Guides / Remote & multi-country teams
Hiring Your First Employee Abroad: Leave, Holidays & Payroll
The three ways to employ someone abroad — a local entity, an employer of record, or a contractor — and exactly what changes about paid leave, public holidays, payout and payroll the moment you hire outside your home country.
You have three routes: open a local entity, use an employer of record, or engage a contractor. Whichever you choose, the employee's leave follows their country's law — the statutory minimum days, separate public holidays and, across the EU and Australia, mandatory payout of unused leave when they leave. Payroll and social security follow the country of work too.
Disclosure: some software links on this page are affiliate links. If you sign up through one, we may earn a commission at no additional cost to you. We only recommend tools we have set up and used, and commission never affects placement or verdicts. Not legal advice: this page summarises publicly available state agency guidance for general information. Verify with the linked agency or an employment attorney before acting on it.
The three routes
| Local entity | Employer of record (EOR) | Contractor | |
|---|---|---|---|
| Who is the legal employer | You, through a local subsidiary or branch | The EOR, on your behalf | Nobody — a business-to-business contract |
| Time to first payslip | Weeks to months: registration, bank account, payroll set-up | Days to a couple of weeks | Immediate |
| Ongoing burden | Local filings, accounts, payroll, HR compliance | A monthly fee per person; the EOR carries compliance | Invoices only — if the relationship is genuinely independent |
| Statutory leave | Applies in full; you administer it | Applies in full; the EOR administers it, you approve | None — a contractor prices rest into their rate |
| When it fits | A real, growing presence in the country | The first hires in a new country; testing a market | Genuinely independent specialists, project work |
The contractor column has a trap in it. A contractor who has fixed hours, one client, a manager and company equipment is an employee in substance in most European countries, and reclassification is expensive — see Contractors vs employees: who gets paid leave in the EU?
What changes about leave the moment you hire abroad
Whichever route employs the person, their leave follows the country where they habitually work — a rule fixed for the EU by the Rome I Regulation and mirrored in UK law. In practice, five things change at once:
- A statutory minimum applies. At least four weeks across the EU; more in several countries — Luxembourg 26, France, Austria, Denmark and Sweden 25. Your policy can add to it, never subtract.
- Public holidays are extra. They follow the workplace and, outside the UK, sit on top of annual leave.
- Unused leave is paid out at exit — in every EU country and Australia, whatever the reason for leaving.
- Leave cannot be bought out while employed. The statutory minimum has to be taken as rest.
- Carryover is a legal rule, not a policy choice, and it is different in each country.
None of this depends on how generous you are at home. A US company with a “flexible” PTO policy still owes a departing Spanish employee their untaken statutory days in cash.
Payroll and social security follow the country of work
Employing someone abroad means paying them, and their social contributions, in their country. Within the EU, Regulation 883/2004 makes the country where the work is done the default system; the same is true in substance almost everywhere else. With an entity you register as an employer locally; with an EOR it is already done. Tax withholding follows local rules and, for cross-border cases, bilateral treaties — involve an adviser before the first payslip, not after.
Notice periods and termination protection
Most European countries set statutory notice periods and protect employees against dismissal far more strongly than US at-will employment. The specifics vary by country and by length of service, and they interact with leave: untaken leave is typically paid in the final settlement, and in several countries it cannot be forced into the notice period. Know the local rule before a hire, not at an exit.
Employee data
Payroll, leave and absence records for an EU or UK employee are personal data under the GDPR (and the UK GDPR). Keep only what you need, know where it is stored, and make sure any tool you use can show a proper audit trail without exposing more than necessary.
A first-hire checklist
- Confirm where the person will habitually work — that country’s rules apply.
- Choose the route: entity, EOR or contractor — and be honest about the contractor test.
- Look up the statutory leave floor and public holidays on the country page.
- Decide the policy entitlement — at or above the floor, consistent with the rest of the team.
- Set up payroll and social security in the work country, directly or through the EOR.
- Write the leave policy for that location: accrual, carryover, expiry, approval route.
- Encode it in your leave tracker as its own policy group with the local holiday calendar.
- Confirm the notice period and termination rules for the country.
- Check data handling for the employee’s records.
- Diarise a yearly review — statutory minimums and public holidays change.
Common questions
What is an employer of record?
A company that is the legal employer of your hire in their country, on your behalf. It issues the local contract, runs payroll and social contributions, and applies local employment law including statutory leave. You direct the day-to-day work. It is the usual way to employ the first few people in a country where you have no entity.
Can we just hire them as a contractor to keep it simple?
Only if they are genuinely independent — setting their own hours, working for others, using their own tools, bearing their own business risk. Someone who works like an employee is an employee in substance, and reclassification brings back pay, contributions and accrued leave with it.
Do we have to pay out unused leave if we let the person go?
Across the EU and Australia, yes — the untaken statutory balance is paid at separation whatever the reason for leaving. In the US it depends on the state and, in most states, on your written policy.
Which country's public holidays does the employee get?
The ones where they work. Public holidays follow the workplace, not the company's home country, and in almost all of Europe and Australia they are separate from annual leave.
Related guides
Contractors vs Employees: Who Gets Paid Leave in the EU?
Employees get at least four weeks of paid leave across the EU; genuine contractors get none. The risk sits in between — …
Managing Annual Leave Across Multiple Countries
How to run one leave policy for a team spread across countries with different statutory minimums, public holidays, carry…
Which Country's Leave Law Applies to a Remote Employee?
For a remote employee in the EU or UK, the leave law of the country where they habitually work applies as a floor — what…
Sources
- Your Europe — Employment contracts and working conditions in the EU
- Regulation (EC) No 883/2004 on the coordination of social security systems
- Directive 2003/88/EC (Working Time Directive), Article 7 — minimum four weeks' paid annual leave
- Regulation (EC) No 593/2008 (Rome I), Article 8 — law applicable to employment contracts
General information, not legal advice. Rules change and national implementations differ — confirm against the current text or a local employment lawyer before acting. See our methodology.