A business can employ through its own local entity, through a third party that employs the person on its behalf (an employer of record or staffing provider), or by engaging independent contractors. Each model shifts who carries employment, tax and social security duties, and each country tests the real relationship rather than the label. Misclassifying an employee as a contractor can leave the business liable for back employment taxes, and in Germany a provider that places its employees under a client's direction may need a temporary agency work permit.
Three ways to put people on the ground
A local subsidiary or registered branch that employs staff directly gives the most control and the clearest compliance position, but it means registering as an employer, running payroll and carrying every local employment obligation from the first hire. An employer of record (EOR) arrangement uses a provider that is already registered to employ the person and recharges the cost. It is quick, but it does not remove the local rules: the provider must itself comply, and the arrangement can be recharacterised.
Germany shows the limit clearly. An employer that hires out its employees to work for a third party in the course of its business needs a temporary agency work permit, and the same worker may not be assigned to the same user for more than 18 consecutive months unless a sector collective agreement sets another period. An EOR model in Germany therefore has to be checked against these rules before the first assignment.12
Contractors and misclassification
Every market studied looks past the contract wording. In the United States, misclassification means treating a worker as an independent contractor when they are in fact an employee. For federal employment taxes the IRS weighs evidence of behavioural control, financial control and the type of relationship, and a business that misclassifies without a reasonable basis may be liable for the employment taxes. Either party can ask the IRS for a ruling on Form SS-8, but a determination may take at least six months. The Department of Labor and the states apply their own tests, so a worker can be a contractor for one purpose and an employee for another.
In the UK, the off-payroll working rules (IR35) apply where a worker supplies services through their own intermediary. For public authorities and medium or large clients, the client decides status and must give a status determination statement with reasons; where the rules apply, the deemed employer deducts income tax and employee National Insurance and pays employer National Insurance. For small private-sector clients the intermediary decides. In Germany either party can ask Deutsche Rentenversicherung Bund for a binding status determination, which is the usual way to remove doubt before a long engagement starts.345678910
Platform work in the EU
The EU Platform Work Directive creates a legal presumption that a person working through a digital labour platform is an employee where facts indicating direction and control are found, and puts the burden on the platform to prove otherwise. For relationships already running on 2 December 2026, the presumption applies only from that date. Businesses that use platforms or app-based models to engage workers in Germany, France or other Member States should review those arrangements against the national transposing law.1112
| Market | Main rule | Key point | Source |
|---|---|---|---|
| United States (federal) | IRS common-law test: behavioural, financial and relationship evidence | Form SS-8 ruling may take at least six months; states and the Department of Labor use their own tests | IRS |
| United Kingdom | Off-payroll working rules (IR35) for workers using their own intermediary | Medium or large client decides status; deemed employer deducts tax and National Insurance | HMRC (GOV.UK) |
| Germany | Status determination by Deutsche Rentenversicherung Bund; agency work needs a permit | Same agency worker limited to 18 consecutive months with one user | SGB IV s7a; AÜG s1 |
| European Union | Platform Work Directive presumption of employment | Applies to ongoing relationships from 2 December 2026 | Directive (EU) 2024/2831 |
Decisions to make
- Will the person work under our direction, on our tools and as part of our team, or deliver a defined result independently?4710Control and integration drive the status tests in the US, the UK and Germany, whatever the contract says.
- If we use an employer of record in Germany, does the provider hold a temporary agency work permit, and how long will the assignment last?12Hiring out employees to a client needs a permit, and assignments to the same user are capped at 18 consecutive months.
- In the UK, are we a medium or large client, and have we issued a reasoned status determination statement?789For those clients the duty to decide status, and the tax consequences, sit with the client or deemed employer.
- Should we seek a formal ruling before a long engagement starts?106Germany offers a status determination procedure and the IRS a Form SS-8 ruling, though the US route can take six months or more.
- Do we engage anyone through an app or digital platform in the EU?1112A presumption of employment applies where there is direction and control, with the burden on the platform.
Documents usually needed
- Written contract or statement of work describing deliverables, control and who provides tools
- Status assessment record for each contractor (UK status determination statement where IR35 applies)
- Employer of record service agreement, with the provider's local registrations and, in Germany, its agency work permit
- IRS Form SS-8 or German status determination application where a ruling is sought
- Invoices and evidence that the contractor serves other clients
Common mistakes
- Labelling a full-time, directed team member as a contractor to avoid payroll set-up
- Assuming an employer of record removes all local risk; the provider and the arrangement must still comply with local law
- Running a German EOR assignment past 18 months with the same client without checking the agency work rules
- Treating a UK contractor's own status view as decisive when the client is medium or large
- Applying one country's status test to workers in another country
Questions businesses ask
Is an employer of record legal everywhere?
This research did not find a single rule. In Germany, placing employees under a client's direction is regulated as temporary agency work, which needs a permit and is capped at 18 consecutive months per user. The position in the other markets was not confirmed and should be checked locally.12
Who decides whether a UK contractor falls within IR35?
For public authorities and medium or large clients, the client decides and gives a reasoned status determination statement. For small private-sector clients, the worker's intermediary decides.79
What happens if a US worker is misclassified?
A business that treated an employee as a contractor without a reasonable basis may be held liable for the employment taxes. The IRS Voluntary Classification Settlement Program offers partial relief for businesses that reclassify workers for future periods.35
What this guide does not yet confirm
These points need checking with a qualified local professional before you rely on them.
- Contractor and employer of record rules in India, the UAE, Saudi Arabia, Singapore and France were not researched for this module.
- US Department of Labor and state tests (for example ABC tests) were not researched; only the federal tax test is covered.
- The UK size tests for a small client were not confirmed on the page opened.
- The transposition deadline and national transposing laws for the Platform Work Directive could not yet be checked.
- Permanent establishment risk from staff working in a country without a local entity is covered in the tax centre, not here.
Sources and review status
Each statement is numbered to the source it was checked against. We use official sources where we can, and each statement says whether it was checked against an official or a secondary source. Sources last checked on 19 October 2026. None of it has been professionally reviewed yet: it is research checked against official and secondary sources by WONE Global, not legal or tax advice.
An employer that hires out its employees to third parties for work in the course of its business (Arbeitnehmerüberlassung) needs a permit. Temporary agency work under the Temporary Agency Work Act (AÜG). Arrangements in which a provider employs staff who work under a client's direction can fall within this rule.
A temporary work agency may not assign the same agency worker to the same user business for more than 18 consecutive months. A collective agreement in the user's sector may set a different maximum period.
Job misclassification occurs when a company incorrectly treats a worker as an independent contractor instead of an employee. Federal and state; tests differ between federal tax, federal wage law and state law.
Reused from market guide claim us-people-010.
For federal employment tax purposes the IRS weighs all evidence of control and independence in three categories: behavioural control, financial control and the type of relationship. Federal (IRS common-law rules). The US Department of Labor and the states apply their own tests for wage-and-hour and state law purposes.
A business that treats an employee as an independent contractor without a reasonable basis may be held liable for employment taxes for that worker. Federal. The Voluntary Classification Settlement Program (Form 8952) lets eligible businesses reclassify workers as employees for future periods with partial relief from federal employment taxes.
Either the business or the worker may file Form SS-8 to ask the IRS to determine a worker's status, and a determination may take at least six months. Federal employment taxes and income tax withholding.
Under the UK off-payroll working rules (IR35) the client is, in most cases, responsible for deciding the worker's employment status and should give a status determination statement with its reasons. Public authorities and medium or large clients engaging a worker through the worker's own intermediary, such as a personal service company. HMRC notes the rules changed from 6 April 2021.
Where the off-payroll rules apply, the deemed employer must deduct income tax and employee National Insurance from fees paid to the worker's intermediary and pay employer National Insurance to HMRC. The deemed employer also pays any Apprenticeship Levy due.
Where the client is small and outside the public sector, the worker's intermediary, not the client, decides the worker's employment status. The HMRC guidance page opened does not define a small client; the size tests were not confirmed.
The parties to an engagement may apply in writing or electronically to Deutsche Rentenversicherung Bund for a decision on whether the work is employment or self-employment, which it decides on an overall assessment of the case. Social insurance status determination (Statusfeststellung) under section 7a SGB IV. Not available where the collecting agency or another insurer had already started a procedure when the application was made.
Under the EU Platform Work Directive, the contractual relationship between a digital labour platform and a person performing platform work is legally presumed to be an employment relationship where facts indicating direction and control are found, and the platform must prove otherwise to rebut it. Digital labour platforms; applies through national transposing law in each Member State.
For platform work relationships entered into before and still ongoing on 2 December 2026, the presumption of employment applies only to the period starting from that date. Article 5(6) of the Directive.
The transposition article (Article 29) was beyond the portion of the page read; national transposition status in Germany and France was not checked.
Questions on this topic
12 statements on hiring models: own entity, employer of record and contractors
