What is an Employer of Record?

Expanding into new markets is an exciting opportunity, but it comes with significant challenges, especially when it comes to hiring and compliance. Unless you've worked with an Employer of Record (EOR) before, the concept might be unfamiliar. Even businesses that have used EOR services can find the various terminologies and nuances confusing.

An understanding of the function of an EOR is significant for a company that is planning to break out to foreign shores. The article is too steeped in discussion of how useful EOR service is to the businesses as far as helping them deal with international expansion.

What is an Employer of Record (EOR)?

An Employer of Record (EOR) solutions is a third-party provider that takes on the legal responsibilities of employing staff on behalf of a company. This includes managing payroll, taxes, employee benefits, and compliance with local labor laws. Essentially, an EOR becomes the official employer in a foreign country, while the client company retains full operational control over employees.

The rapid onboarding of employees by companies through the establishment of EOR services eliminates the need for a local branch or legal battles. Furthermore, the EOR helps ensure compliance with local law and offers HR support, facilitates personnel administration, and mitigates the risk associated with international hiring, among other services.

Some 2024 Global Workforce Trends report for their company shows that 74% of the businesses agreed that local labor law adherence is a big challenge when it comes to international expansion. Partnering with an EOR mitigates this risk and allows the hiring process to ease.

Why Do Businesses Use an EOR?

For companies expanding into new markets, an EOR provides a cost-effective and efficient alternative to setting up a legal entity. Here’s how EOR solution benefits businesses from a buyer’s perspective:

1. Rapid Market Entry

Setting up a local entity can take months, delaying business operations. An EOR allows companies to hire employees in new markets within days or weeks, ensuring a faster time-to-market. Businesses using an EOR can onboard international employees up to 90% faster than those establishing a legal entity.

2. Compliance and Risk Management

Employment laws differ significantly across countries, and non-compliance can lead to hefty fines and legal complications. An EOR ensures that all employees are hired in full compliance with local labor laws, tax regulations, and social security requirements. Research shows that 60% of global businesses struggle with compliance in foreign markets—an EOR helps mitigate these risks.

Additionally, studies indicate that misclassification of workers can result in penalties averaging $50,000 per employee. By using an EOR, businesses can avoid these costly mistakes.

3. Cost Savings on Legal and Administrative Fees

Setting up a legal entity comes with substantial costs, including registration fees, legal consultation, and ongoing administrative expenses. An EOR absorbs these responsibilities at a fraction of the cost. Companies leveraging EOR services have reported a 30% reduction in HR-related administrative costs.

4. Flexibility in Hiring

EOR provides a scalable solution for businesses looking to expand into new markets without committing to long-term entity setup. Companies can easily scale operations up or down depending on market conditions, reducing financial risks. A survey by the Global Payroll Association found that companies using EORs were able to scale operations 50% faster than those setting up a subsidiary.

5. Seamless Exit Strategy

If market conditions change, an EOR allows companies to scale down or exit a country without the costly and complex process of dissolving a local entity.

The Growing EOR Market
The Employer of Record (EOR) market has been growing rapidly as businesses increasingly rely on global employment solutions. According to an industry report, the global EOR market was valued at $5.83 billion in 2024 and is expected to reach $12.01 billion by 2030, with a steady compound annual growth rate (CAGR) of 10-20% over the next six years.

This growth is driven by the increasing demand for compliance solutions and workforce flexibility as companies expand globally.

EOR vs. Setting Up a Legal Entity

If your company plans for long-term operations in a foreign market, establishing a legal entity may eventually be a viable option. However, for businesses testing a new market, hiring a small workforce, or looking for a compliant and low-risk entry strategy, an EOR is the best solution.

Many companies begin with an EOR to establish a presence in a new market before transitioning to a legal entity once long-term viability is confirmed.

How Can TopSource Worldwide Help?

At TopSource Worldwide, we provide comprehensive EOR services that simplify global hiring, ensure compliance, and enable businesses to expand without barriers. Our expertise in international payroll, HR support, and tax compliance ensures that your business remains legally compliant while focusing on growth.

Ready to Expand Globally?

Navigating international hiring can be complex, but with TopSource Worldwide as your Employer of Record, you can expand with confidence. Get in touch today to learn how we can help your business enter new markets quickly and compliantly.