Hiring international talent can give your business a global edge—but doing it without the right structure can expose you to serious compliance risks.

If you hire contractors or employees in foreign countries without using a local legal entity or an EOR, you might be walking a legal tightrope. Here’s why:

Misclassification of Employees

One of the biggest risks is misclassifying employees as independent contractors.

• Countries have strict definitions of what qualifies as an employee.

• If a contractor behaves like a full-time employee (fixed hours, reporting structure, company tools), governments may reclassify them as an employee.

• This can result in back taxes, penalties, lawsuits, and even bans from doing business in that country.

EORs ensure correct classification and provide locally compliant contracts from day one.

Violation of Local Labor Laws

Each country has its own:

• Employment rules

• Working hours restrictions

• Paid leave and termination policies

• Mandatory notice periods

• Minimum wage laws

Without local expertise, it’s easy to unintentionally violate local laws, leading to legal action, employee disputes, and brand damage.

📘 EORs stay up-to-date with labor law changes, so you don’t have to.

Incorrect Tax Withholding & Social Contributions

You must correctly withhold and remit:

• Income taxes

• Social security

• Pension contributions

• Health insurance

Doing this wrong can cause double taxation, financial audits, or government fines.

An EOR handles all payroll tax compliance and ensures contributions are made to the right authorities.

Permanent Establishment (PE) Risk

Hiring employees directly in a foreign country may trigger Permanent Establishment (PE) status, meaning:

• Your company could be considered as operating a business in that country.

• You become liable for corporate taxes and reporting requirements.

• It increases your financial exposure and obligations.

EORs act as a buffer—hiring on your behalf, reducing the risk of triggering PE.

Inability to Legally Terminate or Protect IP

Without a local entity or compliant contract:

• You might not have legal grounds to terminate employees, especially in countries with strong labor protection laws.

• Your company may not have full ownership of intellectual property (IP) created by the worker, especially if contracts aren’t compliant with local laws.

EORs draft IP-protecting, locally enforceable contracts and manage lawful terminations.

Barriers to Offering Legal Benefits

You may not be able to offer or manage:

• Statutory benefits (like healthcare or paid parental leave)

• Pension contributions

• Severance pay

Non-compliance with benefit laws can lead to government investigations and unhappy employees.

EORs provide and manage mandatory and optional benefits based on country norms.

Final Thought

Hiring globally without an EOR is like navigating international waters without a compass.
You might find great talent, but you’ll risk fines, lawsuits, and operational setbacks.

 

Using a Global EOR helps you stay compliant, reduce risk, and focus on what matters most—growing your business.