Establishing a foreign entity can take months and involve complex legal, financial, and administrative processes. For companies looking to move quickly or test a new market, this approach may not be practical.
There are alternative methods that allow businesses to engage international talent legally and compliantly, without the time and cost of incorporation. These include working with an Employer of Record (EOR), engaging contractors, or partnering with local employment providers.
Each method has different implications for compliance, cost, and control. This guide outlines the key considerations for hiring internationally without a legal entity.
Why Companies Hire Internationally Without a Legal Entity
Hiring internationally without setting up a legal entity helps companies move faster. Traditional incorporation takes months, while hiring through an EOR typically takes days.
This approach also saves money. Setting up a foreign entity costs between $15,000-$50,000 CAD upfront, with ongoing annual expenses of $20,000-$80,000 CAD. Using alternative hiring methods eliminates these costs.
Companies gain flexibility to test markets before making long-term commitments. They can hire one or two employees in a country before deciding to establish a permanent presence.
Global hiring through EORs has grown by over 40% in the past two years as more companies prioritize speed and access to global talent.
How an Employer of Record Works
An Employer of Record (EOR) is a company that legally employs workers on behalf of another business. The EOR handles all employment-related responsibilities while the client company manages the employee's day-to-day work.
When using an EOR, the client company selects the candidate and sets the salary. The EOR then creates a compliant employment contract and becomes the legal employer in that country.
The EOR manages:
Legal compliance: Creating contracts that follow local labour laws
Payroll processing: Calculating and distributing wages in local currency
Tax withholding: Deducting the correct amounts for income and social taxes
Benefits administration: Providing mandatory and supplementary benefits
Risk management: Ensuring ongoing compliance with changing regulations
The client company still handles:
Work assignments and performance management
Training and professional development
Team integration and company culture
Tools and equipment needed for the job
This arrangement allows companies to hire internationally without creating a legal entity in each country where they have employees.
Key Steps to Hire International Employees
1. Define Your Hiring Goals
Before hiring internationally, companies need to identify which roles can be performed remotely and which countries make sense for their business.
Consider what you're trying to achieve:
Access to specialized skills not available locally
Coverage of different time zones for global operations
Entry into new markets or regions
Cost efficiencies compared to local hiring
Be specific about job requirements, including technical skills, language proficiency, and time zone compatibility. This helps narrow down which countries to target.
2. Choose the Right Hiring Method
Companies can hire internationally through several methods, each with different implications:
Employer of Record (EOR): The EOR legally employs workers on your behalf. This option provides the most compliance protection but typically costs 5-15% of the employee's salary.
Independent contractors: Engaging freelancers or consultants can be simpler, but carries misclassification risks if the relationship resembles employment.
Professional Employer Organization (PEO): Similar to an EOR, but requires the client company to have a local entity in some cases.
The best method depends on factors like:
How many people you plan to hire in each country
How long you expect to employ them
Your budget for employment costs
The level of compliance risk you can accept
3. Understand Local Employment Laws
Employment laws vary significantly between countries. What's standard practice in one country may be illegal in another.
Key areas to research include:
Employment contracts: Required clauses and language
Working hours: Limits on weekly hours and overtime rules
Paid leave: Vacation days, public holidays, and sick leave
Notice periods: How much notice is required for termination
Probation periods: Whether and how long they're allowed
In many European countries, employees receive 20-30 days of paid vacation annually, compared to the North American average of 10-15 days. Some countries also require 13th-month salary payments or have strict termination procedures.
Managing Payroll and Benefits Internationally
Navigating International Payments
Paying international employees involves more than just sending money. Companies need to consider:
Currency fluctuations: Exchange rates change daily, affecting how much employees receive. Some companies fix rates for a period to provide stability.
Banking systems: Each country has different banking practices. Some payments clear instantly, while others take days.
Tax requirements: Employers must withhold the correct taxes in each country and submit them to local authorities.
Payment frequency: Pay cycles vary by country. Monthly payment is standard in most countries, but some expect bi-weekly or weekly payments.
Required Benefits by Region
Every country has mandatory benefits that employers must provide. These typically include:
Healthcare coverage: Either through public systems, private insurance, or a combination
Retirement contributions: Pension or social security payments
Paid time off: Vacation, holidays, and sick leave
Parental leave: Maternity, paternity, or family leave
Beyond the legal requirements, competitive benefits packages often include:
Additional health coverage (dental, vision)
Supplementary retirement plans
Professional development allowances
Wellness programs
Companies using an EOR can typically offer these additional benefits through the EOR's platform.
Avoiding Common Compliance Pitfalls
Contractor Misclassification Risks
Many companies start by hiring international workers as independent contractors. This approach seems simpler but can create serious legal problems if the worker should be classified as an employee.
Signs that a contractor might be misclassified include:
Working exclusively for one company
Following a set schedule determined by the company
Using company equipment and systems
Receiving regular payments like a salary
Performing core business functions
Penalties for misclassification can include:
Back taxes and social contributions
Fines and interest on unpaid amounts
Mandatory benefits payments
Legal fees and court costs
The safest approach is to work with an EOR if the relationship resembles employment rather than a project-based contract.
Data Privacy Considerations
Hiring internationally means handling personal data across borders, which involves complying with data protection laws like the European Union's General Data Protection Regulation (GDPR).
Key requirements include:
Consent: Getting permission to collect and process personal data
Purpose limitation: Only using data for specified purposes
Data minimization: Collecting only necessary information
Storage limitations: Not keeping data longer than needed
Security measures: Protecting data from unauthorized access
Companies must also consider cross-border data transfer restrictions. Some countries limit how personal data can be sent to other countries, especially those with weaker privacy protections.
Building an Effective Remote Onboarding Process
Bringing new international employees into your company requires a thoughtful onboarding process. This process helps them understand their role, connect with their team, and become productive quickly.
Effective remote onboarding includes:
Pre-boarding communication: Sending welcome information before the start date
Digital documentation: Using electronic signatures for employment paperwork
Equipment setup: Arranging for necessary tools and technology
Structured first week: Creating a clear schedule of introductions and training
Cultural integration: Helping employees understand company values and practices
Companies can use video meetings, recorded presentations, and digital handbooks to share information. Regular check-ins during the first few weeks help identify and address any issues quickly.
Measuring Success in Global Hiring
To evaluate whether international hiring is working for your company, track metrics like:
Time to hire: How long it takes to fill positions compared to local hiring.
Cost per hire: Total expenses including recruitment, EOR fees, and onboarding.
Employee performance: Productivity and quality of work from international team members.
Retention rates: How long international employees stay with the company.
Team satisfaction: How well integrated and engaged remote team members feel.
These metrics help determine whether the benefits of international hiring outweigh the costs and complexities.
Making Global Hiring Work for Your Business
Hiring internationally without a legal entity offers significant advantages: access to global talent, faster team expansion, and reduced upfront costs. However, it requires careful planning and the right partners.
The most successful companies approach global hiring strategically by:
Starting small with one or two key countries
Using established EORs with strong local expertise
Creating clear communication channels for remote teams
Developing consistent employment practices across regions
Regularly reviewing compliance requirements as laws change
With the right approach, companies of any size can build international teams without the complexity and expense of establishing foreign entities.
Have questions about how you can start hiring international talent? Let's connect for a 30-min conversation.
FAQs About Hiring Internationally Without a Legal Entity
How long does it typically take to hire an international employee through an EOR?
The typical timeline for hiring through an EOR is 1-2 weeks from offer acceptance to start date. This includes contract generation, compliance verification, and payroll setup.
What are the cost differences between using an EOR and setting up a legal entity?
Using an EOR typically costs 5-15% of the employee's salary. Setting up a legal entity can cost $15,000-$50,000 CAD upfront plus $20,000-$80,000 CAD annually in maintenance fees.
How do companies protect their intellectual property when hiring internationally?
Companies include IP protection clauses in employment contracts and confidentiality agreements. These documents must comply with local laws in the employee's country to be enforceable.
What happens if an international employment relationship needs to be terminated?
Termination must follow the labour laws of the employee's country, including notice periods and severance requirements. The EOR typically manages these legal and administrative steps.
Can international employees receive equity or stock options through an EOR arrangement?
International employees can receive equity compensation through an EOR, but the structure must comply with local securities laws and tax regulations in each employee's country.
