Contractor, Entity, or EOR? A Small Business Guide to Global Hiring

In today’s business landscape, growth is no longer confined by geography. Small businesses are expanding their reach and tapping into global talent like never before. Whether the goal is to access specialized skill sets, serve international customers, or stay competitive in a fast-moving market, hiring across borders is becoming a smart strategy for businesses of all sizes.

That’s why I was excited to co-host our recent Justworks webinar, How Small Businesses Are Hiring Internationally — and Why It Works, alongside my colleagues and our Justworks international experts, Maite Diez-Canedo, VP of International and Giselle Suriel, Senior Customer Success Manager, to explore how small businesses are using international hiring to fuel smarter, faster growth. 

We broke down the three main ways to hire internationally: contractor platforms, setting up your own local entity, and partnering with an Employer of Record (EOR). Each option has its advantages, but one stands out for companies looking to scale quickly without losing focus.

Let’s take a closer look at the pros and cons of each approach.

Option 1: Contractor Platforms

Hiring independent contractors is often the first step small businesses take when expanding globally. It’s simple, fast, and flexible. This setup works well when you need help with short-term projects or specialized tasks. Contractors can often get started with little onboarding or infrastructure, making this path appealing to lean teams.

Misclassification Risk

But while the upfront simplicity is attractive, contractor arrangements come with significant long-term risk, particularly when it comes to employee misclassification. Misclassification happens when someone is treated as a contractor but legally meets the definition of an employee. Every country has its own employment laws that define what makes someone an employee versus a contractor. If you hire a contractor abroad and they gradually become an integral part of your team by working full-time hours, the local government may determine they should legally be classified and converted to an employee.

For example, if you hire someone in Singapore and they start working close to forty hours a week, the government may begin to look closer into how they're actually classified. If they’re seen as an employee under local law, your business could be liable for unpaid taxes, back benefits, social security contributions, fines, and even legal action. The financial and reputational costs can be steep, especially for small businesses with limited resources.

Lower Employee Engagement

There’s also the question of the contractor experience. Because they aren’t officially employees, contractors typically don’t receive the same benefits or support, and adding benefits may impact the misclassification listed above. Over time, this can lead to lower engagement and retention, and make it harder to build a unified company culture. The contractor platform doesn’t really allow you to provide them with the benefits or the kind of employee experience that makes them feel like an equal member of the team.

Option 2: Setting Up a Local Entity

The second option is creating your own local entity in the country where you want to hire. This gives you full legal control and allows you to operate just like a local employer. This path is a great option if you're comfortable with compliance complexities and are planning to scale a large team in that location. 

Complicated Entity Setup

Managing your own entity abroad is rarely simple. The upfront setup can be time-consuming and expensive. For example, opening a bank account can take several months in many different countries, and unfortunately without legal expertise running into compliance and bureaucratic problems can make the entity process even more difficult. 

Compliance Confusion

Beyond the initial setup, you’ll need to manage ongoing compliance. Each country has its own tax laws, payroll systems, benefits requirements, and labor rules, and as the business owner you’ll be responsible for all of it. Filing annual taxes, staying compliant with local employment laws, and handling legal updates can quickly become overwhelming for small teams.

In both of these situations, whether it’s a contractor platform or creating your own entity, we’ve seen businesses struggle to balance the complexity of international hiring with everything else they need to do to grow. That’s why many small businesses choose to partner with an EOR. 

Option 3: Employer of Record (EOR)

The third and most streamlined option is partnering with an Employer of Record. An EOR acts as the legal employer on your behalf in the country where your employee lives. You manage the work and day-to-day relationship, while the EOR handles local compliance, payroll, benefits, and HR admin.

As stated by Giselle Suriel, "For one of our customers, it was about regaining time and agility. They were spending way too much time on admin and compliance and not enough on growing the business. Joining an EOR gave them the freedom to focus on what really matters to them right now.”

EOR and Compliance

An EOR takes on the risk and complexity of being a local employer, so your team doesn’t have to navigate unfamiliar legal systems or set up a local entity. You can hire quickly and confidently in new markets while ensuring your team is fully supported with compliant benefits and protections.

“Figuring this stuff out on your own is daunting,” Giselle said. “That’s why choosing the right partner is critical. When the administrative burden of global hiring is lifted, your focus can shift to what truly drives your business forward.”

Partnering with an EOR makes it easier to compete on a global scale, even if you’re just starting out. It gives you access to world-class talent and the ability to act quickly, without putting your business at risk.

Why Small Businesses Are Choosing EOR

While each hiring path offers different benefits, the EOR model stands out for small businesses that want to expand without slowing down. It combines the speed and flexibility of a contractor approach with the compliance and employee experience of setting up your own entity, minus the time-consuming legal work.

As Maite Diez-Canedo noted, international hiring doesn’t have to be all or nothing, “It’s a great example of how international hiring can evolve with your needs.” Some businesses start small with contractors. Others enter a new market through an EOR and eventually build their own local presence.

“Some are looking to tap into highly specialized talent that’s simply not available locally,” Maite shared.” Others are expanding into new markets and want a stronger local presence to better serve their customers there.”

No matter where you are in your journey, having the right partner matters. You need someone that understands your goals, your mindset, and your stage around hiring internationally. All of which an EOR partner focused on small businesses like Justworks acutely understands. 

The Justworks Difference

At Justworks, we specialize in helping small businesses hire globally with confidence. We’re the only US-based platform focused on delivering a simple, seamless hiring experience for small businesses in both the US and abroad.

We understand the challenges of global expansion, and we’re here to simplify it. Our all-in-one platform takes care of the heavy lifting so you can stay focused on what matters most: growing your business.

Whether you’re hiring your first international employee or building out a global team, we’ll help you do it the right way, compliantly and personalized to your businesses individualized needs. 

Ready to take the next step? Let’s grow together.