Staff Augmentation vs EOR vs Direct Hire: What Growth-Stage Startups Need to Know

You need to hire engineers outside the US. Maybe it’s five this quarter to hit a product milestone, maybe it’s fifteen over the next year to build out an entire engineering organization. The question isn’t whether to do it – the math on nearshore LATAM talent is settled. The question is how.

Three models dominate: staff augmentation, employer of record (EOR), and direct hire through your own foreign entity. Each has a fundamentally different cost structure, speed profile, and set of operational trade-offs. And if you’ve been burned by traditional staff aug’s hidden markups and body shop dynamics, you’re right to be skeptical – but the model has evolved, and the newer cost-plus approach changes the economics entirely. Most growth-stage CTOs don’t have time to learn all three the hard way – by the time you realize you picked the wrong model, you’ve lost a quarter.

This guide breaks down exactly how each model works, what it costs with real numbers, and when each one makes sense. If you’re a Series A or B CTO deciding how to scale your engineering team internationally, this is the decision framework.

The short answer: For most growth-stage startups, cost-plus staff augmentation is the fastest and most cost-effective way to build a LATAM engineering team. EOR is a narrow tool for leadership hires who want formal employment in a country where you don’t have an entity. Direct hire gives you maximum control but requires significant upfront investment, and employer-side statutory costs often eliminate the expected savings. Staff augmentation handles sourcing, compliance, and management in one relationship – the others leave those problems with you.

What’s the Difference Between Staff Augmentation, EOR, and Direct Hire?

These are structurally different approaches to the same problem. The differences matter more than most founders realize until they’re already committed.

A note on the Staff Augmentation column: The table shows both traditional and more modern/cost-plus models because the differences between them are significant – affecting pricing, transparency, retention, and the talent you can attract. Remotely is an example of the modern cost-plus approach. We break down the two models in detail below.

How to read this table: No model is universally best. Staff augmentation optimizes for speed and managed complexity. EOR optimizes for compliance when you already have the talent. Direct hire optimizes for maximum control – but requires significant upfront investment, and the expected cost savings often don’t materialize once employer-side statutory obligations are factored in.

When to Use Staff Augmentation

Staff augmentation is the right model for most growth-stage startups building engineering teams internationally – but only if the pricing model is right.

Let’s be direct: traditional staff augmentation has earned its bad reputation. Hidden markups where the agency pockets 40-75% of what you pay. Developers assigned to you, not matched. Project-based thinking instead of team building. No visibility into what anyone earns. And a structural incentive for the agency to maximize the spread between your cost and the developer’s pay – which means the people doing your most critical work are systematically underpaid. If that’s been your experience with staff aug, the skepticism is warranted.

The problem isn’t the model. It’s how most providers execute it. The structure of staff augmentation – a partner that handles sourcing, vetting, compliance, and employment so you can focus on product – is the right structure for scaling engineering teams internationally. What breaks it is the markup pricing model and the body shop dynamics that come with it.

A cost-plus model changes the equation. When the developer’s salary and the management fee are separate and visible – when you set compensation, control raises, and the staffing partner earns a flat fee instead of a hidden margin – the incentives align. The provider succeeds when the developer stays, not when they churn.

Use staff augmentation when:

• You need to add 3+ engineers in the next 30-60 days and don’t have a candidate pipeline in the target region
• You want developers embedded as long-term team members, not project contractors
• You don’t want to set up a foreign entity or manage international employment compliance
• You need a partner that handles the operational layer – contracts, payroll, equipment, PTO – on top of sourcing
• You’re a growth-stage startup where engineering bandwidth is too valuable to spend on recruiting logistics

There’s also a talent pool advantage. In markets like Brazil – the largest source of engineering talent in LATAM – senior engineers often prefer to contract through their own business entity for significant tax benefits. A modern staff aug provider’s contractor model aligns with this preference, giving you access to talent that may actively avoid formal employment arrangements.

The trade-off: You’re paying a management fee on top of the developer’s compensation. In a cost-plus model like Remotely’s, that’s a flat monthly fee per developer – transparent and predictable, with volume pricing for larger teams.

When to Use an EOR

An EOR makes sense when you’ve already found someone – typically a leadership or strategic hire who wants a formal employment agreement – and just need a compliant way to employ them in their country.

The core value proposition is compliance infrastructure. The EOR becomes the legal employer on paper – handling payroll, taxes, benefits, and labor law compliance in the developer’s country.

Use an EOR when:

• You’ve identified a specific person and want to hire them in a country where you don’t have a legal entity
• You need a single hire in a specific country, not a team-scale engagement
• The person is a leadership hire or critical role where you want a formal employment relationship with full local benefits
• You already have strong people management practices and don’t need operational support beyond compliance

The trade-off: An EOR doesn’t find talent for you. You need your own sourcing, and that’s more expensive than most companies expect. Either you hire an in-house recruiter who knows the local market, or you pay an external recruiting agency 15-25% of first-year salary as a placement fee. You also manage the person entirely: performance reviews, career growth, retention, and day-to-day management are on you.

There’s a talent pool constraint, too. An EOR requires a formal employment relationship. But in markets like Brazil, many senior engineers prefer to work as contractors through their own business entity because the tax advantages are substantial.

EOR pricing is higher than the headline number suggests. Major providers like Deel, Remote.com, and Velocity Global advertise base rates around $599 per employee per month. But the base fee is just the starting point. On top of that, expect onboarding and offboarding fees, currency conversion markups, country-specific surcharges, and separate charges for benefits administration. You also pay full employer-side statutory costs: social security contributions, 13th-month salary, vacation bonuses, and severance accruals that can add 30-40% or more to the base salary.

Watch out for: Assuming EOR = “easy international hiring.” The EOR removes the compliance problem but not the sourcing problem, the management problem, or the retention problem.

When to Hire Directly (Own Entity)

Direct hire through your own foreign entity makes sense when you’ve committed to a long-term presence in a single country and the headcount justifies the infrastructure investment.

The core value proposition is maximum control. Once the entity is set up, there are no management fees or EOR fees – each hire costs their salary, benefits, and employer-side statutory obligations. The entity overhead per person decreases at scale, but employer-side statutory costs don’t – and in countries like Brazil, where employer contributions add 30-40%+ to base salary, those costs alone can exceed the management fee of a cost-plus staff aug model.

Use direct hire when:

• You have (or plan to have) 10+ employees in a single country
• You’re committed to a multi-year presence in that market
• You have or are willing to hire local HR, legal, and accounting support
• You want full control over the employment relationship, benefits design, and workplace policies
• You’ve modeled total cost including employer-side statutory costs against staff aug fees over a 3-5 year horizon, and it still makes sense

The trade-off: Entity setup is slow and expensive. Registration in most LATAM countries takes 4-12 weeks and costs $15,000-50,000 (Mexico alone runs $16,000-30,000). Annual maintenance runs $10,000-30,000. You also take on compliance liability. And in markets like Brazil, requiring formal employment can work against you at the senior end of the talent pool.

Watch out for: Setting up an entity for fewer than 10 people. The fixed costs don’t amortize well at small scale.

How Your Hiring Model Should Evolve as You Scale

Most growth-stage companies start with one model and evolve over time – but the key word is evolve, not layer. Running multiple employment models in parallel in the same country creates legal and compliance risk, particularly around worker misclassification. If you set up an entity in Brazil, for example, having contractors in that same country alongside formal employees invites scrutiny from local labor authorities.

The typical evolution for growth-stage startups:

1. Start with staff augmentation. You need engineers fast, you don’t have a LATAM pipeline, and you can’t afford to spend a quarter setting up an entity. A staff aug partner delivers matched candidates in days, handles all the operational complexity, and lets you focus on product. This is where most Series A and B companies begin – and for many, it’s where they stay.

2. Consider an EOR for a leadership hire who wants formal employment. Your VP of Engineering knows a senior engineering manager in Argentina who wants an employment agreement, not a contractor arrangement. You don’t need sourcing help, just a compliant way to employ them. An EOR handles the compliance layer for that specific role, though the all-in cost is higher than the ~$599/month base fee suggests.

3. Set up an entity only when control justifies it – and plan to transition. When you hit 10+ employees in a single country and plan to keep growing there, the entity overhead per person becomes manageable. But factor in employer-side statutory costs before assuming it’s cheaper than staff aug. If you do set up an entity, plan to transition your existing contractors in that country to direct employment rather than running both models side by side.

Transitions happen naturally. Some Remotely customers start with staff augmentation and later convert specific long-tenured developers to direct employment. The cost-plus model makes this clean – you already control compensation and have a direct relationship with the developer, so the transition is a change in employment wrapper, not a change in the working relationship.

Cost-Plus vs Markup: How Staff Augmentation Pricing Works

Not all staff augmentation is the same. The pricing model determines almost everything about the relationship – your control, your visibility, and your developers’ likelihood of staying.

Why this distinction matters

This isn’t a minor pricing difference. It’s a structural difference that affects retention, team quality, and total cost.

Here’s what the markup model looks like in practice:

“I just lost one of my engineers because they were severely underpaying him, and that came to light, and it’s a terrible mess… we were paying $9,800/mo and he was making $2,500.”

That’s a 74% markup – hidden from both the client and the developer. The developer left. The client found out why only after it was too late.

The cost-plus model eliminates this misalignment entirely. When you control compensation and the fee is a flat, visible line item, there’s no spread to hide. The incentive for everyone – you, the developer, and the staffing partner – is to make the relationship work long-term.

How Much Does Staff Augmentation, EOR, and Direct Hire Cost?

Pricing claims are easy. Numbers are harder to argue with. Here’s what each model actually costs for a common scenario: hiring a senior full-stack engineer from LATAM at $80,000/year in compensation.

Reading the numbers

EOR looks cheapest on paper – if you already have the candidate. The moment you add sourcing costs, the gap closes significantly. And there’s no management support included.

Traditional staff aug is the most expensive model at any scale, and you get the least transparency for your money.

Cost-plus staff aug lands in the middle on price but includes the most services: sourcing, vetting, matching, compliance, payroll, equipment, PTO management, and ongoing retention support.

Direct hire is an investment – and the return is less clear than it looks. Year 1 costs are the highest because of entity setup. By year 2-3, the entity overhead per person drops – but employer-side statutory costs don’t amortize. In high-statutory-cost countries like Brazil, those per-person costs can exceed a cost-plus staff aug management fee. A modern staff aug provider’s contractor structure avoids these employer-side obligations entirely.

How to Choose: A Decision Framework by Company Stage

Series A (25-100 employees, 10-30 engineers)

Priority: Speed. You can’t afford 3-month hiring cycles or ops overhead that distracts your engineering leadership.

Best fit: Staff augmentation for the core engineering team. EOR only if you have a leadership hire who specifically wants a formal employment agreement.

Don’t: Set up a foreign entity. The headcount doesn’t justify the fixed cost.

Series B (50-200 employees, 15-50 engineers)

Priority: Scaling with quality and predictability.

Best fit: Staff augmentation as the primary scaling engine. EOR only for leadership hires who want formal employment. Start evaluating entity setup if you have 8+ people concentrated in one country.

Key question: How much operational overhead can your team absorb?

Series C+ (200+ employees, 50+ engineers)

Priority: Optimization.

Best fit: Entity in your primary LATAM country, with a plan to transition existing contractors to direct employment. Staff augmentation remains the right tool for new markets. Avoid running both models in the same country – it creates misclassification risk.

Key question: What’s the total cost of your current model – including hidden costs of management time, recruiter fees, and turnover?

What to Look for in a Staffing Partner

If staff augmentation is the right model for your stage, the next question is which partner.

Evaluate these criteria:

• Pricing model: Cost-plus or markup? If they won’t tell you what the developer earns, that’s your answer.
• Talent sourcing speed: How fast from role opening to matched candidates? Remotely’s target is 48 hours.
• Talent quality signals: How are developers vetted? An 80% interview rate indicates strong matching.
• Your control over hiring: Do you choose the candidates, or does the agency assign them?
• Post-hire support: Does the provider handle compliance, payroll, equipment, and PTO?
• Retention infrastructure: Does the provider actively monitor engagement and run retention check-ins?
• Compensation control: Can you set salaries, give raises, award bonuses, and offer equity directly?
• Contract structure: Project-based or long-term? Long-term contracts attract missionaries who invest in your product.
• Replacement guarantee: What happens if a developer doesn’t work out in the first 90 days?
• Platform and visibility: Is the engagement managed through a tech platform with real-time visibility?
• Scalability: Can they support 3 engineers today and 25 next year?

Frequently Asked Questions

What is staff augmentation?

Staff augmentation is a hiring model where a third-party provider sources, vets, and employs engineers who embed in your team as long-term members. Unlike outsourcing (where an agency delivers a project), staff augmentation puts developers under your day-to-day management – they join your standups, your Slack channels, and your sprint planning. The staffing partner handles the operational layer: contracts, compliance, payroll, and (in the best models) ongoing management support. For growth-stage startups, staff augmentation is the fastest way to scale an engineering team without building international employment infrastructure.

What is an EOR (Employer of Record)?

An EOR is a company that legally employs someone in a foreign country on your behalf. The developer works for you day-to-day, but the EOR is the entity of record with the local government – handling payroll, tax withholding, benefits, and labor law compliance. Major EOR providers like Deel, Remote.com, and Velocity Global charge ~$599 per employee per month as a base fee, with additional costs for onboarding, currency conversion, and country-specific surcharges. The key distinction: an EOR is employment infrastructure, not a hiring service. You still need to find, interview, and select the talent yourself.

How much does staff augmentation cost compared to EOR and direct hire?

For a senior LATAM engineer at $80,000/year: cost-plus staff augmentation (like Remotely) runs the developer’s salary plus a flat monthly management fee that varies by team size. A traditional markup-based staff aug provider charges $140,000-180,000/year for the same developer. An EOR costs $90,000+/year if you already have the candidate ($80K salary + base EOR fees + add-on costs), but add $12,000-20,000 if you need a recruiter with local market expertise. Direct hire through your own entity costs $95,000-120,000/year in steady state – but $127,000-190,000 in year one when you include entity setup. Each model includes different levels of operational support, so the headline cost doesn’t tell the full story.

Should I use staff augmentation or hire directly?

For most growth-stage startups, staff augmentation is the better starting point. It’s faster (days vs months), handles compliance and management overhead, and scales without requiring entity setup. There’s also a talent pool factor: in markets like Brazil, senior engineers often prefer contractor arrangements for tax efficiency, and staff augmentation’s contractor structure aligns with that preference. Direct hire eliminates management fees at scale (10+ employees in one country) but adds employer-side statutory costs that can offset the savings – especially in countries like Brazil. It also requires significant upfront investment: entity setup ($20,000-50,000), local legal and accounting ($5,000-15,000/year), and internal HR infrastructure – and formal employment may be less attractive to the strongest senior talent. For most growth-stage startups, staff augmentation is the right model – and for many, it stays the right model even at scale.

What’s a cost-plus model in staff augmentation?

In a cost-plus model, the developer’s salary and the staffing partner’s fee are separate and visible. You set the developer’s compensation directly – salaries, raises, and bonuses all flow 100% to the developer. The staffing partner charges a flat monthly management fee on top (with volume pricing for larger teams) for sourcing, compliance, payroll, equipment, and ongoing support. Compare this to the traditional markup model, where the agency charges a blended rate and the developer’s actual pay is hidden. The difference between what you pay and what the developer earns is the agency’s margin – and neither party knows what it is. Cost-plus eliminates that opacity.

Can I convert a staff augmentation contractor to a direct hire?

Yes. This is a common path, especially as companies mature. Many Remotely customers start with staff augmentation to scale quickly, then convert specific long-tenured developers to direct employment once they’ve set up a local entity. In a cost-plus model, the transition is straightforward – you already control compensation and have a direct relationship with the developer, so it’s a change in employment structure, not in the working relationship. Remotely’s non-solicitation terms are structured on a declining scale based on tenure, making conversion progressively easier over time.

Do I need an EOR if I use staff augmentation?

No. A staff augmentation provider handles the employment and compliance layer as part of the service. The developer is employed by the staffing partner (or their local entity), not by you – so there’s no need for a separate EOR. You’d only need an EOR for roles where you’re hiring someone outside of your staff aug partner’s scope – for example, a non-engineering leadership hire in a country where neither you nor your staffing partner has an entity.

Which model is best for a Series A startup?

Staff augmentation – specifically cost-plus – for most engineering roles. Series A startups need to hire fast (days, not months), don’t have international employment infrastructure, and can’t afford to lose CTO time to compliance and payroll logistics. Staff augmentation bundles sourcing, vetting, compliance, and management into a single relationship, letting your technical leadership focus on product. If you have a leadership candidate who specifically wants a formal employment agreement, an EOR is the right tool for that individual role. Don’t set up a foreign entity at this stage – the headcount doesn’t justify the investment, and the time-to-first-hire is too slow for a company that needs to ship.

What’s the fastest way to scale a remote engineering team?

Cost-plus staff augmentation. A strong provider delivers matched candidates within days, handles compliance and payroll from day one, and scales with you – from 3 engineers to 50+ without requiring entity setup, EOR contracts, or in-house HR infrastructure. The alternatives are slower by design: EOR requires you to source your own candidates (weeks to months), and direct hire through a foreign entity requires 4-12 weeks just for registration before you can make your first offer. For growth-stage startups where engineering velocity is the constraint, staff augmentation removes the operational bottleneck and lets your technical leadership focus on product instead of hiring logistics.

Is staff augmentation the same as outsourcing?

No. Outsourcing means handing a project or function to an external team that manages itself – you define the deliverable, they figure out how to build it. Staff augmentation is the opposite: developers embed in your team, under your day-to-day management, attending your standups and working in your codebase. They’re functionally indistinguishable from an in-house hire except that the staffing partner handles the employment wrapper – contracts, compliance, payroll, and (in the best models) ongoing retention support. The distinction matters because outsourced teams optimize for the deliverable, while augmented engineers optimize for your product and your engineering culture.

The right model isn’t about which one is “best” – it’s about which one fits where you are right now and where you’re headed. For most growth-stage startups, cost-plus staff augmentation is the fastest, most transparent way to build and scale a LATAM engineering team. As your company matures, you may transition specific teams to direct employment – but that’s an evolution, not a starting point.

If you’re evaluating staff augmentation, see how Remotely’s cost-plus model works in practice.

Related reading: Nearshore talent platforms compared | Transparent staffing marketplaces