TL;DR: An employer of record (EOR) can employ and pay your international teammate, but it does not automatically make a US equity plan or intellectual-property assignment work abroad. Treat cash compensation, equity, and IP as three connected workstreams. Confirm award eligibility and local tax before the grant, and confirm the chain of IP ownership in the local employment agreement before work begins.
Startups use equity to make an international employee feel like an owner. The intent is good. The execution often stops at copying the US offer-letter sentence that says “subject to board approval.”
That sentence does not answer four important questions:
- Is the person eligible for the intended award type?
- Can the company legally offer the award in the employee's country?
- When is it taxed, and does payroll withholding apply?
- Does the employment agreement move the employee's work and inventions to the company correctly?
The EOR should be part of the review, but the startup remains responsible for its equity plan, capitalization records, board approvals, securities compliance, and the rights it wants to own.
Cash, equity, and IP are separate
| Workstream | Core document | Primary owner |
|---|---|---|
| Salary and benefits | Local employment agreement and payroll records | EOR with the startup's approved terms |
| Equity | Equity plan, board approval, and grant agreement | Startup and its equity counsel |
| Intellectual property | Employment IP and confidentiality terms, plus any required assignment | Startup, EOR, and local counsel |
They must agree. The employment agreement should not promise an equity type the plan cannot grant, and the grant should not use a termination definition that conflicts with the employment structure.
The first equity question: what are you granting?
Common startup awards include:
- Incentive stock options (ISOs)
- Nonqualified stock options (NSOs)
- Restricted stock
- Restricted stock units (RSUs)
- Phantom equity or cash-settled appreciation rights
Do not default an international EOR employee to the same award used for a US payroll employee.
Under Section 422 of the US Internal Revenue Code, ISO treatment generally requires the individual to be an employee of the corporation granting the option or a qualifying parent or subsidiary. An employee of an unrelated EOR may not fit that chain. That is one reason international EOR employees are often considered for NSOs or another structure, but counsel must decide based on the plan and facts.
Losing ISO eligibility does not mean equity is impossible. It means the label, tax treatment, and documents must be correct.
US securities rules are only one layer
For a private US company, SEC Rule 701 can exempt certain compensatory securities issued to employees, consultants, and advisers from federal registration. The rule has eligibility, volume, and disclosure conditions, and securities remain restricted.
Rule 701 does not eliminate the employee's local securities, exchange-control, prospectus, translation, works-council, or filing rules. The employee lives in another jurisdiction. Review that country's requirements before the board approves or communicates the grant.
Tax can arise before the employee sells
Depending on country and award, tax can arise at:
- Grant
- Vesting
- Exercise
- Settlement
- Sale
- A later remittance of proceeds
The taxable value, tax rate, social contributions, reporting, and withholding party also vary. In some countries, the EOR may need information from the startup before payroll cutoff to withhold or report equity income.
Ask these questions before the grant:
- Which event creates taxable income?
- Is the income employment income, capital gain, or both at different stages?
- Must the EOR withhold tax or social contributions?
- How will the startup fund or collect any withholding?
- Does the employee need to file an election or notice by a deadline?
- Which valuation supports the taxable amount?
- Are foreign-exchange or money-remittance restrictions relevant?
Do not tell an employee an award is “tax free until sale” unless country counsel has confirmed it.
Make vesting and termination definitions work
An EOR introduces more than one commercial relationship. Your plan and grant should define service consistently enough to handle:
- The employee moving from one EOR to another
- The startup opening its own local subsidiary
- A temporary break between legal employers
- Garden leave or paid notice
- Termination by the startup versus formal termination by the EOR
- Disability, death, leave, or long absence
- The post-termination exercise window
A provider switch should not accidentally stop vesting if the employee's continuous service was meant to continue. The opposite matters too: vesting should not continue indefinitely because the EOR paperwork closes after the person stopped providing services.
Coordinate the equity-system service date with the formal employment timeline and document any board-approved treatment.
IP ownership is country-specific
The sentence “all work belongs to the company” is not a global IP strategy.
Countries differ on:
- Who initially owns employee inventions
- Which inventions relate closely enough to employment
- Whether the employee must disclose an invention
- Whether a written assignment is required
- Whether the employee is owed additional remuneration
- Whether moral rights can be waived
- Whether future inventions can be assigned in advance
- Whether copyright and patent rights follow different rules
WIPO's review of employee-invention systems notes significant differences between national approaches. Its Germany materials, for example, describe mandatory employee-invention rules that cannot simply be contracted away.
For EOR employment, ask counsel to confirm the complete chain:
employee creates work
-> rights vest in or are assigned to the legal employer as local law permits
-> the legal employer assigns or licenses the rights to the startup
-> the startup can prove the chain during diligence or a sale
Do not rely on an unsigned side letter between the startup and employee if the local employment agreement points somewhere else.
The IP schedule founders forget
Before work begins, ask the employee to identify:
- Prior inventions and code
- Existing open-source projects
- Work owned by a former employer or client
- Academic or government-funded research obligations
- Reusable tools they intend to keep using independently
- Open-source licenses expected in the product
The goal is not to claim everything the employee has ever created. It is to draw a clean boundary around company work and avoid discovering a conflicting obligation during financing or acquisition diligence.
A practical pre-grant checklist
Equity
- Confirm the person is eligible under the plan.
- Choose the award type with US and local tax counsel.
- Obtain required board approval.
- Check Rule 701 and local securities requirements.
- Confirm valuation and exercise currency.
- Document tax and payroll reporting responsibilities.
- Align vesting and termination definitions with the EOR lifecycle.
- Give the employee the real grant agreement, not only an offer-letter promise.
Intellectual property
- Use locally reviewed employment IP language.
- Confirm the EOR-to-startup assignment or license.
- Address employee-invention notice and remuneration rules.
- Separate prior inventions and open-source work.
- Define confidential information and permitted disclosures.
- Preserve executed documents and later assignments.
What Shor handles
Shor handles the local EOR employment agreement, payroll, statutory contributions, required benefits, payslips, and employment lifecycle in supported countries. The startup remains the issuer of its equity and owns its cap table, board approvals, plan administration, valuation, and securities advice.
Tell Shor about an intended equity grant before the employment agreement is finalized so the documents and payroll process can be checked for conflicts. Do not assume the monthly EOR fee includes equity-plan administration or country securities advice.
FAQ
Can an EOR employee receive stock options? Often yes, but the eligible award type, securities exemption, tax treatment, withholding, and documents depend on the plan and employee's country. Confirm before granting.
Can an EOR employee receive US incentive stock options? ISO treatment generally requires employment by the grantor or a qualifying parent or subsidiary. Because an unrelated EOR is the legal employer, ISO eligibility can be a problem. Ask equity counsel whether an NSO or another award is appropriate.
Who withholds tax on an international equity award? It depends on local law, award type, and taxable event. The EOR may have payroll obligations, but it needs timely grant, vesting, exercise, valuation, and settlement data from the startup.
Does the EOR own the employee's intellectual property? The answer depends on the local agreement and law. Confirm how rights arise or are assigned to the legal employer and how they then reach the startup. Preserve evidence of the full chain.
What happens to equity when we switch EOR providers? The startup's plan and board-approved terms control, but the employment transition can affect service dates, vesting, tax, withholding, and exercise windows. Coordinate the old EOR, new EOR, equity administrator, and counsel before the transfer.