# Direct Employment

> Direct employment is a hiring model in which a company sets up its own legal entity in a country and employs staff there itself, taking on full responsibility for payroll, tax, benefits and compliance rather than using a third-party employer of record.

Direct employment means a business becomes the legal employer of its overseas staff, through a local subsidiary or branch it has registered in that country. It sits at the other end of the spectrum from using an employer of record, where a third party holds the legal employment relationship on the company's behalf.

Going direct gives a company full control over contracts, benefits and the employment relationship, and it can work out cheaper per head once a team in one country grows large. The trade-off is set-up time and ongoing overhead: incorporating a local entity, registering for payroll tax, and meeting filing, reporting and labour-law obligations year after year.

For that reason, direct employment tends to suit markets where a business has committed to a lasting presence and a sizeable headcount. Many companies begin in a new country through an employer of record to move quickly, then move onto their own entity once the market is proven and the volume justifies the fixed cost.

## How is direct employment different from using an EOR?

With direct employment, your own local entity is the legal employer, so you hold every contract and obligation directly. With an employer of record, a third party is the legal employer on your behalf, running compliant payroll and taking on local liability, while you keep day-to-day direction of the work.

## What does direct employment involve setting up?

You need a registered local entity, a subsidiary or branch, in the country. On top of that come payroll tax registration, a local bank account in many cases, statutory benefit enrolments, and ongoing filing and reporting. Each of these has to be maintained for as long as you employ people there.

## When does direct employment make more sense than an EOR?

Direct employment usually wins once a company has a large, permanent team in one country, where the fixed cost of an entity is spread across enough people to beat per-employee EOR fees. It also suits businesses that need full control over local contracts, benefits and intellectual-property arrangements.

## Key facts

- **Company registration is only the first step:** Registering a company with UK Companies House costs 100 pounds online and can complete within 24 hours, but employing staff also requires separate PAYE payroll registration with HMRC and ongoing compliance. (Source: GOV.UK, verified 2026-07-28)
  Incorporation creates the entity; it does not by itself make a business able to run compliant payroll, which is a distinct registration and reporting obligation.

## Frequently asked questions

### Do I always need my own entity to employ someone abroad?

No. Direct employment requires a local entity, but an employer of record lets you employ someone compliantly in a country where you have none. The EOR is the legal employer on paper; you manage the person. Many companies use this route first, then set up an entity later.

### How long does it take to start employing directly in a new country?

It varies widely by country. Incorporating an entity can take from a few days to several months, and payroll registration adds more time on top. Until both are in place and running, you cannot legally pay an employee through your own entity in that market.

### Is direct employment cheaper than an EOR?

It can be, but only at scale. An entity carries fixed set-up and running costs regardless of headcount, so the per-person cost falls as your team grows. For a small number of people in a country, an employer of record is often cheaper once those fixed costs are counted.

### What compliance risks come with direct employment?

Your entity carries full responsibility for local labour law, payroll tax, statutory benefits and reporting. Mistakes fall on you rather than a provider. There is also permanent-establishment risk if activity in the country creates a taxable presence you had not planned for. Local expertise is essential.

## Sources

- [Set up a limited company: register your company](https://www.gov.uk/limited-company-formation/register-your-company), GOV.UK

_Last updated 2026-07-28. Reviewed by Teamed's in-house employment-law team. Source: https://www.teamed.global/glossary/direct-employment_