You’ve found your first US hire. Now comes the question every expanding founder hits: do you set up a US entity and run payroll yourself, or use an Employer of Record?

In this article, we walk through what an EOR actually does, why it’s appealing for early US hires, the tax trap it doesn’t protect you from, and when it makes sense to bring employment in-house instead.

What an Employer of Record actually does

An Employer of Record, or EOR, is a third party that legally employs someone on your behalf. They become the employer on paper, running payroll, tax withholding, benefits and employment compliance in the worker’s state. You still direct the day to day work. They simply carry the employment relationship and all the admin that comes with it.

Why it’s appealing

The appeal is obvious. You can hire in days rather than the weeks or months it takes to incorporate, get an EIN and register for payroll. You skip the job of registering for payroll tax in every state where you employ someone, which is a real burden in a country with no single national payroll system. And you get a ready-made benefits package, including health cover, without building one from scratch.

The part that catches founders out

An EOR handles employment, not your tax presence. Using one doesn’t stop you creating a taxable presence in the US. If the role itself creates a permanent establishment or state nexus, an EOR doesn’t make that go away, because the exposure follows what the person does, not who signs their payslip.

To make that concrete, take two hires through the same EOR. Hire a software engineer to build your product and you create no taxable presence. They do internal work, they conclude no customer contracts, and nothing they do amounts to your business being carried on in the US in a way the tax rules care about.

Now hire a salesperson who pitches US customers and closes deals, and the picture changes. Under the Australia-US tax treaty, a person who habitually concludes contracts on your behalf, or plays the principal role in closing them, is treated as a dependent agent, and a dependent agent creates a permanent establishment for your Australian company. Once you have a permanent establishment, the US can tax the profit attributable to it and you pick up federal filing obligations.

The salesperson triggers it and the engineer doesn’t, because one is out winning revenue in the market and the other isn’t. The EOR is the legal employer in both cases, and it changes nothing here.

When an EOR fits

It’s an excellent on-ramp for your first one or few hires, for testing the market before you commit to an entity, and for roles that don’t themselves create tax exposure, think engineering, support or operations rather than a deal-closing sales lead.

When to bring employment in-house

Once you have several US staff, the per-head EOR fees add up and your own entity becomes cheaper. You may also want your own entity for other reasons, such as contracting, banking or raising.

And if you plan to grant equity, be aware that EOR-employed staff receiving options over your Australian parent still trigger a US 409A valuation, so the EOR doesn’t simplify that piece.

The bottom line

An EOR is a fast, low-commitment way to put your first Americans on the ground, but treat it as an employment solution, not a tax shield. Map the tax footprint of each role separately before you assume you’re covered.

Disclaimer: This article is for general informational purposes only and does not constitute financial, legal or tax advice. Please speak with a qualified adviser (hey, that’s us!) before making decisions based on your specific circumstances.