Hiring in Europe as a US company: employer of record vs your own entity

Sooner or later, a US company growing in Europe needs people on the ground. There are two main ways to employ them: through an employer of record, or through your own European company. Both can work. They differ in cost, control, risk and how well they scale. This guide explains each model, the EU rules that apply whichever you choose, and the questions to ask before deciding. It is general information, not legal or tax advice.

The two models

Employer of record (EOR). A third-party company that already has an entity in the country becomes the legal employer of your staff. It issues the employment contract, runs payroll, pays social contributions and handles local employment paperwork. You direct the person’s day-to-day work and pay the EOR a fee.

Your own entity. You set up a subsidiary or branch in the country, register as an employer, and employ staff directly. You carry the full set of employer obligations yourself, usually with help from a local accountant and lawyer.

Many companies start with an EOR for one or two hires and move to their own entity as the team grows. Others set up an entity from day one because they need it for contracts, banking or residence permits.

Where an EOR helps, and where it can fall short

An EOR can be useful when you want to:

• hire quickly in a country where you have no company
• test a market before committing to an entity
• employ one or two people in several countries

But it is not a full substitute for a presence. Points to check:

• Agency work rules. Depending on the country and the set-up, an EOR arrangement can look like temporary agency work. EU Directive 2008/104/EC recognises temporary-work agencies as employers and gives agency workers at least the basic working and employment conditions, including pay, that they would have if hired directly by the company they work for. Each EU country implements the Directive in its own law, so check the rules in the country where you hire.
• Taxable presence. Having people working for you in a country can, depending on what they do, create a taxable presence for your company there. Estonia’s e-Residency programme, for example, warns that another country may treat a company as tax resident through a permanent establishment or where it is effectively managed. An EOR does not remove that question.
• Contracts and intellectual property. Make sure inventions and work created by EOR-employed staff are properly assigned to your company.
• Immigration. If you want to hire someone who needs a work permit, check whether the EOR can act as the sponsoring employer for that permit in that country.

What setting up your own entity involves

In many EU countries, setting up a company is quicker than people expect. In Lithuania, for example, Invest Lithuania says company registration is often completed in a matter of days, and the private limited company (UAB) is the most common form. It gives employer social security contributions of 1.77% of gross salary, with employees contributing 19.5%.

Once you have an entity, Your Europe explains that you must:

• register as an employer with the social security institution in the country where your staff work
• register each employee with that institution, so they are covered by the local system

You will also need payroll, accounting, local employment contracts and an understanding of local labour law and any collective agreements. An entity costs more to run than an EOR for a single hire, but it gives you more control and can scale.

Rules that apply either way

Whichever model you use, EU employment rules protect the worker. According to Your Europe:

• employees must receive written information on key terms, such as the parties, place of work, job title, start date, pay and working hours, mostly between the first and seventh working day
• other information, such as the social security institutions involved, can follow within one month
• a probation period must not normally exceed six months
• after six months of service, a worker can request more predictable and secure working conditions, and you must reply in writing within one month

New EU pay transparency rules are also taking effect. The European Commission explains that employers will need to give job seekers the starting salary or pay range in the vacancy notice or before the interview, and will no longer be allowed to ask about pay history. Employees can request information on pay levels, and employers with at least 100 employees must publish information on the gender pay gap. Check how your country of hiring has written these rules into national law.

Hiring people from outside the EU

If your hire is not an EU citizen, they will need a permit. In Lithuania, the EU Immigration Portal explains that the employer usually registers the vacancy with the Employment Service and then applies for a work permit or a decision that the job meets labour market needs, which is issued within 7 working days. Professions on the shortage list follow a simpler path.

For highly qualified roles, the EU Blue Card is another option. In Lithuania, the portal’s page (dated 1 April 2025) sets the salary threshold at 1.5 times the average gross monthly wage, or 1.2 times for shortage occupations, and requires a contract of at least 6 months.

If you later move staff between EU countries, Your Europe explains that a posting can last up to 12 months, or 18 with a motivated notification, and that the employer must request a PD A1 form confirming which country’s social security applies.

How to choose

Questions that usually decide it:

• How many people, and for how long? One or two people for a trial suggests an EOR. A team you plan to grow suggests an entity.
• Do you need a local company anyway? For local contracts, public tenders, banking or certain permits, an entity may be necessary.
• What do your people do? Sales staff who sign contracts, or managers who make key decisions, raise tax presence questions that need advice.
• What is the total cost? Compare EOR fees with the set-up and running costs of an entity over two or three years.

Take advice from a qualified employment lawyer and a tax adviser in the country concerned before you commit.

How Mavericks helps

Mavericks Go helps companies plan and make their entry into a new market, from the first briefing and entry plan to local counterparts and support after you land, with legal work handled by regulated partner law firms. When people need to relocate, Mavericks Settle guides them through residency, paperwork, banking and settling in.