Startups move fast, and few decisions feel more efficient than bringing on a skilled designer, developer, or marketer abroad. The appeal is obvious: access to world-class talent at lower cost. But for early-stage companies, global hiring comes with legal and compliance risks that don’t always surface until financing, diligence, or litigation, i.e., when it’s too late.
The good news is that international hiring can be clean, efficient, and scalable as long as you understand the structure you’re using and the risks you’re taking on. There are three primary models most startups consider when bringing on talent outside the U.S.: (1) using independent contractors, (2) using an Employer of Record (EOR), or (3) forming a foreign subsidiary. Each has pros and cons, and each suits a different stage, budget, and risk appetite.
Model 1: Independent Contractors
Engaging independent contractors is a common strategy for early-stage startups looking to access talent while preserving capital and avoiding employee headcount. The benefits of this approach include flexibility, speed, and the ability to engage contributors on a project or limited-term basis. However, the associated risks should not be overlooked. In most jurisdictions, regulators assess the nature of the working relationship based on substance rather than form. This means that even if the parties have signed an independent contractor agreement, the individual may be reclassified as an employee if they are performing full-time work, are embedded in the team, report to company managers, or otherwise operate in a manner consistent with employee status.
Such reclassification can expose the company to a range of liabilities. These may include retroactive payroll taxes, employee benefits, statutory severance, and other labor-related claims. Intellectual property ownership can also become a concern if the contractor agreement does not clearly assign all work product to the company. This may create complications in due diligence or enforcement if ownership of key assets is unclear.
Despite these risks, the model may still be appropriate for startups with a limited number of short-term contributors. The key is to structure the relationship carefully. That includes limiting scope and duration, ensuring the contractor retains meaningful independence, and documenting the arrangement with clarity.
Model 2: Employer of Record (EOR)
If you’re bringing on a full-time hire who will be with the company long-term, an EOR is often the best balance of speed, legal clarity, and scalability. EOR platforms (e.g., Deel and Remote, to name a few) act as the worker’s legal employer on paper. You direct their day-to-day work, but the EOR handles compliance with local labor laws, payroll and tax withholding, employment contracts, and IP assignment.
This model dramatically reduces risk of misclassification and ensures your company owns the IP being created. It’s especially useful if you’re offering equity or hiring someone in a jurisdiction where compliance is non-trivial.
The downside? Cost. EORs usually charge a monthly fee per employee or take a 10–15% margin on salary. There may also be onboarding or offboarding fees. But when weighed against the cost of misclassification, IP disputes, or tax exposure, many startups see the premium as worthwhile.
Model 3: Foreign Subsidiary
If you’re building a significant team in one country a local entity starts to make sense. It gives you full control over hiring, benefits, equity plans, and compensation strategy. You also gain local credibility with clients, partners, and regulators.
For example, if you’re hiring 5+ engineers in India, or planning to scale customer support in the Philippines, forming a subsidiary gives you the infrastructure to build locally with better long-term economics than staying on EORs indefinitely.
However, setting up a foreign subsidiary is a heavier lift. You’ll need to incorporate locally, open bank accounts, manage local tax and labor compliance, and likely work with local counsel and payroll providers. But for mature teams or long-term bets on a specific market, the control and long-term economics often justify the upfront legal and administrative work.
If you have significant funding, hiring a concentrated team in a country with a strong labor pool, or looking to invest in regional growth, a foreign subsidiary becomes a strategic asset that likely outweighs the legal cost.
The Bottom Line: It Depends
There’s no universally “correct” way to engage international talent. The right path depends on your stage, your team’s needs, and how much risk you’re willing to absorb.
If you’re very early, working with one or two individuals on clearly scoped projects, contractors might suffice but be wary of the risks. If you’re hiring full-time contributors, especially in key technical or IP-heavy roles, an EOR likely provides a cleaner, faster path to compliance. And if you’re investing in a strategic region for the long haul, a foreign subsidiary offers deeper control and long-term flexibility.
The goal isn’t to eliminate risk entirely. It’s to manage it in a way that aligns with how you want to grow. Clean employment structures, enforceable IP rights, and compliant equity plans don’t just reduce legal friction they make your company more fundable, acquirable, and ready for scale.
