Consider a twelve-person software company in Denver that wants to hire a support lead in Lisbon.
No one on the team has run payroll outside the United States, and there is no HR department to handle the decision.
The first question is employment status: does the working relationship call for employment? If it does, the next question is whether an employer of record (EOR) or your own local entity will employ the person.
An EOR is worth considering when you need an employee but aren’t ready to run a local employing entity. An owned entity may fit a lasting presence if you can manage its ongoing responsibilities.
Who Employs the Worker and Manages the Work
Classification first. Contractor status must match the facts of the working relationship. In the United Kingdom, government guidance says status depends on the reality of the relationship, not on the type of contract or what it states.
UK government guidance also notes that a person can have one status under employment law and a different one for tax purposes.
In the United States, the IRS groups the evidence for federal employment-tax purposes into three categories: behavioral control, financial control, and the relationship of the parties.
Neither example applies worldwide, and project length alone does not settle the question. For the Lisbon hire, set hours, detailed instructions about how to do the work, and working only for your company are all reasons to review classification with a local adviser before signing.
Employer of record. An EOR acts as the legal employer in the worker’s country. It handles the employment contract, payroll, benefits administration, and agreed local employment filings, while you direct the daily work. Before signing, confirm that the provider can employ in your target country and check the scope of the contract.
Local entity. With an owned entity, you employ the worker through your local company or branch. You are responsible for applicable registrations, payroll, benefits, and filings, as well as closing the entity if you leave. You can outsource payroll processing to a provider, but your company remains the legal employer.
| Dimension | Employer of record | Owned local entity |
|---|---|---|
| Legal employer | The EOR provider | Your company |
| Day-to-day supervision | You | You |
| Employment administration | Provider handles payroll, benefits, and agreed filings | You handle it or hire local providers |
| Formation required | No client-owned employing entity needed | Yes, plus applicable registrations |
Compare the Full Employment Bill
Both models require a budget for salary, employer contributions, mandatory benefits, and any leave or severance obligations under local law. Compare those costs alongside administration and setup.
EOR costs. The provider adds a service fee on top of employment costs. Teamed’s employer of record, built for scaling companies, lists its EOR service from USD 599 per employee per month. Salary, employer taxes, and statutory benefits pass through at cost, with zero FX markup in any currency pairing.
The service covers 187+ countries, puts a dedicated HR and legal specialist on every account, and is rated 4.8 out of 5 on G2. Treat any advertised starting price as a guide to how the quote is structured, and confirm the price for your country and hire.
Entity costs. An owned entity has no EOR service fee, but it carries its own expenses. These include formation and registration, a registered address, local accounting and tax filings, payroll software or a bureau, employment-law counsel, and eventual closure.
Ongoing legal and accounting fees are a recurring budget line, not a one-time setup cost, so include them alongside formation.
Cash needed before payroll. Separate funding requirements from nonrefundable costs. Ask whether the EOR requires a refundable deposit or payroll funding ahead of payday.
For an entity, check whether you need paid-in capital or a funded local bank account before paying the first salary.
Whichever provider you review, request an itemized quote that separates the provider fee from salary, statutory contributions, benefits, and upfront funding requirements. Build the entity budget for the same country, salary, benefits, and planning period.
Ask both sides to list these items separately:
- refundable deposits and funding deadlines
- exchange rates and conversion charges
- optional services
- exit or termination charges
No single employee count makes one model cheaper; the answer depends on the country and your plans.
Group the budget by shared costs and model-specific requirements, and keep refundable deposits separate from expenses:
- Both models: salary, employer contributions, statutory benefits, and applicable leave and severance
- EOR adds: a per-employee service fee, optional services, and any deposit or advance funding requirement
- Entity adds: formation, registered address, accounting and tax filings, payroll administration, legal counsel, and closure costs
Choose the Model That Fits Your Next Hire
A first overseas employee. For the Denver company, an EOR is worth investigating if the provider can support the Lisbon role.
The worker can receive a local employment contract without the company first forming a Portuguese employing entity.
The company pays an ongoing service fee and needs to confirm how much say it has over contract terms.
A lasting local team. If the plan is a sales office with several employees and local leadership, an entity deserves consideration. As the direct employer, you control contracts and benefits within local rules, and you avoid the EOR’s per-employee service fee.
In return, you take on registrations, filings, and ongoing administration costs, even if hiring pauses. Payroll becomes your job too, whether you run it in-house or through outside payroll services.
To decide, compare EOR providers and their fees with the entity’s projected administration costs.
A planned transition. Some businesses start with an EOR and move to an entity later, and some EOR providers offer entity setup and migration support for that route. Confirm what the support includes and plan the transfer with local advice.
Before committing, ask these questions:
- How does employee consent work in that country?
- Do service dates and leave balances carry over?
- How will benefits change?
- Who holds the employment records?
- How do intellectual-property assignments transfer?
Agree on responsibilities and any transfer charges up front.
What Stays With You Under Either Model
Independent contracting remains an option only where the actual working relationship supports it under applicable law.
An EOR does not remove all tax or legal exposure. The OECD’s 2025 update to its Model Tax Convention commentary sets out when an employee working from a home abroad may create a permanent establishment for the employer.
That is a tax question separate from who runs payroll. Worker classification, immigration, and possible shared employment responsibilities also need country-specific review.
Request a country-specific employment quote and an entity operating budget for the same hire. Then have a local tax and employment adviser review the remaining obligations under each arrangement before you commit.