How to Hire Remote Software Engineers (Compliance + Cost Guide)

Why Remote Engineering Hiring Requires More Than Finding Talent

Hiring remote software engineers has become one of the most effective ways for companies to scale technical teams, accelerate product development, and stay competitive in a global market. By removing geographic limitations, businesses can access highly skilled engineers across continents, time zones, and specialties - often at a lower total cost than hiring locally. However, alongside these benefits comes a new set of challenges related to compliance, payroll, taxation, and long-term cost management.

Many companies underestimate how complex international hiring can be. Employment laws differ by country, contractor rules vary widely, tax obligations are location-specific, and missteps can result in fines, audits, or forced reclassification. At the same time, costs associated with salaries, benefits, currency exchange, and employment infrastructure can quickly erode expected savings if not planned carefully. Hiring remote engineers successfully requires more than finding talent - it requires a structured approach that balances speed, compliance, and cost efficiency.

This guide breaks down how to hire remote software engineers the right way. From choosing between contractors and full-time employees to understanding country-specific compliance requirements and managing global payroll costs, we’ll walk through everything companies need to know to build distributed engineering teams that scale safely and sustainably.

TL;DR

• Hiring remote software engineers expands access to global talent and can significantly reduce costs, but introduces compliance and payroll complexity across borders
• Companies must navigate worker classification rules, local labor laws, country-specific taxes, statutory benefits, and currency management
• Misclassifying contractors as employees or using non-compliant contracts can result in fines, back taxes, and legal disputes
• Total employment costs include more than salary - employer taxes, benefits, payroll fees, and compliance overhead add 10–30%+ depending on the country
• A structured hiring approach supported by compliant employment models (like an EOR) and centralized payroll helps businesses scale remote engineering teams efficiently while controlling risk and total cost

Why Companies Hire Remote Software Engineers

Access to a Global Engineering Talent Pool

Demand for skilled software engineers consistently outpaces supply in many local markets. By hiring remotely, companies are no longer limited to a single country or city and can access specialized engineers across regions - including backend, frontend, DevOps, mobile, data, and AI talent. This broader reach makes it easier to find the right skills, not just the closest candidates.

For fast-growing companies, global hiring also reduces time-to-hire by removing relocation constraints and local talent shortages.

Cost Efficiency Without Sacrificing Quality

Remote hiring allows companies to optimize compensation based on regional labor markets rather than high-cost tech hubs. While top engineers should always be paid competitively, hiring globally often results in lower total employment costs when factoring in salary benchmarks, employer taxes, benefits, and overhead.

These savings can be reinvested into product development, infrastructure, or expanding the engineering team further.

Faster Scaling and Greater Flexibility

Remote teams enable companies to scale engineering capacity quickly without expanding physical offices or committing to long-term infrastructure costs. Teams can grow or adjust based on product needs, funding stages, or roadmap changes - all while maintaining operational flexibility.

24/7 Development and Global Coverage

Distributed engineering teams across time zones can support continuous development, faster release cycles, and improved incident response. With the right coordination and handoffs, remote engineers can extend productivity beyond a single workday.

Contractors vs. Full-Time Remote Engineers: What to Choose

Understanding the Difference

When hiring remote software engineers, companies typically choose between engaging independent contractors or employing full-time engineers. While both models can work, they come with very different compliance, cost, and operational implications.

Contractors are usually hired for specific deliverables or time-bound projects and operate independently. Full-time engineers, on the other hand, work under the company’s direction, integrate into internal teams, and contribute long-term to product development.

Why Many Companies Start With Contractors

Contractors are often perceived as the faster and simpler option. They typically require less upfront setup, can be engaged quickly, and may appear cheaper due to the absence of benefits and employer taxes. For short-term needs or exploratory projects, contractors can be a practical solution.

However, this simplicity is often misleading when contractors are treated like full-time employees in practice.

Misclassification Risks and Compliance Exposure

Worker classification rules vary significantly by country, but most jurisdictions assess factors such as:

• Level of control over work hours and methods
• Exclusivity of the working relationship
• Integration into internal teams and processes
• Length and continuity of engagement

If a contractor operates like an employee, authorities may reclassify them retroactively. Misclassification can result in back taxes, penalties, unpaid benefits, interest charges, and legal disputes - costs that often exceed any initial savings.

When Full-Time Employment Makes More Sense

For core engineering roles, long-term product development, or positions that require close collaboration and ownership, full-time employment is usually the safer and more sustainable option. While it involves more upfront compliance work, it provides clarity, stability, and better alignment with long-term growth.

Cost Considerations Beyond Salary

When comparing contractors and employees, companies should evaluate total cost - not just hourly or monthly rates. Hidden costs such as legal risk, turnover, knowledge loss, and inconsistent availability often make contractor-heavy engineering teams more expensive over time.

Key Compliance Requirements When Hiring Remote Software Engineers

Employment Laws Vary by Country

When hiring software engineers across borders, compliance starts with understanding that employment law is country-specific. Each jurisdiction defines its own rules around employment contracts, probation periods, termination, working hours, overtime, and employee protections. What is legal in one country may be invalid or unenforceable in another.

For example, some countries require written contracts in the local language, others mandate fixed-term contract limits, and many impose strict termination and severance rules. Ignoring these requirements can invalidate contracts or expose companies to legal claims.

Mandatory Employment Contracts and Clauses

Most countries require employment contracts to include specific clauses, such as:

• Job title and scope of work
• Compensation and payment frequency
• Working hours and overtime rules
• Notice periods and termination conditions
• Confidentiality and intellectual property provisions

Using generic or home-country contracts is a common mistake that can lead to compliance gaps, especially for engineering roles involving IP ownership.

Tax Registration and Employer Obligations

Hiring full-time remote engineers typically triggers employer tax responsibilities in the employee’s country. These may include:

• Income tax withholding
• Social security or national insurance contributions
• Employer payroll taxes
• End-of-year tax reporting

Failure to register correctly or withhold taxes accurately can result in audits, fines, and retroactive liabilities.

Statutory Benefits and Paid Leave

Software engineers are often entitled to mandatory benefits under local law, such as:

• Paid vacation and public holidays
• Sick leave and parental leave
• Pension or retirement contributions
• Health insurance or social coverage

These benefits must be reflected in payroll and employment agreements. Omitting or miscalculating them is a frequent compliance violation.

Data Protection and IP Considerations

Engineering teams regularly handle sensitive data and intellectual property. Compliance also includes:

• Data protection requirements (such as local privacy laws)
• Secure handling of employee and customer data
• Clear IP ownership clauses aligned with local law

In some countries, IP ownership does not automatically transfer to the employer without specific contractual language.

Why Compliance Gets Harder at Scale

As engineering teams grow across multiple countries, compliance complexity increases exponentially. Tracking regulatory changes, managing payroll filings, and maintaining compliant documentation across jurisdictions becomes difficult without centralized systems and local expertise.

The True Cost of Hiring Remote Software Engineers

Base Salary by Region

The most visible cost when hiring remote engineers is salary, but it varies widely by region, experience level, and specialization. While senior engineers in North America or Western Europe command premium compensation, equally skilled engineers in other regions may have lower salary expectations due to local market conditions and cost of living.

Remote hiring allows companies to align pay with regional benchmarks rather than a single global standard, creating more sustainable compensation structures without compromising talent quality.

Employer Taxes and Social Contributions

Beyond salary, employers are responsible for country-specific payroll taxes and social contributions. These costs can add anywhere from 10% to over 30% on top of gross salary, depending on the country. Common employer obligations include social security, unemployment insurance, healthcare contributions, and pension funding.

Failing to account for these costs upfront is one of the most common budgeting mistakes when hiring remote engineers.

Statutory Benefits and Leave

Mandatory benefits such as paid vacation, sick leave, parental leave, and public holidays are legally required in most countries. While these benefits improve employee satisfaction and retention, they also represent a real cost that must be factored into total compensation.

Some countries also require additional benefits such as meal allowances, transportation stipends, or private insurance coverage.

Payroll, Currency, and Banking Costs

Managing payroll across borders introduces additional expenses, including:

• Payroll processing fees
• Currency conversion and FX spreads
• Cross-border payment fees
• Local banking requirements

These costs are often fragmented and difficult to track without centralized payroll infrastructure.

Hidden and Long-Term Costs

Beyond direct payroll expenses, companies should account for hidden costs such as:

• Compliance audits and legal advice
• Contractor misclassification penalties
• Turnover and rehiring costs
• Productivity loss during onboarding

When these factors are included, the cheapest hiring option on paper is not always the most cost-effective long-term solution.

How to Hire Remote Software Engineers Without Setting Up Local Entities

Why Local Entity Setup Is Often Impractical

Setting up a legal entity in another country is expensive, slow, and complex. It typically requires local legal counsel, registration with tax authorities, opening local bank accounts, ongoing accounting, and continuous compliance monitoring. For companies hiring one or a small number of remote software engineers, this overhead rarely makes financial or operational sense.

Entity setup also creates long-term commitments. Even if a role changes or the market no longer justifies hiring in that country, closing an entity can be time-consuming and costly.

Using an Employer of Record (EOR)

An Employer of Record allows companies to hire remote software engineers legally in other countries without establishing a local entity. The EOR becomes the legal employer on paper, while the company manages the engineer’s day-to-day work, responsibilities, and performance.

Through this model, the EOR handles:

• Locally compliant employment contracts
• Payroll processing and tax withholdings
• Statutory benefits and social contributions
• Employment law compliance and updates

This approach significantly reduces risk while enabling fast, compliant hiring.

Cost Predictability and Risk Reduction

Hiring through an EOR consolidates employment costs into a predictable structure. Instead of juggling legal fees, payroll vendors, and compliance consultants across countries, companies gain a single, centralized employment solution. This predictability is especially valuable for engineering teams that scale quickly or hire across multiple regions.

Faster Time to Hire

Because EORs already have legal infrastructure in place, companies can onboard remote engineers in days or weeks rather than months. This speed allows engineering teams to meet product deadlines and scale development capacity without delays caused by administrative setup.

When an EOR Makes the Most Sense

An EOR is ideal when:

• Hiring full-time remote engineers in new countries
• Scaling engineering teams across multiple regions
• Replacing contractors with compliant employment
• Testing new markets without long-term commitments

For most growing engineering teams, an EOR provides the best balance of speed, compliance, and cost control.

Best Practices for Hiring and Managing Remote Software Engineers Long-Term

Design Roles and Expectations for Remote Work

Remote engineering roles should be clearly defined from the start. Job descriptions must outline responsibilities, deliverables, collaboration expectations, and decision-making authority. Vague role definitions often lead to misalignment, duplicated work, or performance issues - especially across time zones.

Clear expectations around ownership, documentation, and code quality help remote engineers integrate smoothly and contribute effectively.

Build a Structured, Remote-First Onboarding Process

Effective onboarding is critical for remote engineers, particularly those joining from different countries. A strong onboarding process includes:

• Clear documentation of systems, architecture, and workflows
• Access to code repositories, tools, and environments before day one
• Defined onboarding milestones for the first 30, 60, and 90 days

Well-structured onboarding reduces ramp-up time and prevents early productivity loss.

Adopt Asynchronous Communication by Default

Distributed engineering teams cannot rely on constant real-time communication. Asynchronous workflows - supported by written updates, issue trackers, and documentation - allow engineers to work efficiently across time zones while maintaining alignment.

Meetings should be purposeful, recorded when possible, and supported by written summaries to ensure visibility for all team members.

Measure Performance by Outcomes, Not Hours

Remote engineers perform best when evaluated on results rather than time spent online. Clear goals, sprint deliverables, and measurable outcomes provide accountability without micromanagement. This approach also ensures fairness across regions with different working hours.

Invest in Security and Access Controls

Remote engineering teams require strong security practices. Companies should implement:

• Role-based access controls
• Secure authentication and device policies
• Clear IP ownership and confidentiality agreements

Security should be embedded into onboarding and reinforced regularly to protect codebases and sensitive data.

Support Career Growth and Retention

Remote engineers are more likely to stay long-term when they see clear growth paths and feel included. Regular feedback, learning opportunities, and transparent promotion criteria help retain top talent and reduce costly turnover.

Plan for Scalability Early

As remote engineering teams grow, ad-hoc processes break down. Standardizing hiring, onboarding, payroll, and performance management early helps teams scale smoothly without increasing operational complexity or compliance risk.

Final Thoughts: Hire Remote Software Engineers Without Compliance or Cost Surprises

Hiring remote software engineers can be one of the most powerful growth levers for modern companies - but only when it’s done correctly. While global hiring unlocks access to top engineering talent and meaningful cost efficiencies, it also introduces real risks around worker classification, local labor laws, taxes, payroll, benefits, and long-term scalability. Ignoring these factors often leads to hidden costs that outweigh the initial savings.

The most successful companies approach remote engineering hiring with a clear strategy: choosing the right employment model, understanding total cost beyond salary, embedding compliance from day one, and building systems that scale across countries. When compliance and cost planning are treated as foundational - not afterthoughts - remote engineering teams become faster, more resilient, and more cost-effective over time.

If you’re hiring remote software engineers across multiple countries, Toku’s Employer of Record platform helps you employ engineers compliantly, manage payroll and benefits, and control total costs - all without setting up local entities. Explore how Toku can support your global engineering team and help you scale with confidence, speed, and full compliance.

Frequently Asked Questions (FAQs)

Is it legal to hire remote software engineers in other countries?

Yes, it is legal - but only when done in compliance with local labor laws. Companies must follow country-specific rules around employment contracts, taxes, benefits, and worker classification. Hiring through compliant employment structures helps avoid legal risk.

Should I hire remote software engineers as contractors or employees?

Contractors can work for short-term or project-based needs, but long-term or core engineering roles usually require full-time employment. Misclassifying contractors as employees can lead to fines, back taxes, and legal disputes.

Do I need to set up a local entity to hire remote engineers?

Not necessarily. Companies can hire remote engineers without setting up local entities by using compliant employment models such as an Employer of Record, which acts as the legal employer in the engineer’s country.

How much does it really cost to hire a remote software engineer?

Total cost includes salary, employer taxes, statutory benefits, payroll fees, and compliance overhead. Depending on the country, employer costs can add 10–30% or more on top of gross salary.

How do I handle payroll and taxes for remote engineers?

Payroll and taxes must be processed according to the engineer’s local laws. This includes correct tax withholdings, employer contributions, and statutory filings. Centralized payroll systems or local employment partners help manage this complexity.

What are the biggest compliance risks when hiring remote engineers?

The biggest risks include worker misclassification, non-compliant contracts, incorrect tax filings, missing statutory benefits, and improper IP ownership clauses. These risks increase as teams scale across countries.

How can I scale a remote engineering team safely?

Scaling safely requires standardized hiring processes, compliant employment structures, centralized payroll, clear documentation, and strong performance management systems. Planning for compliance and cost early prevents issues later.

Ready to hire remote software engineers compliantly?

Toku's Employer of Record platform handles employment contracts, payroll, benefits, and compliance in 150+ countries - so you can focus on building your product. 

‍Talk to our team to see how Toku simplifies global hiring.