An employer of record (EOR) lets you hire in the U.S. quickly without a U.S. company: the EOR employs the person and runs payroll on your behalf. A U.S. subsidiary takes longer to set up, but it gives you your own U.S. employer, contracts, bank account and visa options. Many international companies start with an EOR for their first one or two hires, then move to a subsidiary once they build a team or start selling in the U.S.
Last reviewed: October 2026
For a company based outside the United States, the first U.S. hire raises a structural question before any payroll question: who will legally employ this person? The two most common answers are an employer of record and your own U.S. subsidiary. Both can work. They just solve different problems, and an EOR leaves some of the most important risks with you.
This guide compares the two side by side, explains what an EOR does not cover, and shows when it makes sense to switch.
What is an employer of record (EOR)?
An employer of record is a company that formally employs a worker on your behalf. It hires the person under its own U.S. entity, runs payroll, withholds and pays U.S. employment taxes, provides benefits through its own plans, and handles the state registrations. You choose the person, direct their day-to-day work and pay the EOR a fee on top of the employment costs.
The main appeal is speed. You don’t need a U.S. company, an Employer Identification Number (EIN), a U.S. bank account or state payroll accounts before your first hire, because the EOR already has them.
An EOR is not the same as a PEO (professional employer organization). A PEO works with a company that already has its own U.S. entity and shares employer responsibilities with it. An EOR is designed for companies that have no U.S. entity at all.
What does a U.S. subsidiary give you?
A U.S. subsidiary is a U.S. company owned by your group, most often a corporation formed in Delaware or in the state where you operate. It becomes the employer of your U.S. team, signs U.S. contracts in its own name, opens a U.S. bank account and invoices U.S. customers.
It also comes with its own obligations: an EIN, state registrations wherever it operates, its own payroll, accounting and annual tax returns. A corporation that is at least 25% foreign-owned also files Form 5472 when it has reportable transactions with related parties, and charges between the parent and the subsidiary have to be priced like transactions between unrelated companies. Our U.S. subsidiary setup checklist walks through the full list.
EOR vs. U.S. subsidiary at a glance
| Employer of record (EOR) | U.S. subsidiary | |
|---|---|---|
| Who legally employs the person | The EOR | Your U.S. company |
| Time to first hire | Usually the fastest option: no U.S. entity to set up | Longer: the company, EIN, bank account and state registrations come first |
| Cost structure | A fee per employee, usually monthly, on top of salary, employer taxes and benefits | Setup costs and fixed yearly costs (registered agent, state filings, accounting, tax returns), on top of salary, employer taxes and benefits |
| Who signs contracts with U.S. customers | Your foreign company | Your U.S. company |
| U.S. corporate tax | Your foreign company can still have U.S. tax exposure, depending on what the employee does | The subsidiary files its own U.S. returns and pays tax on its own profit |
| Intracompany transfer (L-1) and treaty investor (E-2) visas | Not available through an EOR | Possible, if the requirements are met |
| French BSPCE for U.S. staff | Generally not: the person is the EOR’s employee | Possible if the parent holds at least 75% directly and the conditions are met |
| Benefits and HR policies | The EOR’s plans and policies | Your own choices |
| Typical fit | Testing the market, a first one or two hires, short-term needs | Building a team, selling in the U.S., raising U.S. funding |
What an EOR does not cover
An EOR handles employment administration. It does not make your company’s U.S. activity disappear. Five points are often missed.
1. U.S. corporate tax and permanent establishment
Under the U.S.–France tax treaty, a French company’s business profits can be taxed in the U.S. if it has a “permanent establishment” there. That includes a fixed place of business, and a person who habitually exercises authority to conclude contracts in the company’s name (Article 5 of the U.S.–France tax treaty). Who formally employs that person doesn’t change what they do. A salesperson hired through an EOR who regularly signs deals for your French company can therefore create U.S. tax exposure for it. Most U.S. tax treaties contain a similar rule.
A foreign company engaged in a U.S. trade or business must file Form 1120-F, even when a treaty exempts its income. If it files late (generally more than 18 months after the due date), it can lose the right to deduct its expenses (IRS Instructions for Form 1120-F). The treaty also states that owning a U.S. subsidiary does not, by itself, give the parent a permanent establishment: the subsidiary is taxed on its own profit instead. Depending on the state, someone working there on your behalf can also create state tax filing obligations.
2. Employment-tax responsibility
Outsourcing payroll does not automatically shift legal responsibility for U.S. employment taxes. The IRS explains that employers generally remain responsible for withheld income tax and for both halves of Social Security and Medicare taxes when a third party runs payroll. The main exception is a Certified Professional Employer Organization (CPEO), whose customers are relieved of that liability in certain situations (IRS, Outsourcing payroll and third-party payers). Ask any EOR how it is set up and what happens if it fails to pay.
3. Visas for people you transfer
An intracompany transfer visa (L-1) requires the U.S. employer to have a qualifying relationship with the foreign company: parent, branch, subsidiary or affiliate (USCIS, L-1A). A treaty investor visa (E-2) requires a substantial investment in a U.S. enterprise, and E-2 employees must have the same nationality as the investor (USCIS, E-2). An EOR is not related to your company and is not your investment, so neither visa works through it. If you plan to send a manager from headquarters, you will need your own U.S. presence. See our U.S. business visas video series and our global mobility team.
4. Equity for your U.S. team
French startups often reward staff with BSPCE. They can be granted to employees of the issuing company and, for warrants granted from January 1, 2026, to employees of subsidiaries in which it directly holds at least 75% of the capital or voting rights, provided the conditions are met (BOFiP, BSPCE, in French). Someone hired through an EOR is the EOR’s employee, not yours, so they don’t fit that definition. Check with your French counsel which instrument can be used, and how the U.S. would tax it, before you promise equity.
5. Contracts, intellectual property and control
With an EOR, your relationship with the worker runs through the EOR’s contract. Read it for who owns the work product and intellectual property, notice periods, what happens to benefits if you leave, and any fee for moving the employee to your own company later.
When an EOR makes sense
An EOR is often the right first step when:
- you are testing the U.S. market and may not stay;
- you need one or two people quickly, before a subsidiary is ready;
- the role doesn’t involve signing contracts on behalf of your company;
- you don’t need to transfer staff on an L-1 or E-2 visa.
Even then, have someone review what the employee will actually do in the U.S. The EOR covers payroll; the corporate tax question stays with you.
When to set up a U.S. subsidiary
A subsidiary usually becomes the better structure when one or more of these are true:
- you are building a U.S. team rather than making a single hire;
- someone in the U.S. negotiates or signs contracts with customers or partners;
- you want to invoice U.S. customers and hold a U.S. bank account in a U.S. company’s name;
- you plan to transfer a manager on an L-1 visa or invest under an E-2 visa;
- U.S. investors, customers or partners prefer or require a U.S. company;
- you want to offer equity such as BSPCE to U.S. employees;
- the EOR fees, which grow with each employee, start to exceed the fixed cost of running your own entity.
There is no headcount at which the answer changes automatically. What the U.S. team does matters more than how many people it has. See the hidden costs of U.S. expansion for the budget side.
How to move from an EOR to your own subsidiary
When you make the switch, plan the steps in this order so pay and benefits continue without a gap:
- Form the subsidiary and get its EIN. If no one involved has a U.S. Social Security number, the application goes by fax, mail or the IRS line for international applicants. See EINs and ITINs for foreign founders.
- Open a U.S. bank account, which can be one of the slowest steps for a foreign-owned company.
- Register in each state where your employees work: payroll withholding, unemployment insurance and, if needed, registration to do business in that state.
- Put workers’ compensation insurance, a payroll provider and benefit plans in place.
- Agree an end date with the EOR, using its notice period, and check for any transfer fee.
- Issue new employment agreements from the subsidiary. Employees complete new hiring forms, such as Form W-4 and Form I-9, with their new employer.
- Set up intercompany agreements and billing between the parent and the subsidiary. See our intercompany billing video series.
Our entity formation and payroll teams handle these steps for international companies.
What about hiring contractors instead?
Some companies try to avoid both options by paying a U.S. worker as an independent contractor. That only works when the working relationship really is independent. The IRS looks at behavioral control, financial control and the type of relationship, and a contract alone does not decide it (IRS, Independent contractor or employee?). Someone who works only for you, on your schedule and under your direction, is likely an employee. States apply their own tests too. A contractor’s activity can also create the same corporate tax exposure as an employee’s.
The bottom line
An EOR is a fast, low-commitment way to make a first U.S. hire. It is not a way to operate in the U.S. without a U.S. footprint: corporate tax exposure, visas and equity still depend on your own structure. A U.S. subsidiary takes more work up front but gives you a lasting base for a team, customers and investors.
Not sure which fits your plans? Orbiss helps international companies set up and run U.S. subsidiaries, from entity formation to payroll and corporate tax. Talk to our team.
Read more: what one U.S. hire triggers · U.S. subsidiary setup checklist · Watch: U.S. business entities video series
Frequently asked questions
What is an employer of record (EOR)?
An employer of record is a company that formally employs a worker on your behalf. It hires the person under its own U.S. entity, runs payroll, withholds and pays employment taxes, and provides benefits, while you direct the day-to-day work. It lets a foreign company hire in the U.S. without forming a U.S. company first.
Is an EOR the same as a PEO?
No. A PEO (professional employer organization) works with a company that already has its own U.S. entity and shares employer responsibilities with it. An EOR is for companies with no U.S. entity: the EOR is the formal employer.
Does an EOR protect my company from U.S. corporate tax?
Not necessarily. Corporate tax depends on what the employee does, not on who employs them. Under the U.S.–France tax treaty, a person who habitually concludes contracts in your company’s name can create a permanent establishment, and a foreign company engaged in a U.S. trade or business must file Form 1120-F.
Can an EOR sponsor an L-1 or E-2 visa?
No. An L-1 visa requires the U.S. employer to be a parent, branch, subsidiary or affiliate of your foreign company, and an E-2 visa requires an investment in your own U.S. enterprise. An EOR is neither, so these visas need your own U.S. company.
When should I switch from an EOR to a U.S. subsidiary?
Usually when you build a U.S. team, when someone in the U.S. negotiates or signs contracts, when you want to invoice U.S. customers from a U.S. company, when you need L-1 or E-2 visas or want to offer equity, or when the per-employee EOR fees exceed the fixed cost of your own entity. There is no fixed headcount.
Can U.S. employees receive BSPCE from a French company?
Employees of a U.S. subsidiary can be eligible if the French company directly holds at least 75% of its capital or voting rights and the other conditions are met (rule for warrants granted from January 1, 2026). Someone hired through an EOR is the EOR’s employee, so they don’t qualify as an employee of your group.
What about a U.S. branch instead of a subsidiary?
A branch is your foreign company itself operating in the U.S., registered in the states where it does business. It can sponsor L-1 visas, but the foreign company is then directly engaged in U.S. business and files U.S. returns (Form 1120-F). Many international companies prefer a subsidiary, which keeps U.S. taxes and liabilities in a separate U.S. company.
This article is for general informational purposes only and does not constitute legal, tax, or accounting advice. Rules and requirements vary by company, individual, and jurisdiction, and can change. Please seek advice appropriate to your specific situation.