What are the three ways to engage someone in another country?

Your own legal entity in that country, an employer of record (EOR) that employs the person on your behalf, or engaging the person as an independent contractor. An entity gives the most control and the lowest per-head cost once it exists, but it is a standing commitment. An EOR is the fastest way to a real employee where you have no entity, at a higher price per head. A contractor is the lightest structure, and only legitimate when the relationship genuinely is one. The right answer usually changes as a market grows.

What is an employer of record?

A company that legally employs someone in their country on your behalf, running local payroll, statutory contributions, and compliance while the person works for you day to day. You direct the work; the EOR holds the employment relationship and invoices you. It lets you place a full employee in a country where you have no legal entity and do not want to open one yet. Capstan does not provide EOR services, so that is a partner you would engage separately.

When should we open our own entity instead of using an EOR?

When the headcount in a market justifies the standing cost of running an entity there, and when you intend to stay. An EOR charges per head every month, so its total cost rises with the team while an entity's administrative cost is roughly fixed. The usual pattern is to start with an EOR or a contractor to test a market, then incorporate once the team is large enough or permanent enough that the entity is cheaper and gives you the control you now need.

What are the main risks of getting the structure wrong?

Two. Misclassification, where someone you engage as a contractor is really an employee in the eyes of the local law, which can bring back taxes, unpaid contributions, penalties, and owed benefits. And permanent establishment, where the way a person works in a country creates a taxable presence for your company there that you did not intend. Both turn on the facts of the arrangement rather than the label on the contract, and both are decisions to confirm with a qualified adviser in the country involved.

Can we keep international employees and contractors in one HR system?

Yes, and you should. Running employees in a tool and contractors in a spreadsheet means reconciling two sources of truth every month and losing track of who is working on what. One directory that holds both, with the right documents on each record, removes that whole class of error. Capstan keeps both in the same workspace while keeping the two identities structurally separate, so a contractor never counts as an employee seat.

Hiring employees internationally: entity, EOR or contractor

The moment a startup wants someone in another country, it hits a question it has usually never had to ask at home: not who to hire, but how to engage them at all. The same person can be your direct employee through a local entity, an employee of an employer of record who invoices you, or an independent contractor running their own business. The three routes cost different amounts, move at different speeds, give you different control, and carry different risks. Choosing badly is expensive in a way that surfaces months later, during an audit, a dispute, or due diligence.

This guide is the map for that decision. It stays deliberately jurisdiction-neutral, because the specifics belong in the country guides that sit under it and change from place to place. What travels across borders is the shape of the choice, the trade-offs, and the two risks that decide most of it. Read this first, then read the country guide for wherever you are hiring, because the structure is the durable part and the local detail is what you confirm with an adviser.

The three ways to engage someone abroad

Almost every cross-border hire resolves to one of three structures, and it helps to name them plainly before weighing them.

Your own legal entity. You incorporate a company in the country, register as an employer, and employ the person directly. You carry payroll, statutory contributions, and local compliance yourself, usually through a local payroll provider or accountant.

An employer of record (EOR). A third party that already has an entity in the country employs the person on your behalf. They hold the employment relationship, run the local payroll and obligations, and invoice you. You direct the work day to day; they are the legal employer.

A contractor. You engage the person as an independent business. They control how they deliver, they invoice you, and they handle their own taxes in their own country. This is the lightest structure and the right default only when the relationship genuinely fits it.

The rest of this guide is about when each is right, and the two ways the choice goes wrong.

Your own entity

An entity is the end state most companies reach in a market they are serious about, and the wrong place to start in one they are testing.

The case for it is control and unit cost. Once the entity exists, you employ people directly, on your own terms, with no per-head margin paid to an intermediary. You own the relationship, the contracts, and the data. For a team of any size in one country, an entity is almost always the cheapest way to employ them.

The case against it is that it is a standing commitment, not a transaction. Incorporating brings registrations, an accountant, a registered address, tax and statutory filings that continue every period whether or not you have hired anyone yet, and a wind-down cost if you later leave the market. The administrative weight is roughly fixed, which is exactly why it pays off at scale and punishes you at a headcount of one. Setting one up also takes time, often weeks or months, which is time your first hire spends waiting.

Open an entity when the headcount in a market, or your commitment to staying, has grown past the point where the fixed cost is worth it. Not before.

An employer of record

An EOR is the fastest route to a genuine employee in a country where you have no entity, and you pay for that speed.

What you get is a real employee, with local employment rights, working for you day to day, without your having to incorporate. The EOR already has the entity, the payroll, and the compliance machinery in the country, so a hire that would otherwise wait on incorporation can start in days. For a first hire or two in a new market, or for a market you are not yet sure you will stay in, this is often the right answer.

What you give up is margin and some control. The EOR charges a fee per head every month on top of the true cost of employment, so the arrangement gets more expensive as the team grows, which is the mirror image of the entity’s economics. You also work through the EOR’s contracts and processes rather than your own, and you are one step removed from the employment relationship. And EOR is genuinely different from contracting: the person is a full employee, not an independent business, so it solves a different problem from a contractor and should not be confused with one.

Capstan does not provide EOR services. If this is the route you need, you engage an EOR provider directly, and Capstan holds the resulting records alongside the rest of your team.

A contractor

Engaging a contractor is the lightest structure and the one most often misused, so it deserves the most care.

It is the right choice when the work is defined, specialised, or time-boxed, and when the person genuinely runs their own business: they decide how and when they work, they serve other clients, they carry their own costs, and they pay their own taxes. In that case a contractor is faster and simpler than either an entity or an EOR, with no payroll to run and no local employer obligations to carry.

It is the wrong choice when you are really employing someone and calling it contracting to avoid the cost. Someone who works under your direction, on your systems, on set hours, integrated into your team, on ongoing work that is core to what you do, looks like an employee whatever the invoice says. The heading on the agreement does not settle it. This is the single most common place small companies get international hiring wrong, and it is worth reading contractor versus employee before you decide, and hiring global contractors for the mechanics of doing it well.

The two risks that decide most of it

Two risks sit underneath the whole decision, and understanding them is most of what keeps you out of trouble.

Misclassification. If you engage someone as a contractor who is, in substance, an employee, the local authorities can look past the paperwork and reclassify the relationship. The bill can include back taxes, unpaid statutory contributions, penalties, interest, and benefits and protections the person should have had. It surfaces at the worst moments: an audit, a dispute when the relationship ends, or diligence when you raise or sell. The test is about the facts of the working relationship, not the contract, and it varies by country, which is why the country guides return to it and why the decision belongs with a local adviser.

Permanent establishment. The way a person operates in a country can create a taxable presence, a permanent establishment, for your company there, exposing you to corporate tax and filing obligations you never intended. Someone concluding contracts in your name, or a fixed place of business in the country, can trip it. Using an EOR or a genuine contractor is partly about not creating that presence by accident, and it is another reason the “just pay them and sort it later” approach is dangerous. Confirm the position for your specific case with a tax adviser in the country involved.

Neither risk is a reason not to hire across borders. Both are reasons to choose the structure deliberately and to write down why you chose it.

How to choose, and how it changes

There is a sequence that works for most companies, because it matches cost and commitment to how sure you are about a market.

Test with a contractor or an EOR. For the first person or two in a new country, when you are still learning whether the market is worth it, a genuine contractor or an EOR gets someone working without a standing commitment. Use a contractor where the relationship honestly is contracting; use an EOR where you need a real employee.
Grow into an EOR. As you add employees in a market where you have no entity, an EOR carries them compliantly while the per-head cost is still less than the fixed cost of incorporating.
Incorporate when the maths turns. Once the team in a country is large enough or permanent enough that a fixed entity cost beats the rising EOR fees, and you want direct control, open your own entity and employ people through it.

The sequencing post walks through the same order in more detail. The point is that the right structure is not a permanent decision. It is the cheapest, lowest-risk way to engage the people you have in a market right now, and it is meant to change as that market grows.

Start here, then read the country guide

The decision above is jurisdiction-neutral on purpose. What each route actually involves, the registrations, the statutory contributions, the notice and probation rules, the local data-protection regime, and where the contractor line falls, is set by the country, and that is where the country guides come in. Each follows the same shape, so once you have read one the rest are quick.

Read this overview for the decision, then the country guide for the detail. Neither is legal advice, and the classification and tax position of any specific person is a decision to confirm with a qualified professional in the country involved.

Where Capstan fits

Capstan is not an employer of record and does not run payroll. It operates no payroll scheme in any country, holds no tax tables, and files nothing with any authority. What it does is hold the record around whichever structure you choose, so a workforce spread across entities, EOR arrangements, and contractors is still one directory rather than several.

For employees, Capstan is the system of inputs to payroll: records, pay structures, joiners and leavers, leave, attendance, and adjustments, compiled into a documented export for your local payroll provider, whose computed results come back onto the employee record. It runs from one self-contained EU region, with data resident in Frankfurt (eu-central-1) and compute in Amsterdam (eu-west-1); a market it serves is served from there, not from a separate deployment. Nothing in the product hardcodes a country: each jurisdiction’s contractor tax content is a country pack your workspace configures, so a rate change is an edit you make rather than a software release.

Contractors live in the same workspace as your team, kept structurally separate so they never consume an employee seat, and the contractor module adds their portal, invoices, and payout register on top; like every module it is included in a paid plan rather than sold on its own. What Capstan gives a company hiring across borders is one place that holds the whole picture, whatever mix of structures sits behind it. The pillar guide on HR software for startups covers what to expect from that system of record in the first place.