What Is An Employer Of Record? A Complete Guide

An Employer of Record (EOR) is a service that legally hires people for your business. It means you can grow your team or enter new markets without worrying about complex employment laws.

In this guide, we'll show you how an EOR can make your business operations smoother by outsourcing duties such as onboarding, background checks, payroll processing, compensation benchmarking, payroll taxes, employee benefits, and contract termination.

We'll also unpack what you should look for in an EOR service and how choosing the right one will facilitate your growth beyond borders. We’ll give you straightforward advice on choosing the right EOR partner, making it easier for you to focus on growing your business.

What is an Employer of Record?

An Employer of Record (EOR) simplifies how you hire and manage staff by acting as the legal employer for your workforce. Here's what this means for your business:

Assumes full legal responsibilities

For a US company looking to hire internationally, an Employer of Record can manage legal and HR responsibilities on their behalf.

The EOR takes on all legal responsibilities related to employment, ensuring that your company stays compliant with local labor laws, especially in international markets where regulations can be complex and ever-changing.

The EOR handles everything from drafting and managing contracts to ensuring compliance with tax laws, retirement benefit contributions, and mandatory employee benefits. They also manage crucial areas like workplace safety regulations, terminations, and employee disputes, protecting your business from potential legal risks.

Manages HR tasks

EOR services manage a wide range of HR tasks, including global payroll processing, tax filings, and benefits administration to ensure compliance with local regulations.

They also handle time off policies, paid leave, and manage employee onboarding and offboarding processes, such as background checks and contract creation.

Notably, EORs oversee terminations, ensuring the process follows local labor laws and minimizing risk for your business.

Allows you to focus

While the EOR takes care of all these backend HR responsibilities, your company retains full control over the day-to-day tasks, project management, and team decisions.

This allows you to focus on strategic initiatives, scaling your business, and achieving your operational goals without being bogged down by the complexities of employment law and HR administration.

By offloading these responsibilities to an EOR, your business can confidently expand into new markets while ensuring full compliance and minimizing administrative burdens.

What is a Global Employer of Record?

A global employer of record provides similar services to a standard EOR but on an international scale, managing global human resource management tasks in multiple countries around the world.

This is especially beneficial for companies looking to hire internationally. The EOR ensures that your company remains compliant with the laws in each country, including tax laws, visa requirements, and employment contracts.

If local laws change, the EOR is responsible for keeping your company compliant, mitigating the risks of fines or legal issues. When it comes to terminations, the EOR handles the legal procedures, ensuring they meet local regulations and protecting your company from wrongful termination claims.

Example of a global EOR

A good example of a global EOR is Papaya Global. The company offers comprehensive payroll solutions and acts as an EOR, allowing partners to manage everything from PTO to benefits.

Several of our partners use EORs, including Papaya Global. A Canadian firm we work with uses the platform to manage employee pay and benefits to people across the world, including countries such as Brazil, Ukraine, Germany, the United Kingdom and the United States.

The presence of the EOR allows the partner to go about the business of recruiting without worry regarding compliance or having to understand the wage structures or demands in a foreign country. The EOR takes care of that, facilitating all of the new hire onboarding paperwork and completing the background check portion of the recruiting process.

Stay up-to-date on all things HR & leadership

Get weekly insights and how-tos on leadership and HR’s biggest and most pressing topics—right to your inbox.

• Your email*
• By submitting this form, you agree to receive our newsletter, and occasional emails related to People Managing People. You can unsubscribe at any time. For more details, please review our privacy policy. We're protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
• Name
  This field is for validation purposes and should be left unchanged.

What Does an Employer of Record Do?

As we established at the outset, the EOR acts as the official employer in a jurisdiction where your company does not have a legal entity, allowing you to hire employees and manage them compliantly without establishing a physical presence.

If you're a UK-based company wanting to hire in the United States, an EOR allows you to do so seamlessly, managing all legal, administrative, and compliance aspects of employment on your behalf.

The employee you hire will technically be employed by the EOR, which is essential for complying with international employment laws. This ensures your business adheres to local regulations, avoiding legal risks and administrative burdens.

Employer of record services include:

• Employee Onboarding: The EOR handles the entire onboarding process, from creating compliant contracts to setting up the employee in accordance with local regulations. This includes gathering required documentation and ensuring the employee is fully integrated into your business.
• Background Checks: EORs manage pre-employment screening, including background and reference checks, to ensure candidates meet local employment standards.
• Payroll Processing: The EOR takes care of payroll, ensuring that employees are paid accurately and on time. This includes calculating wages, bonuses, and other compensation while ensuring tax deductions are made in compliance with local laws.
• Compensation Benchmarking: EORs conduct market research to ensure compensation packages are competitive and aligned with local industry standards, helping you attract and retain top talent while staying within legal guidelines.
• Employment Contracts: EORs draft, issue, and manage employment contracts that meet local legal requirements. These contracts are designed to protect your business while being compliant with labor laws in each specific country.
• Compliance with Payroll Taxes: The EOR manages the calculation and filing of payroll taxes specific to each jurisdiction. This includes ensuring the correct tax rates are applied and submitted on time to local tax authorities, preventing penalties or legal issues.
• Employee Benefits Administration: The EOR administers employee benefits, including health insurance, retirement plans, and other statutory benefits, ensuring they meet the legal requirements of each country. They also ensure that benefits packages are competitive and in line with local market standards.
• Termination and Offboarding: The EOR handles the entire termination process, including offboarding employees in accordance with local laws. This includes managing severance, final pay, and ensuring that termination procedures comply with labor regulations to minimize legal risks.

Compliance with local labor laws and taxes

One of the most critical functions of an EOR is ensuring compliance with local labor laws, tax regulations, and employment standards. Each country has unique legal requirements related to employee rights, payroll taxes, benefits, and terminations, and failure to comply can result in significant penalties.

EORs have the expertise to navigate these complexities, ensuring that your business stays fully compliant with the regulations of each country you operate in. Here are five real life examples of what we're referring to here.

1. India - Compliance with the Shops and Establishments Act

India's labor laws, like the Shops and Establishments Act, vary by state and regulate working hours, leave, and employment contracts.

An EOR in India ensures compliance by creating contracts aligned with regional laws, managing working hours and leave policies, and handling mandatory benefits such as Provident Fund and Employee State Insurance (ESI), ensuring proper filing with authorities.

2. Italy - Adhering to Collective Bargaining Agreements (CBAs)

Italy’s labor laws are heavily influenced by CBAs specific to various industries. These agreements regulate wages, working hours, holidays, and severance conditions.

An EOR operating in Italy helps navigate these agreements by ensuring employees’ compensation and benefits meet the terms outlined in the relevant agreements and managing compliance with Italy's strict termination policies, which require just cause and proper notice periods, to avoid disputes or penalties.

3. France - Compliance with the 35-Hour Workweek Law

In France, labor laws include the legal 35-hour workweek, which can be a challenge for foreign employers.

An EOR in France will ensure that employee schedules comply with this regulation and that any additional hours are compensated appropriately with overtime pay or time off in lieu.

Additionally, France has strict requirements around social security contributions and employee benefits, such as health insurance and pension plans, which the EOR will manage in line with French labor codes.

4. Spain - Handling Temporary Contracts and Fixed-Term Employment

Spain has specific rules regarding fixed-term and temporary contracts, including limits on contract duration and justifications for non-permanent employment.

An EOR covering Spain will ensure that such contracts comply with Spanish labor laws, helping to avoid penalties for misclassification of employees. They also manage the mandatory severance pay and notice periods required under Spanish law for terminations.

5. China - Navigating Probation Periods and Termination Laws

China’s labor laws, especially around probation periods and termination, can be challenging for foreign companies. For instance, employers must specify probation periods in the employment contract, with strict limits on the length of probation based on the contract term.

EORs operating in China help draft these contracts, ensuring that termination during or after the probation period follows legal requirements. The EOR also handles social insurance contributions and housing fund payments, which are mandatory for all employees in China.

The Difference Between an EOR and a PEO 

The difference between an EOR and PEO mainly lies in the scope of services and the nature of the employment relationship they establish.

• Employment relationship: The EOR becomes the legal employer of the client's employees whereas employees are co-employed by both the PEO and the client company.
• Scope of service: EOR services are often geared towards assisting companies with international operations, facilitating employment in countries where the client does not have a legal entity. PEO providers are generally more focused on domestic HR solutions within the client’s home country, although some PEOs also offer international services.

Legal differences

A key difference between PEOs and EORs is the legal risk that each presents as they are a bit different to one another.

For example, a significant legal risk associated with PEOs is co-employment liability. In a PEO arrangement, both the client company and the PEO share employment responsibilities, meaning the client company retains some control over employees' day-to-day activities.

This shared responsibility can expose the client company to legal risks, such as violations of labor laws or employment disputes, since they are still partially responsible for compliance with regulations like wage laws, workplace safety, and anti-discrimination policies.

On the other hand, an EOR takes on full legal responsibility for employees, reducing risk for the client company. This significantly lowers the client's liability for legal risks, as the EOR handles matters such as wrongful termination claims or labor law violations.

However, companies using an EOR must be careful to maintain proper management of daily employee activities, as a misstep in how authority is exercised over employees can still lead to compliance issues.

In short, PEOs expose businesses to shared legal risks, while EORs reduce direct legal liability by assuming full responsibility for employee compliance and legal matters.

For a deeper dive into PEOs, check out our article on understanding PEOs.

How Does an Employer of Record Work?

Think of an employer of record as a sort of outsourced HR in that they handle many of the traditional tasks in the employment relationship and also act as the legal employer.

The employee works for you but is contracted under the EOR. You have the direct relationship and manage the day-to-day as well as provide feedback, performance management, and development paths.

An Employer of Record handles all of the administrative tasks of the employment relationship such as payroll, employee benefits, etc. but is also legally responsible for the employees, including termination as required.

Benefits of Using an Employer of Record

EOR services are in place to make hiring easier. No longer does a company looking to expand need to lose sleep over its liabilities in each jurisdiction it wishes to hire.

Employer of record benefits include:

• Reduce compliance risks: Organizations don’t have to worry about local labor laws, tax laws, or other regulatory challenges.
• Efficient international expansion: For businesses looking to expand internationally, an EOR can facilitate quicker entry into new markets. Since the EOR handles legal and HR compliance, companies can employ workers in new countries without the need to set up a legal entity there.
• Reduced administrative burden: Handling payroll, taxes, benefits, and other HR tasks can be time-consuming. An EOR takes over these responsibilities, allowing companies to focus on their core business activities.
• Cost savings: Setting up legal entities in multiple countries can be expensive. Using an EOR eliminates the need for this, potentially leading to significant cost savings.
• Flexibility in hiring: Companies can use an EOR to hire employees or contractors in locations where they do not have a physical office, providing greater flexibility in building a global team. It also gives employers a chance to test a market before building out a full team. When, if, it makes sense to set up an entity in that country, most EOR’s include a buy-out clause that allows you to transfer the employee directly to your organization.

Instead of looking to dispatch your existing team members all over the map, use a local entity to help get the job done. 

They understand how to work best with international employees and will provide you with the working knowledge that you would not have access to otherwise. 

Key Considerations When Using an EOR

Not all organizations use an EOR to tap into global talent, instead deciding to manage the process in-house.

Reasons some organizations choose not to use an employer of record include:

• Cost considerations: For some businesses, especially larger corporations with established HR departments, the cost of using an EOR might outweigh the benefits. These companies may find it more cost-effective to handle employment tasks in-house.
• Control and autonomy: Some companies prefer to maintain full control over their payroll, benefits, and HR policies to ensure they align closely with their corporate culture and objectives.
• Complex or unique employment needs: Some businesses may have complex or highly specialized employment needs that an EOR cannot adequately address. This can include specific industry regulations, union negotiations, or bespoke employee benefit plans.
• Desire for direct employer-employee relationship: Maintaining a direct relationship with employees can be crucial for some organizations, particularly in building company culture, loyalty, and direct communication. If you do use an EOR and you want the employee to feel like a member of the team, you treat them as such, even if they are technically employed by the EOR.

When to Consider an Employer of Record

Leveraging an Employer of Record (EOR) helps manage diverse workforces and venturing into new markets globally. Here’s how an EOR can be instrumental for your business:

• Facilitate Global Expansion: Dreaming of taking your business global without the hassle of setting up local entities? An EOR can play a key part in your international strategy by helping you to swiftly enter new markets, enabling you to hire internationally and tap into new customer bases without the long-term commitment of establishing a local presence.
• Boost Talent Acquisition and Retention: In today’s job market, the flexibility to work from anywhere is not just a perk; it’s a game-changer. By removing geographical barriers, an EOR allows you to hire from a remote talent pool, ensuring you find the perfect fit for your needs. Furthermore, it simplifies the process of retaining employees who relocate, ensuring your top talent stays with you, entity boundaries notwithstanding. Confirm with your EOR if they have a recruiting function, or partner, that can help you hire in the new location.
• Support During Entity Setup: Navigating the complexities of international expansion? An EOR can bridge the gap, offering immediate hiring solutions and insights into local legal requirements while you focus on establishing your entity.
• Prevent Contractor Misclassification Risks: Opting for contractors can seem like an easy fix for growing your international team. Yet, this approach carries the risk of misclassification, leading to legal and compliance issues. A global EOR can transition contractors to employee status seamlessly, safeguarding your business against potential compliance pitfalls.

The Difference Between an EOR and a Staffing Agency 

The difference between an Employer of Record (EOR) and a staffing agency lies in their primary functions and the nature of the services they offer.

• Primary function: An EOR's primary function is to legally employ individuals on behalf of another company whereas a staffing agency's main role is to recruit and supply employees or temporary workers to client companies.
• Employment Relationship: Staffing agencies typically employ temporary workers or contractors and then 'lease' them to client companies whereas EOR is a full-time employer.

Which countries support EORs?

Employers of record are prevalent worldwide. However, they typically won’t operate in countries with:

• Strict labor laws
• Political or economic instability
• Limited market demand
• Regulatory restrictions
• Complex bureaucracy
• Sanctions or trade embargoes.

Country-Specific EOR Services

If you’re interested in hiring employees within a specific country, our roundups of the best EOR services in the following countries might be a good place to start:

• Australia's best EOR services
• Brazil's best EOR services
• Canada's best EOR services
• China's best EOR services
• Colombia's best EOR services
• France's best EOR services
• Germany's best EOR services
• India's best EOR services
• Italy's best EOR services
• Japan's best EOR services
• Netherland's best EOR services
• Portugal's best EOR services
• Singapore's best EOR services
• Spain's best EOR services
• Turkey's best EOR services
• UAE's best EOR services
• United Kingdom's best EOR services

EOR Cost 

In terms of pricing structure, EORs commonly use one of the following models:

• Percentage of employee salary
• Flat fee per employee.

EOR Risks

Despite the benefits and popularity, there are some risks when using EORS. For example.

• Compliance risks (if the EOR doesn't do its job properly)
• Financial risks e.g. hidden costs like service fees
• Operational risks e.g. business continuity or poor customer support model
• Data security

EOR Alternatives 

Instead of using an EOR, organizations might want to:

• Set up a local entity
• Hire freelancers
• Form a joint venture or partnership
• Use a different type of HR service provider to outsource a business process.

How to Choose an Employer of Record Partner

Choosing the right EOR will help you execute a smoother global expansion. Here’s what to prioritize:

Accurate Employer Burden Calculations: Ensure the EOR provides precise calculations of employer costs, such as social contributions, which vary by country. This accuracy is essential to avoid unexpected expenses.

Support Quality and Responsiveness: Select an EOR with reliable, responsive support and dedicated account managers to address your needs quickly, ensuring seamless onboarding and HR operations across time zones.

Global HR Expertise: Look for an EOR with extensive experience in global markets and deep knowledge of local labor laws, helping you avoid compliance risks and enter new markets efficiently.

Transparent Pricing: Choose an EOR with clear pricing and no hidden fees to maintain budget predictability.

Industry Validation: Opt for an EOR recognized by independent analysts, ensuring trustworthiness and proven industry expertise.

6 Steps to finding your perfect match EOR

Finding the perfect EOR partner is more than just a checklist; it's about aligning their services with your business goals.

Karen Weeks, Global Chief People Officer & Advisor, says the key to finding the right partner is to interview them like you would an HR team member.

Understand how their values align with yours, ask them to share success stories but also how they handle client concerns. Share key practices and expectations of your internal team and see how that compares with their HR practices, like payroll timelines and onboarding processes.   I have had great experiences with EORs and struggled with other partnerships, it the wins and frustrations often came down to misalignment on the above.

Karen weeks, Global chief people officer & advisor

1. Define Your Needs: Start by outlining what you expect from an EOR - whether it's expanding into specific markets, managing certain aspects of HR compliance, or supporting a remote workforce. Knowing your priorities helps narrow down potential partners.
2. Request Detailed Proposals: Reach out to a shortlist of EOR providers with a request for proposal (RFP) that includes your specific requirements. Compare their responses, focusing on services offered, pricing structure, and market expertise.
3. Check References and Reviews: Speak with current and past clients of the EOR providers to get firsthand insights into their service quality, responsiveness, and reliability. Online reviews and testimonials can also offer valuable perspectives. Check with your HR network to see if anyone has worked with them to get a backdoor reference.
4. Evaluate Communication and Support: Engage in direct conversations with potential EOR partners to assess their responsiveness and the quality of their communication. This interaction is a good indicator of the level of support you can expect. Understand the timeline for payroll changes and any other employee impacted decisions so they have a good experience with you and the EOR
5. Review Contracts Carefully: Before making a final decision, thoroughly review the contract terms with each EOR. Pay special attention to service level agreements (SLAs), termination clauses, and any hidden fees.
6. Consider Long-Term Scalability: Choose an EOR partner who can grow with your business. Their ability to support additional markets, offer more services, allow for direct hiring if that is an option in the future if you set up a local entity and adapt to changing regulations is crucial for a long-term partnership.

Navigating Future EOR Partnerships

In closing, I'll boil down this advice to three essential tips for working with an EOR.

• Strategic Partnership: Choosing an EOR partner is a strategic move that aligns with your business goals and simplifies global expansion, allowing you to focus on core activities.
• Compliance and Flexibility: An effective EOR ensures you meet local employment laws and remain adaptable, minimizing legal risks as you enter new markets.
• Future-Proof Growth: A robust EOR partnership equips your business for scalable, agile growth, ready to adapt to the evolving global workforce and market demands.

*DISCLAIMER: The information provided on this page is general and not meant to be provided in place of legal advice. Those interested in working with an EOR service should contact an employment lawyer with further questions.