Employer of Record (EOR)

What are Employer of Record (EOR) services?

Employer of record services are the legal employment, payroll and compliance functions a provider performs on a client’s behalf in a country where the client has no entity. The provider becomes the employer on paper; the client directs the work. The service normally covers the employment contract, payroll and statutory withholding, mandatory benefits, and ongoing employment-law compliance in that country.

What does an Employer of Record do?

An EOR takes on the legal employer’s duties in the hiring country: – Issues a locally compliant employment contract – Runs payroll in local currency and withholds income tax and social contributions – Administers statutory benefits, leave and pension obligations – Maintains statutory employment records and filings – Carries the employment and misclassification risk as the legal employer

What services does an Employer of Record provide?

The standard scope is employment contracting, payroll and tax withholding, statutory benefits administration, employment-law compliance and offboarding. Some providers add HR advisory, immigration support or benefits benchmarking on top of that core scope.

How does an Employer of Record (EOR) work?

The client selects a candidate and agrees the salary and terms. The EOR issues the employment contract in the hiring country and onboards the employee onto its local payroll. From then on, the EOR pays the employee, withholds and remits tax and social contributions, and invoices the client for the employment cost plus its fee. The employee works day to day under the client’s direction.

Why use an Employer of Record?

Companies use an EOR to employ someone in a country where they have no entity, to enter a market before committing to incorporation, or to retain an employee who has relocated. It removes the need to register a local entity, open a local payroll and maintain local filings.

Who uses an Employer of Record?

Companies hiring their first employee in a new country, companies testing a market before incorporating, companies with distributed teams across many countries, and companies inheriting employees in a jurisdiction where they have no entity, such as after an acquisition.

EOR vs setting up a legal entity

An EOR employs people in weeks with no local registration; an entity takes months and carries fixed corporate, accounting and filing costs. An entity is normally the better long-term structure once headcount and permanence in the market justify it.

If you do go down the entity route, our explainer on the foreign subsidiary covers how one is set up, what it costs and the compliance it carries.

Employer of Record (EOR) vs PEO

An EOR is the legal employer of the staff. A PEO co-employs alongside a client that already has its own legal entity in that country. The practical difference is whether you need an entity: an EOR means you do not.

EOR vs staffing agency

A staffing agency sources and supplies candidates. An EOR does not recruit it employs people the client has already chosen. The two are often used together.

Can you hire contractors through an EOR?

No. An EOR employs people on employment contracts. Engaging independent contractors compliantly is a separate arrangement see contractor of record.

Common questions

1. What challenges do businesses face when using an Employer of Record?

The common ones are limited control over contract terms set by local law, variation in service quality where a provider subcontracts to a local partner rather than using its own entity, permanent-establishment questions in some jurisdictions, and time limits on EOR use in a few countries.

2. When is an EOR better than setting up a local entity?

Generally when headcount in the country is small, when speed matters more than structure, or when the commitment to the market is not yet settled. Incorporation tends to win once the team is large enough that per-employee fees exceed the fixed cost of running an entity.

3. How does an EOR reduce global employment risk?

The EOR is the legal employer, so it holds the statutory obligations — correct classification, withholding, mandatory benefits, notice and termination process — in a jurisdiction whose employment law the client does not operate under.

4. Global EOR vs local EOR: what’s the difference?

A local EOR operates in one country. A global EOR employs across many countries under one contract and one point of contact. The material distinction between global providers is whether they own their entities in each country or subcontract to local partners.

5. EOR vs PEO vs independent contractors: what’s right for my business?

An EOR employs staff where you have no entity. A PEO co-employs where you already have one. Independent contractors are not employees at all and carry misclassification risk if the working relationship looks like employment. See EOR vs PEO for the full comparison.