Deep dive: employee or contractor

3 min read · Chapter 8 of 10

Employee or contractor

My verdict as of October 2026: the label decides who the employer is, what currency the payout must be in, which tax documents exist and who pays if it's wrong, and the client carries almost all of that risk, whatever the provider calls the product. I'd ask any vendor who the legal employer is in this country, and what happens to you if a court disagrees.

Ways to hire abroad

Model	Legal employer	Who withholds	Rough list price (Oct 2026)	Client's main risk
Own local entity	Client's subsidiary	The subsidiary	Entity, plus a few tens of dollars a head	Running a foreign company
EOR	The provider's entity, or a partner's	The EOR	Roughly $500 to $700 a month	Permanent establishment; a partner it can't see
US PEO	Co-employment	The PEO	Roughly $100 to $150 a month	Employment taxes, unless certified
Contractor of record	None; the provider re-bills	Nobody abroad	A few hundred dollars a month	Exposure above the indemnity cap
Contractor platform, direct	None	Nobody abroad	Roughly $30 to $50 a month	Misclassification

Own local entity

Legal employer: Client's subsidiary
Who withholds: The subsidiary
Rough list price (Oct 2026): Entity, plus a few tens of dollars a head
Client's main risk: Running a foreign company

EOR

Legal employer: The provider's entity, or a partner's
Who withholds: The EOR
Rough list price (Oct 2026): Roughly $500 to $700 a month
Client's main risk: Permanent establishment; a partner it can't see

US PEO

Legal employer: Co-employment
Who withholds: The PEO
Rough list price (Oct 2026): Roughly $100 to $150 a month
Client's main risk: Employment taxes, unless certified

Contractor of record

Legal employer: None; the provider re-bills
Who withholds: Nobody abroad
Rough list price (Oct 2026): A few hundred dollars a month
Client's main risk: Exposure above the indemnity cap

Contractor platform, direct

Legal employer: None
Who withholds: Nobody abroad
Rough list price (Oct 2026): Roughly $30 to $50 a month
Client's main risk: Misclassification

Prices are rough ranges from two providers' published list prices; they change often. Some hold a month's salary per employee as a deposit (an aggregator's report).

Which country's test applies

Someone working abroad for a US company is classified under their own country's law; US and Canadian tests govern work done in those countries.

Where	Test	What's moving
US	IRS common law: behavioral and financial control, the relationship	The DOL proposed replacing its 2024 rule (Feb 2026); no final rule
Canada	CRA: control, profit or loss, integration, tools	Nothing found
Mexico	Staff subcontracting banned since 2021, except registered specialized services	Fines of 2,000 to 50,000 UMA (about MXN 235,000 to 5.9m)
Brazil	Personal, non-occasional, subordinated, paid work is employment	A Supreme Court ruling on hiring workers as companies
India	Four labour codes, in force since November 21, 2025	One "wages" definition; limits on contract labour in core work
Philippines	Labour-only contracting rules	The principal is solidarily liable
UK	IR35: medium and large clients decide status	Agencies liable for umbrella firms' unpaid payroll tax (April 2026)
EU	Presumed employment on digital labour platforms	Transposition due December 2, 2026

Risks the label doesn't change

Permanent establishment (a taxable presence). Under the OECD's November 2025 commentary, a home office generally isn't one below 50% of working time in any 12 months, and above that only with a commercial reason such as local customers; India rejects the test. An EOR doesn't remove the risk: an engineer serving US customers likely creates none, a local salesperson who signs deals may.
Labour leasing. In Germany an EOR arrangement needs a labour-leasing licence, capped at 18 months per worker per client (a vendor's account); Brazilian courts can make the client the employer when the worker answers to it.
Late pay. Mexico lets a worker paid late quit with full severance; Brazil owes a month's salary when termination pay is over 10 days late; India wants final wages within two working days.

What changes in the payout

Currency. Salaries go in local currency. Contractors can take dollars where allowed: Argentina's individual service exporters may keep them, but Mexico's domestic dollar system serves only Mexican companies, so individuals get pesos.
Documents. In India, salary is purpose code P1401 and a software contractor's invoice P0802, which decides whether GST zero-rating and the export rules apply.
Tax at receipt. Brazil charges an individual 0.38% IOF on money from abroad and a company's export revenue 0%, and its 2026 income-tax law's 10% withholding on dividends above R$50,000 a month changes the case for contracting through a company.
US and Canadian paperwork. A W-8BEN removes the 1099 for a foreign contractor working abroad; 30% withholding and Form 1042-S apply only to work done in the US (an on-site week), unless a treaty claim is filed on Form 8233. US citizens abroad get a 1099-NEC from $2,000 (see procure to pay). A Canadian payer withholds 15% under Regulation 105 only on services rendered in Canada.

Questions to ask a vendor

In this country, is the legal employer your entity or a partner's, and how would I know?
At what rate and markup do you convert my funding, and is it fixed at the invoice or re-priced at actuals?
If I fund late, are my employees still paid on time, and what does it cost me?
Do you hold a deposit per employee, and when does it come back?
What does your contractor-of-record indemnity cover, and up to what cap?
Do you screen roles for permanent establishment risk, such as sales or signing authority?
Where does my money sit before pay day, under whose licence, and who earns the interest?
What proof of payment can my contractors get: a FIRA in India, inward-remittance evidence for Philippine VAT?