An Employer of Record (EOR) is a third-party organisation that becomes the legal employer of your staff in another country. An EOR provider hires workers on your behalf, issues compliant employment contracts, runs payroll, manages taxes and social contributions, administers statutory benefits, and ensures full compliance with local labour laws.
Your business retains control over day-to-day work, performance expectations, culture and management: an EOR simply handles everything required to employ the individual legally in that location.
Companies use EOR services to hire international talent quickly, avoid the delays and costs of establishing a legal entity, and reduce compliance and employment-related risk. TopSource Worldwide’s in-country experts provide legal, payroll and HR support to ensure a compliant, seamless hiring experience.
How does an Employer of Record (EOR) work?
Instead of setting up your own legal entity, you use the EOR’s existing infrastructure in each country.
This means that, typically, your EOR service provider will be responsible for:
- Issuing locally compliant employment contracts
- Registering and employing your workers in line with local labour and tax rules
- Running payroll, tax withholding and social contributions
- Administering statutory benefits, holidays and other entitlements
- Maintaining records and supporting audits with local authorities
Meanwhile your company is still responsible for:
- Deciding who to hire and on what terms
- Setting role, salary, objectives and performance standards
- Managing day-to-day work, projects, culture and career development
Because the EOR already has local entities and in-country experts, you can start hiring in new markets in weeks rather than months, without the cost and risk of creating your own subsidiary.
Example: how an Employer of Record works in practice
Let’s imagine a US SaaS company wants to hire engineers in Brazil. Instead of opening a Brazilian entity, it partners with an Employer of Record. The engineers are legally employed by the EOR in Brazil but work exclusively for the SaaS business, which directs their work while the EOR manages contracts, payroll and compliance.
What services does an Employer of Record provide?
A global EOR provider manages every aspect of compliant international employment, including. This includes any and all of the following:
Legal employment & contract management
An EOR provider will assume responsibility for drafting, issuing and updating employment contracts and HR documents aligned with local labour laws.
Global payroll management
Employer of Record providers run payroll on your behalf, ensuring it’s accurate and on time. This includes salaries, bonuses, overtime, deductions and multi-currency payments.
Tax and social security compliance
An EOR is responsible for calculating, filing, and remitting all required taxes and social contributions to the correct authorities. This allows you to stay fully compliant with local tax and social security laws as you grow.
Statutory and optional benefits management
Many EOR providers will also advise on employee benefits, both statutory and optional.
This includes benefits such as:
- Health insurance
- Pensions
- Leave entitlements
- Allowances and other country-specific benefits.
Offering competitive benefits is essential for employee retention, so the best EOR providers should be able to offer you advice on how to find and source the most competitive benefits on behalf of employees in each market.
Visa and work permit support
When employees require visas or work authorisation, an Employer of Record will handle these immigration requirements on your behalf.
Onboarding and offboarding employees
Your Employer of Record will manage the key stages of the employee lifecycle when you hire in new countries. Again, they’ll work with you to ensure you’re compliant with employment law every step of the way.
When employees are first hired, your EOR will manage documentation, work contracts, equipment allowances. Similarly, when the contract comes to an end, your EOR will handle terminations, notice periods, final settlements and statutory exit processes.
Ongoing compliance monitoring
Staying aligned with global employment laws is an ongoing task, which is why the best EOR providers will track labour law changes and update employment, tax and payroll processes, ensuring you’re always keeping your workforce compliant.
HR data, reporting and audit support
An EOR will help you with your HR data and reporting needs, including securing HRIS access, consolidating payroll reporting, and preparing audit-ready records.
For instance, TopSource Worldwide delivers all of this through a combination of in-country experts and a centralised global platform.
How does an EOR reduce global employment risk?
Hiring workers overseas without local expertise exposes businesses to risks including misclassification, improper contracts, payroll errors, and labor law violations.
An Employer of Record minimizes these risks by:
- Using contracts that meet country-specific legal requirements
- Ensuring accurate payroll and statutory filings
- Administering the correct benefits and entitlements
- Maintaining compliant employee records
- Acting as the legal employer, reducing the client’s direct liability
- Monitoring regulatory changes and adapting procedures immediately
TopSource Worldwide’s legal and compliance teams track global labour laws daily to protect clients from penalties, disputes and reputational damage.
- Maintain records for local authorities and support audits.
TopSource Worldwide’s legal team monitors global labor law updates daily, ensuring your international workforce stays compliant and risk-free.
EOR vs PEO vs independent contractors: what’s right for my business?
Choosing between an Employer of Record (EOR), a Professional Employer Organisation (PEO) and independent contractors isn’t simply a matter of cost or speed. It’s a strategic decision shaped by your long-term goals, how much compliance risk you’re willing to carry, and whether you already have a legal presence in the country you want to hire in.
Before looking at trade-offs, it’s important to understand how each employment model differs and what that means for your business.
When should you use an EOR?
An Employer of Record is effectively a turnkey employment solution for countries where you don’t have a legal entity. For companies entering a new market for the first time — or testing whether a market warrants deeper investment — the EOR model removes nearly all administrative hurdles. It is a compliance-first route designed for speed and certainty.
An EOR is your best bet when your expansion goals are:
- Fast global hiring without establishing entities
- Reducing compliance and misclassification risk
- Testing new markets with small teams at scale.
When should you use a PEO?
A PEO only comes into play once you already have a legal entity in the country. It is not an alternative to creating a presence – think of it is a way of outsourcing the everyday HR operations of that presence.
The PEO co-employs your staff, handling payroll, benefits and administrative HR functions, but you remain the legal employer.
This model makes sense for organisations that are already committed to a market and want to reduce the internal overhead of running HR locally, rather than for businesses that are hiring internationally for the first time.
A PEO is your best option when you:
- Are looking for domestic or in-country HR outsourcing
- Have companies that already operate locally, and you need admin relief
- You’re trying to scale HR functions without adding internal headcount.
When should you hire independent contractors?
Contractors sit at the opposite end of the spectrum. They offer maximum flexibility and low upfront costs, which is why they are often used when companies are exploring a market or need specialist skills for short-term projects.
However, relying on contractors comes with a well-documented risk: if the contractor’s working relationship resembles employment (for example, set hours, close supervision, or integration into your core operations), local authorities may classify them as employees.
In many countries, misclassification penalties are significant, both financially and reputationally.
Contractors are your best course of action if:
- You’re hiring for project-based or specialised work
- You’re conducting early exploration of a new market
- You can foresee situations where flexibility is more important than control as you grow.
This means that, of the three main types of global hiring, contractors carry the most risk for your business. For example:
- You’re open to misclassification penalties if contractors behave like employees
- There is limited protection for the worker, leading to compliance scrutiny
- Contractors have less control over hours, processes and long-term availability
Global EOR vs local EOR: what’s the difference?
When businesses begin hiring internationally, one of the first questions they encounter is whether to work with a local EOR, i.e. a provider that operates in a single country, or a global EOR offering multi-country coverage.
Both models offer compliant employment, but the experience and strategic value can differ significantly depending on your plans.
A local EOR tends to specialize deeply in one market. They understand the nuances of that country’s labour laws, cultural expectations, benefits landscape and HR practices, often at a granular level that comes from years of operating in one jurisdiction.
The relationship is often hands-on and highly tailored, and the proximity to local authorities and advisory networks can be particularly helpful during onboarding or when navigating complex employment questions.
A local EOR tends to be better if:
- You’re looking for deep knowledge of one country
- You need support for small teams or a single-country expansion
- You’re seeking tailored local support
By contrast a global EOR, is built for organisations that expect their workforce to span multiple countries. Instead of managing different providers, different payroll systems and different compliance processes in each market, a global EOR consolidates everything into a single framework.
That means one point of contact, one platform for payroll and reporting, and one set of standards governing how employees are hired, paid and managed across all locations.
In short, a global EOR is best if you
- Want multi-country coverage under one provider
- Need to centralise payroll, reporting and governance
- Want to manage global teams at scale.
When is an EOR better than setting up a local entity?
Deciding whether to use an Employer of Record or establish a local entity is ultimately a question of timing, certainty, and scale. How sure are you that you will need a permanent presence in this country? How much will you be investing in your workforce? So when should you use an EOR and when should you set up a local entity?
When you should use an Employer of Record
An EOR is often the better choice when you are entering a market for the first time and don’t yet know whether it warrants long-term investment. It allows you to hire quickly, stay fully compliant, and avoid the upfront expense and administrative burden of incorporation, banking, tax registrations, local payroll setup and ongoing corporate governance. For many organizations, an EOR offers the flexibility and risk protection that early-stage expansion demands.
When you should set up a local entity
A local entity, on the other hand, becomes attractive only when your presence in a country is sufficiently established to justify it. If you are building a sizeable team, need full control over local HR policies, or require the operational footprint that only an entity can provide, the investment begins to make strategic sense.
Entities offer long-term stability and, at larger scale, can eventually be more cost-effective than relying on an EOR. But the administrative responsibilities are considerable, and they commit you to a market in a way that EOR hiring does not.
In practice, most companies don’t make a binary choice.
At TopSource, we see companies begin with an EOR to test the market and hire initial employees without delay.
Once the team grows, revenue proves consistent, or strategic priorities shift, the business may transition to a local entity, often with support from the same EOR provider to ensure a smooth handover. The EOR model gives organisations the freedom to expand at their own pace, while keeping the door open to deeper investment when the time is right.
What challenges do businesses face when using an Employer of Record?
While the Employer of Record model simplifies global hiring, it still requires thoughtful management to ensure the employment experience is smooth and aligned with your broader organisational goals.
Below are some of the most common challenges companies encounter and how experienced EOR partners help resolve them.
Understanding local labor market nuances
Every country has its own employment culture, both legally and socially.
Expectations around notice periods, benefits, probation, working hours, and even communication styles can vary dramatically. The challenge for businesses is that these nuances aren’t always written into legislation; much of what matters is shaped by local practice.
This is where the quality of your EOR partner becomes critical. An effective provider brings more than legal compliance; they bring context. In-country specialists can advise on what’s typical, what’s expected, and what might cause friction with employees or authorities.
Without that insight, organisations risk offering contracts or working arrangements that, while technically compliant, miss the mark culturally and damage the employee experience.
Meeting data privacy and security requirements
When employing internationally, you’re transferring sensitive personal information across borders, often into jurisdictions with strict data protection laws; for example GDPR in the UK and the EU, Digital Personal Data Protection Act (DPDP) in India and CCPA law in the state of California.
Businesses often underestimate how much data flows through an EOR arrangement: these include payroll details, tax identifiers, benefits information, performance documentation. The challenge lies in maintaining the confidentiality of that data while ensuring access for HR, finance and local authorities.
A reliable EOR partner will have robust encryption, audited security frameworks, and defined processes for data handling, retention, and access control across all markets. Anything less introduces risk. It’s vital you look for this as you assess providers.
Maintaining culture & engagement across an EOR workforce
An EOR hire is legally employed by a third party, but culturally they are your employee. The challenge is ensuring they feel included, recognised and aligned with your global team. This is particularly vital when your EOR hires are remote, distributed or operating in a different time zone.
This requires intention. Companies that succeed with EOR hiring weave these employees into their onboarding programmes, performance cycles, communication channels and cultural rituals.
The EOR partner manages the legal framework, but businesses must shape the day-to-day experience. Without this integration, employees employed via an EOR can easily feel peripheral, even when their work is central to the business.
Transitioning from an EOR to a local entity
For many organisations, the EOR model is a stepping stone: a way to enter a market quickly while evaluating long-term viability. The challenge comes when the decision is made to establish a local entity and transfer employment from the EOR to the new company.
This transition requires careful planning to avoid breaches of contract, redundancy liabilities or unnecessary disruption. A well-structured roadmap that’s created jointly with your EOR provide should cover timelines, new contracts, related to an employee, payroll handovers and employee communication.
The goal for HR managers here is continuity: employees should experience the transition as a simple administrative shift, not a disruption to their employment.
It’s not just employee communications that are important either. When the time comes to make the transition, you will need to ensure your EOR is sending the right statutory notifications in the countries where you’re hiring. These include any or all of the following:
- Registering the employee with tax authorities under the new employer
- Updating social security or pension agencies with the new employment details
- Notifying labor authorities of a change in employer (required in some jurisdictions).
- Submitting updated payroll information to government reporting systems
- Informing benefits or insurance providers where they are tied to statutory schemes.
Managing multi-country complexity at scale
Hiring one employee in one country may feel manageable. Hiring teams across multiple countries with their own unique laws, tax systems and payroll cycles can quickly become overwhelming without the right infrastructure.
The real challenge isn’t compliance alone; it’s coordination.
- Finance teams need consolidated payroll data
- HR needs unified reporting and leadership
- Needs visibility over headcount, cost and compliance status across markets.
This is where global EOR platforms come into their own. A single point of contact, standardised reporting, and centralised dashboards transform what could be a patchwork of providers and processes into a coherent, manageable system.
Without this structure, multi-country operations become slow, inconsistent and difficult to scale.
How do you choose the right Employer of Record provider?
Selecting an Employer of Record partner is one of the most consequential decisions a company makes when expanding internationally. The right provider becomes a strategic extension of your organisation; the wrong one creates risk, confusion, and hidden costs. Worse, they may even cost you time and money over time.
So as you assess providers, look at the following criteria.
Depth of in-country expertise
Coverage maps can be misleading. What matters is whether the provider truly understands the employment landscape in each country you plan to hire in.
Strong EOR partners have established local entities, specialists who know the law inside out, and teams who understand not just compliance but also cultural norms, benefits expectations and day-to-day HR practice.
When the first complex termination, benefits query, or government audit arises, this depth becomes far more valuable than the promise of “global coverage.”
Breadth & reliability of core services
On paper, most EOR providers offer the same services: payroll, contracts, benefits and compliance. In practice, the quality varies considerably.
The right provider handles the routine processes flawlessly, but is equally capable of supporting the unpredictable: advising on local regulations, navigating edge-case employment situations, responding to audits, or managing urgent changes in labour law.
A mature EOR behaves like a guardian of your compliance, not just an administrator of your payroll.
Technology, data & reporting
The best EOR provider should give you clarity, not complexity. As your international footprint grows, you’ll rely on accurate, consolidated data across all countries, including payroll reports, employee records, cost summaries and relevant compliance documentation.
Look for a provider with a secure, transparent platform rather than a patchwork of emails, spreadsheets or outsourced processes. Robust data protection frameworks, including GDPR-level controls, are essential when managing sensitive employee information across borders.
Track record, reputation & accountability
Global employment leaves no room for inexperience. An EOR’s real value becomes visible when something goes wrong: a compliance deadline is missed, an authority issues a new regulation, or an HR question requires immediate local clarity.
Look for documented performance, client references, long-term partnerships and a proven history of operating in the markets that matter to you. A strong provider is accountable, meaning they take responsibility for resolving issues, instead of passing them across a chain of subcontractors.
Transparent, sustainable & customizable pricing
EOR pricing models vary, but the key is transparency. Ultra-low fees often signal heavy reliance on third-party partners, limited support or gaps in compliance.
Conversely, premium pricing doesn’t always translate to premium service. What you want is a structure that is predictable, clearly defined, and reflective of the true scope of responsibility your provider assumes on your behalf.
An EOR should reduce risk, not expose you to unexpected costs later.
The ability to scale with your company’s growth
Your first hire in a country is rarely your last. A strong EOR partner can support you as you expand across multiple roles and regions, maintaining consistency in employment practices while adapting to each market’s nuances.
They should be able to grow with you, as you evolve from one or two employees to a whole team; as you mature from testing a market to establishing a full presence. And remember, the right partner will support that transition smoothly rather than resisting it.
Read our full article on the best Employer of Record providers if you’re evaluating vendors in 2026
How much does an Employer of Record cost?
Understanding the cost of an Employer of Record requires looking beyond the headline fee.
While most providers present their pricing as a simple monthly charge, what you’re really paying for is a bundle of legal, financial and administrative responsibilities that would otherwise sit with you or require you to build a local entity to manage them.
How EOR pricing typically works
Most EORs charge either a flat monthly rate per employee or a percentage of the employee’s gross salary.
The choice of model reflects how they distribute operational and compliance costs across different countries. Neither option is inherently better; what matters is whether the provider is clear about what the fee includes, and whether the services behind it are delivered consistently and accurately.
This fee generally covers the full employment infrastructure: local entity operation, compliant contract issuance, payroll processing, statutory filings, benefits administration, and routine HR support. When viewed against what it costs to build and maintain these capabilities yourself, the value becomes clearer.
How country and complexity affect cost
EOR pricing is not uniform across markets because employment laws, statutory benefits and payroll obligations vary dramatically between countries.
Some jurisdictions require extensive employer contributions or complex reporting; others are comparatively straightforward. Senior roles with extensive benefits, incentive plans or cross-border tax considerations may also carry higher administrative effort.
A strong EOR provider should be transparent about how geography and role complexity shape the final cost, rather than hiding these differences behind a single global rate.
How EOR costs compare to setting up a local entity
The real question you should ask when evaluating EOR costs is the following: will this save our business compared to the costs of a local entity?
Incorporation, legal counsel, tax registration, payroll setup, ongoing compliance filings, local representation and annual maintenance easily run into tens of thousands per country, often before a single employee is hired.
An EOR replaces that entire upfront investment with a predictable operational cost. For companies testing a market, hiring small teams, or entering several countries simultaneously, the savings in both time and money can be substantial.
How hidden EOR costs can emerge & how to avoid them
Not all EOR fees are created equal. Some providers keep base fees low but charge extra for essential services: contract amendments, onboarding support, terminations, HR queries, or benefits administration.
Others rely heavily on subcontractors, which can introduce inconsistent service quality and unexpected costs passed down the line.
The most reliable EOR partners will be explicit about what is included, what isn’t, and how pricing might change as you scale. Predictability is part of the value proposition; any ambiguity should raise questions.
Ultimately, an Employer of Record isn’t simply running payroll — it is absorbing legal liability, ensuring compliance with local authorities, and standing behind the employment relationship in each country.
Viewed through that lens, EOR cost is less about the price of administration and more about the cost of avoiding misclassification, non-compliance penalties, legal disputes, and costly market-entry delays.
Our advice? If you’re in the early phases of your international expansion and you’re considering an Employer of Record, think of it not as a cost, but as an insurance policy against risk.
Simplify your global hiring with TopSource's Employer of Record services
Ready to hire globally without setting up legal entities?
TopSource Worldwide provides fully compliant Employer of Record services across 180+ countries. Our local experts and global platform make it easy to onboard talent, manage payroll and stay compliant, wherever you want to hire & grow.
Head over to our Employer of Record page to learn more about how we can:
- Help you hire in over 160 countries without an entity
- Manage payroll, tax & employee benefits on your behalf.
- Advise you on your wider HR strategy and when to make the transition to a legal entity of your own.
Explore our Employer of Record services & learn more about the countries in which we operate.
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