee | Higher cost, and you depend on the EOR's local compliance |
What decides if someone is a contractor
Every country has its own test, but they look at the real working relationship rather than the label in the contract. Signs that someone works like an employee include:
- You set their working hours and how the work is done.
- They use your internal tools, email and systems like staff do.
- They report to a manager and cannot send someone else to do the work.
- They work only for you, continuously, for a long time.
In the US, the IRS looks at behavioural control, financial control and the type of relationship. In the UK, the off-payroll working rules (IR35) decide whether a contractor working through their own company should be taxed like an employee. Misclassification can mean back taxes, social contributions and fines for the company, so treat these tests as a reason to get local advice, not as a checklist to work around.
When a contractor makes sense
- A defined project with a clear end, such as a website, an audit or a translation.
- The person already runs their own business and has other clients.
- They want to set their own hours, tools and methods.
Platforms such as Deel, Remote and Oyster also handle contractor agreements and international payments, so you can start with a contractor and convert to employment later on the same platform. Many payroll providers, like Gusto in the US, can pay international contractors too.
When an employer of record makes sense
- A long-term, full-time role where you direct the work.
- The person wants the security of a local employment contract and benefits.
- You want to hire in a country without setting up your own company there.
EOR providers differ in where they have their own entities, how they handle benefits and how they price. Remote says it has its own entities in many countries; Rippling combines EOR with HR, payroll and IT in one system; Papaya Global targets larger companies with payroll in many countries; Multiplier focuses on hiring in Asia and emerging markets.
Questions to ask an EOR before you sign
- Do you use your own entity in this country, or a partner?
- What exactly is included in the monthly fee, and what costs extra (benefits, equipment, termination)?
- How do you handle notice periods and termination under local law?
- Who owns the intellectual property the employee creates, and how is that written in the contract?
- How quickly can you onboard someone, and what does the employee see?
Compare the big names head to head: Deel vs Remote, Deel vs Rippling and Deel vs Oyster. Or see all payroll and global hiring tools. If you need to pay contractors directly, read how to compare transfer costs first.
Tools in this guide
Best for hiring employees or contractors in other countries.
Best for employing people abroad without a local entity.
Best for distributed teams hiring globally.
Best for companies that want HR, IT and payroll in one.
Best for larger companies with payroll in many countries.
Best for companies hiring in Asia and emerging markets.
Frequently asked questions
What does an employer of record do?
An EOR becomes the legal employer of your worker in their country. It issues a compliant local contract, runs payroll, pays employer taxes and statutory benefits and files with local authorities, while you direct the day-to-day work.
Is it legal to hire a full-time worker abroad as a contractor?
It can be, if the relationship really is independent. If you control the hours, tools and way of working like an employer would, many countries can treat the person as an employee, with back taxes and penalties for the company. Get local advice for your case.
Do I need my own company in the other country to use an EOR?
No. The point of an EOR is that it employs the person through its own local entity, so you do not need to set one up.
Sources
- Rivermate, EOR vs contractor
- IRS, Independent contractor (self-employed) or employee?
- GOV.UK, Understanding off-payroll working (IR35)
Published 25 October 2026, last checked 25 October 2026. Rules, prices and availability change; confirm with the provider or an adviser before you act. NxtGenFin is an independent directory, not affiliated with the companies named unless marked as featured, sponsored or affiliate link. Not financial, tax or legal advice.