The best person for your next role might be in Manila, Melbourne or Manchester. For a New Zealand company, hiring internationally can potentially help you navigate critical skills gaps. However, the moment you decide to actually employ someone in another country, you’re up against a wall of legal, tax and payroll requirements.

For decades the default answer was to set up a local entity. That works but it’s slow, expensive and hard to undo if the role doesn’t pan out. 

The good news is that it’s no longer the only option. Building a global team without local entities is now a well-trodden path through the use of an Employer of Record (EOR). We will cover why entity setup slows you down, the compliance risks that catch growing companies off guard and what an EOR actually does, so hiring overseas feels as routine as hiring at home.

Why setting up a local entity slows you down

Incorporating in a new country is a big project for any business owner. Depending on the market, standing up an entity usually means:

• Registering a company and, often, appointing a local director or resident agent.
• Opening an in-country bank account.
• Registering with the local tax and social security authorities.
• Building a compliant local payroll.
• Getting local employment agreements drafted to the standard of that country’s labour laws.

Setup commonly runs from a couple of months to the better part of a year, with legal and accounting costs to match, plus ongoing filing obligations for as long as the entity exists. For one or two hires in a market, or for a role you want to test before fully committing, that is a lot of fixed cost to carry. If you later decide to exit the market, winding an entity down is its own drawn-out exercise too.

Hiring decisions have to be made fast in a growing business. Setting up an entity from scratch happens slowly. That gap is exactly where good candidates get lost to competitors.

What to consider when hiring across borders

If entity setup is the slow road, the tempting shortcut is to sidestep it entirely. You might pay the person as a contractor or have your New Zealand company pay them directly. Both approaches carry significant legal risks that tend to surface at the worst possible time.

Permanent establishment 

The first risk is one many founders have never heard of: permanent establishment (PE). In broad terms, when your company has enough of a presence in another country, that country can treat you as having a taxable footprint there and tax your profits. An employee working from home in a foreign market can, in some circumstances, be enough to create that footprint.

This became more pressing recently. In November 2025, the OECD updated its Model Tax Convention to clarify when cross-border remote work creates a permanent establishment. The updated guidance sets out a two-part approach: a working-time benchmark of roughly 50% over any 12-month period, paired with a test of whether there’s a genuine commercial reason for the person to be based in that country. Casual or employee-driven remote work is less likely to trigger PE but a senior person doing core work from a foreign base for most of the year is a different story.

Two things matter here for New Zealand employers. First, the guidance is influential but not binding; many countries apply their own domestic rules that are stricter. Second, a PE brings a cascade of obligations beyond corporate tax, including local payroll registration and withholding, which often lands on your operations team.

Worker misclassification

The second risk is misclassification: treating someone as a contractor when the true nature of the relationship is employment. It is one of the most common and costly employment mistakes, both in New Zealand and globally. Every country enforces its own version.

Get it wrong and the penalties can be significant. A worker found to be an employee can be owed unpaid wages, holiday and leave entitlements and PAYE. The business can face penalties on top too. 

Local payroll, tax and social security

Payroll isn’t always the easiest, even when you’re employing locally. Someone has to run compliant payroll in the country where your international team member lives too, deduct the right taxes, pay the right social contributions and file on time.

Every country you hire into has its own tax and payroll rules. Employ a person in that market and you can inherit local registration, withholding and reporting duties, whether you set up an entity or not.

What an Employer of Record actually does

This is where an Employer of Record changes the game. An EOR is an organisation that already has a legal entity and payroll in a given country and becomes the formal, legal employer of your team member there. You still choose who to hire, direct their work and set the culture. The EOR takes on the legal employer responsibilities behind the scenes.

In practice, the EOR handles:

• A locally compliant employment agreement for your hire.
• In-country payroll, tax withholding and social contributions.
• Statutory entitlements, such as leave and any locally required benefits.
• Ongoing compliance as local employment law changes.

Because the EOR is the legal employer through its own entity, you avoid both the cost of standing up your own entity and the exposure of misclassifying an employee as a contractor. 

Here is how the three main approaches to international employment compare:

When an EOR is the right call and when it isn’t

An EOR isn’t a universal answer. However, it tends to be the right call when you want to:

• Hire one or a handful of people in a market before committing to an entity.
• Move quickly on a strong candidate without waiting on incorporation.
• Test a new market.
• Convert an existing overseas contractor into a properly employed team member to remove misclassification risk.

If you plan to build a large team of dozens of people in a single country over the long term, you may be better off setting up a local entity. It’s also worth pausing when local law restricts EOR arrangements or caps how long they can run. 

Building the team: a practical sequence

Once you have decided an EOR fits, the work becomes a repeatable process. A common set of steps goes as follows:

1. Start with talent strategy. Decide which roles genuinely benefit from being filled overseas, which markets have the skills overlap you need and what a competitive package looks like in each. 
2. Confirm classification up front. Before you get invested in a candidate, decide whether the role is actually employment or independent work. If it’s employment, choose your approach: direct employment, through your own entity or through an EOR.
3. Choose your employment model per market. Match each hire to the right approach using the comparison above. It’s common to run a mix: direct employees at home and EOR employees in markets where you have no entity.
4. Onboard through the EOR. The EOR provider issues a compliant local agreement, sets up payroll and handles registrations. Your job is the parts that matter to the person: their manager, their tools, their first-week plan and how they connect to the team.
5. Keep compliance current. Employment law shifts and a good provider will track local changes for you. That includes updating agreements and payroll accordingly, so you’re not manually monitoring rule changes in every country you operate in.

Talent strategy beyond compliance

It is tempting to treat global hiring as purely a legal and payroll exercise. However, it requires a solid talent strategy and employee engagement. Keeping your international employees connected and growing is what turns a distributed group of individuals into an actual team.

That means being deliberate about the things that don’t show up on a payslip: consistent onboarding in every location, clear communication norms, equitable access to development and a culture that everyone can feel part of. A team member employed through an EOR should have the same experience of your company as anyone hired directly. 

This is also where the right platform earns its keep. When contracts, payroll, leave, onboarding and everyday HR live in one connected system, your people team spends less time stitching tools together. They’ve got more time to spend on the human side of building a team.

Where HeroForce fits

HeroForce brings Employment Hero’s EOR service together with AI-powered hiring and a single platform for HR and payroll. You can find, employ and manage people locally or in more than 180 countries without setting up local entities.

As the business owner, you’re still in control of who you hire, how the work is done and how your team culture develops. Employment Hero becomes the legal employer and manages the employment infrastructure behind the scenes, like contracts, payroll, tax and local regulations. People employed this way are employees with full statutory entitlements, not contractors, which keeps you clear of the misclassification risk covered earlier. 

With HeroForce, the high-risk parts of employing people across borders can be handled reliably, freeing you to make the decisions that actually need a human.

To find out more, speak to one of our team today.