A foreign company can hire you as a local employee, through an employer of record, or as a contractor. The same salary figure buys very different things in each.
You get an offer from a company in another country and the number looks good. Then one more line: "This is a contractor agreement." Or "You will be employed through our partner, Deel." Or nothing about how you are hired until the contract shows up.
How a company pays you decides what you get besides money, which taxes land on you, and what happens when something goes wrong. Below are the three common setups, how they compare, and what to ask before you sign.
This is general information, not tax or legal advice. Rules differ by country and they change. Use it to ask better questions, and for your first foreign contract have a local accountant or lawyer look at your situation.
The three ways a foreign company can pay you
In the first, you are an employee of a local entity. The company has a subsidiary or similar legal entity in your country and hires you directly under local employment law.
In the second, you are an employee through an employer of record, usually shortened to EOR. The company has no entity in your country, so the EOR is your legal employer on paper. It runs payroll, withholds taxes and issues a contract that follows local law. The company directs your daily work and pays the EOR a fee. Deel, Remote, Oyster and Rippling offer this service, and so do many others.
In the third, you are an independent contractor. You run your own business or act as a sole trader and invoice the company. You are not an employee, and everything except the work itself is your job.
From the outside the work can look identical. The legal and financial differences are big.
Employee of a local entity
This is the most familiar arrangement and the rarest for a foreign company hiring one person in a new country, since setting up an entity takes time and money.
You get the full set of statutory protections where you live. That usually means paid annual leave, sick pay, parental leave, notice periods and protection against unfair dismissal, with the details set by local law. The employer pays its share of social security and often adds health insurance, pension contributions or bonuses.
You handle very little tax. The employer withholds income tax and social contributions from your pay and files them for you, though some countries still expect a yearly return from you. You get a regular payslip in local currency on a set date each month. For you there is hardly a downside, other than that fewer foreign employers offer this route.
Employee through an employer of record
An EOR lets a company hire you legally without its own entity, and for you it should feel close to normal employment. You get an employment contract under local law, paid leave, sick pay, social security contributions and statutory notice protection. Benefits beyond that depend on the EOR and on what the end company adds. Some provide private health insurance and pension schemes, others stick to the legal minimum, so ask what is included and get it in writing.
Taxes work mostly as they do with a local employer: the EOR runs payroll, withholds tax and pays contributions, and you may still have a yearly filing. Check with the EOR and a local adviser. Your payslip comes from the EOR, which also sets pay dates and format, not the company you work for.
A few things to know before you accept.
- The EOR charges the employer a fee. It does not come out of your pay, but it can shrink the budget the company has for your salary.
- Some companies start with an EOR and later move people to their own entity. Ask whether that is planned and what would change.
- The EOR contract can differ from the company handbook on things like notice periods or equity treatment. Read both.
- Equity gets complicated across borders. Ask how it is treated in your country and whether you owe tax when it vests.
Independent contractor
Many fully remote and worldwide roles are offered this way, because it is the simplest legal route for the company.
By default you get a fee for the work and nothing else. No paid leave, no sick pay, no employer social security contributions, and little or no protection if the contract ends. Some contracts include a notice period, a minimum term or a monthly retainer, but those are terms you negotiate, not rights you hold by law.
All the taxes are yours. You register as self-employed or set up a company if your country requires it, issue invoices, report income, and pay income tax and social contributions or their equivalent. Sales tax or VAT may apply, depending on your country and where the client is. Many countries have simplified regimes for small independent workers, so find out which one fits you and what the thresholds are.
You usually send an invoice each month, and the company pays by bank transfer or through a platform such as Wise, PayPal or Payoneer. Some use contractor management platforms, including ones run by the EOR companies above, which handle invoices and may offer local currency payouts. Check the fees, the exchange rates and how long money takes to arrive. A platform that takes a percentage of every payment is a real cost.
The risks are worth stating plainly. Income can stop fast, since many contracts let either side end the agreement on short notice, such as two weeks. There is no safety net: sick or on holiday, you may earn nothing. And there is misclassification, the biggest one, covered further down.
What you get side by side
With a local employer or an EOR, paid leave, sick pay and notice protection come from the law, the employer or the EOR pays its share of social security, and tax is withheld from your pay. The only difference is whose name is on the payslip. Your paperwork stays light either way.
As a contractor you have no legal employer. Leave and sick pay are usually zero unless the contract says otherwise, you pay your own social security, and you file and pay your own taxes. The paperwork is yours too, including every invoice.
Details vary by country, so treat this as a list of questions, not a statement of your rights.
Why a contractor rate has to be higher
This is the part that surprises people. An employee and a contractor can be offered the same number and be paid very differently in real terms.
An employee costs the company more than the salary. It also pays social contributions, covers paid leave and sick days, and often adds insurance, pension and equipment. The employee sees a salary with some tax already taken out and receives the benefits for free. A contractor's fee is the whole price. You pay for everything an employer would have covered, and you lose the paid time off.
To come out about even, a contractor needs a higher gross rate than an employee's salary. The size of the gap depends on your country, and you can work it out in four steps.
- Start with the employee salary you would be happy with.
- Add what you would now pay yourself: the employer share of social contributions, health insurance, pension saving, and any extra tax or accountant costs.
- Add the value of paid time off. A contractor who takes four weeks of holiday and a few sick days earns nothing on those days, so the day rate has to cover the whole year.
- Add a buffer for gaps between contracts and for a contract that ends early.
Here is a worked example with made-up numbers. Say an employee offer is 60,000 a year, and a colleague is offered a contractor deal. A contractor working about 220 days a year, after holidays and sick days, needs 60,000 divided by 220, or about 273 per day, just to match the salary. Add costs the employee would not pay: 5,000 for health insurance and pension saving, and 1,500 for an accountant and equipment. That is 6,500 extra, or about 30 per day over 220 days. So the contractor has to charge roughly 303 per day, about 66,700 for the year, to come out level, and that is before any buffer for gaps. The gap here is around 11 percent. In a country where self-employed people pay high social contributions it would be larger. The numbers are invented to show the method and are not a standard figure.
Your real gap depends on your country's tax and contribution rules and on which benefits you would lose. Some people end up better off as contractors because the self-employed are taxed less. Others find the gap much wider. Work it out with real numbers, or pay an accountant to do it once.
When you negotiate, say it plainly: "If this is a contractor arrangement, I need a higher rate than an employee salary to cover leave, insurance and contributions." The article on remote salary negotiation covers how to put this to a recruiter.
Misclassification risk
Misclassification means treating someone as a contractor when, in law, they are an employee. It matters because the rules that protect employees do not go away just because the contract says "contractor."
Authorities in many countries look at the real relationship and ignore the label. A "contractor" may in fact be an employee if the company sets your hours, if you work only for this one company, full time and for years, or if the company tells you how to do the work instead of just what to deliver. The same goes if you use company equipment and are treated like part of the team, with a company email, a title and a manager, or if you cannot send a substitute or turn down work.
What follows from a finding of misclassification depends on the country. It can mean back taxes and contributions, penalties for the company, and sometimes consequences for the worker too. In some places workers have used the rules to claim employee rights after the fact. In others the process is slow and the outcome uncertain.
In practice, a contract that calls you a contractor does not prove you are one. A long, full-time, single-client contract carries more risk than a short, flexible one. Companies that use contractors for core, permanent roles may later switch to an EOR or an entity, so ask about their plans. If you are unsure, ask a local adviser before you sign, and again if the work changes.
Questions to ask before you sign
Ask these at the offer stage. Good employers answer clearly, and vague answers tell you something too.
About the model:
- Am I being hired as an employee, through an EOR, or as a contractor?
- If through an EOR, which one, and can I see the draft contract?
- Is there a plan to move to a local entity later?
About pay:
- Is the amount gross or net, and in which currency?
- How often am I paid, and how long after I invoice, if I do?
- Who pays platform fees and bank charges?
- Is there a bonus or equity, and how are they treated in my country?
About benefits and leave:
- How many days of paid leave and sick leave do I get, and is that in the contract?
- Is there health insurance or an allowance, and a pension contribution?
- Is parental leave covered?
About ending the work:
- What is the notice period for each side, and is there a minimum term?
- What happens to unpaid invoices or unused leave at the end?
About the details:
- Are there rules on working hours, exclusivity or other jobs?
- Who owns the work I produce, and who pays for equipment?
- Can I work from another country for some weeks a year?
Get the answers in writing, in the contract or in an email you can point back to.
How to decide
There is no single best option, but a few rules of thumb hold up.
If you want stability and benefits, favor employee or EOR offers and compare them on total value. If you want flexibility, several clients or a higher gross income, and you can handle the admin and the risk, contracting can work well as long as the rate reflects the costs. If a company offers only one model, judge the offer on what it is worth to you and decide whether that is enough. And if you would work full time for a single client for a long stretch, think hard about classification and consider asking for an employee or EOR arrangement.
Roles open to several countries or to the whole world are often contractor-based, so this matters most when you search broadly. You can browse remote jobs open worldwide and check each posting for the employment type, or look at roles in software engineering and customer support, where contractor and EOR hires are common.
Common questions
Is an employer of record the same as a staffing agency?
Not quite. An EOR is your legal employer for payroll, tax and contract purposes, but the company you work for directs your daily work and decides your tasks. A staffing agency usually places you with different clients and may manage your assignments more actively.
Can I switch from contractor to employee at the same company?
Sometimes. Companies often move long-term contractors to an EOR or a local entity once they have enough people in a country, or when the relationship becomes full time and permanent. Ask early, and check what happens to your tenure and notice rights when the contract changes.
Do I need my own company to be a contractor?
It depends on the country. In some places you can work as a sole trader or freelancer with a simple registration. In others a limited company is more common or cheaper in tax. Check local rules, or ask an accountant.
Who pays for health insurance and pension?
An employee of a local entity or an EOR usually has the employer's contributions covered by law, with extras depending on the company. A contractor pays for both unless the contract says otherwise, so build the cost into the rate.
Takeaways
- A foreign company can pay you as a local employee, through an employer of record, or as a contractor. Ask which one before you compare numbers.
- Employees and EOR employees usually get leave, social security and notice protection by law. Contractors usually get none of it by default.
- Contractors handle their own taxes, invoicing and costs, so their rate has to be higher to come out even.
- Misclassification is a real risk for long, full-time, single-client contractor work.
- Ask about the model, pay, leave, notice and ownership of work, and get the answers in writing.
- This is general information, not tax or legal advice, and rules vary by country.
If you are still working out where in the world you can be hired from, read our guide to work from anywhere jobs.