First Person Hands and Gun Overlay Position Question

I understand how to set up the overlay camera's settings such as clear flags and culling, and I know how to set up the hand and gun overlay relative to the camera. The problem is that I don't know where to put the whole camera-overlay setup relative to the player. I'm developing an online first person game, so the overlay setup must be hidden from other players.

Should I accomplish this by placing the setup far away from the play area within the scene, or should I place them near or even attached to the player but within an invisible 'overlay' layer?

Furthermore, is this even the correct way of setting up the hands overlay? Is it better to model the player as a whole and place the camera in such a position that it can render the arms of the model? If I need to rethink the whole process, please let me know.

I'm sure there's a standard way to accomplish this as it's done in every first person shooter game, and I would appreciate knowing what that standard way is. Thanks in advance!