AOR vs EOR: Key Differences And Easy Comparison

Over the last seven years, US-based employers have actually expanded employment abroad faster than domestically.

Alongside this, services such as EORs (employer of record services) and AORs (agent of record) have sprung up to make it easier to hire either contractors or full or part-time workers.

But since you’re reading this article, you’re likely wondering what the differences between an AOR vs EOR are and which is the best option for your needs.

So let’s get into it.

AOR vs EOR: Key Differences

The key difference between an AOR vs EOR is that an AOR manages independent contractors for compliance and invoicing, while an EOR legally employs workers on your behalf and handles payroll, employee benefits, and tax obligations.

An AOR and EOR can both help with global hiring, but they serve different purposes depending on how you want to structure your workforce (contractors vs. employees). 

Here’s a handy comparison chart highlighting the key differences:

Parameter	AOR (Agent of Record)	EOR (Employer of Record)
Primary role	Helps manage independent contractors.	Legally employs full-time/part-time workers.
Key Responsibilities	Focuses on compliance, invoicing, and contracts.	Handles payroll, benefits, taxes, legal employment.
Legal Relationship	You remain the client. The contractor stays independent.	The EOR becomes the worker's legal employer.
Worker Type	Independent contractors/freelancers	Full-time or part-time employees.
Control Over Work	You manage tasks, timelines, and project goals	You manage work while the EOR handles employment matters
Employment Liability	You retain most of it (especially for misclassification)	EOR assumes full legal liability as the employer
Compliance Support	Contractor classification, local tax laws, and documentation.	Payroll, taxes, benefits, labor law compliance.
Cost Structure	Generally lower - flat fees per contractor	Higher - includes salary, statutory contributions, and EOR service fees
Payment Handling	AOR facilitates compliant payments, invoices, and filings	EOR runs payroll, withholds taxes, and pays benefits
Geographic Scope	Used globally, but more flexible in jurisdictions with clearer contractor guidelines	Ideal for countries with strict employment laws or where you want to avoid entity setup.
Onboarding Time	Faster - simple documentation and classification checks	Slightly longer - includes employment contracts and statutory processes
Use Case Fit	Project-based work, short-term engagements, and contractor networks	Long-term employees, high integration, and scaling into new countries
HR Dependency	Still need internal HR to manage performance and relationships	Less need for internal HR - EOR handles much of the administrative load
Flexibility	High - ideal for fluid, global contractor teams	Lower - structure employment relationship

The core structural difference between AORs and EORs is in who employs the worker. 

An AOR facilitates a compliant relationship with independent contractors, but you, the client, remain at the center of the working relationship.

In contrast, an EOR becomes the legal employer, taking over all the responsibilities. 

As Adrien Kallel, CEO & Co-Founder of Remote People, puts it:

“Think of an EOR as ‘we're hiring this person for you,’ and an AOR as ‘we're helping you work with this independent contractor properly.’”

This difference in responsibility has a ripple effect across compliance, cost, and control. 

With an AOR, you retain the flexibility to scale freelance teams while getting administrative support on classification, contracts, and payments.

But, you’re also more exposed to misclassification risks, particularly in countries with strict contractor laws. An EOR, on the other hand, assumes full legal liability as the employer of record.

Lee Baldwin, HR & Payroll Expert at Pay Check Limited, explains it like this:

“An EOR handles the entire operational area, dealing with payroll processing, employee benefits, labor law compliance and termination when necessary. An EOR accepts all risks associated with being the legal employer-made into considerable advantage seen by companies willing to avoid legal exposure when going international.”

Cost is another differentiator. EORs typically charge a flat fee per employee, ranging from $199/employee/month to $650/employee/month depending on your provider or a percentage of the employee’s salary, in exchange for a full suite of services, typically around 10 - 20%.

AORs are usually leaner, often charging a flat fee per contractor.

How An AOR Works

So what is an AOR exactly, and how do they work?

AORs were originally just a term for any intermediary between an employer and a group of workers to handle functions like benefits, compliance, payments, etc.

Earlier, they were primarily used only in the insurance and construction space. An AOR would step in, find the best insurance/benefits policy for a company’s workers and then disburse it to the employees.

In construction, an AOR would be an intermediary between the employer and the workers - paying them on time, upholding safety standards, and more.

With the rise of freelancers/contractors, AORs have evolved to help with the general management of contractors as we know them today, and are also called Contractor of Record (COR). In practice, most AORs now handle a few key things:

• Classification: They help determine if the person you’re hiring truly qualifies under local labor laws (IRS 20-factor test in the US, IR35 in the UK, Canada’s control/dependency rules, etc.)
• Compliant contracts: AORs provide legally vetted contractor agreements that cover IP, scope, NDAs, termination clauses, etc.
• Tax and reporting: They generate and submit required documents like 1099s or equivalents in other jurisdictions.
• Payments: They disburse payments to contractors in their local currency and handle any currency conversion or invoicing compliance.
• Ongoing compliance support: If a country changes its rules around gig workers (which happens often), your AOR may update terms and flag risks.

However, most AORs don’t mention that they don’t take on full legal liability. 

If your contractor is misclassified because you’re treating them like an employee (e.g., fixed hours, control over their work), the AOR might advise you, but ultimately, you’re responsible.

In fact, if you scan through the Terms of Service of popular AOR platforms like Deel, Remote, or Oyster, you’ll usually find fine print saying something along those lines. For instance, Oyster HR’s terms of service clearly state that:

“Oyster is not responsible for: … determining whether a Contractor is qualified, eligible, legally entitled, or otherwise suitable, to provide services to You under a contract;”

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How AN EOR Works

Now, unlike an AOR, an EOR isn’t just a compliance wrapper. It’s a registered legal employer that handles everything employment-related for your business, except the actual day-to-day management of your worker. 

You direct the work, but the EOR handles the employment relationship on paper.

This structure allows businesses to hire full-time employees in countries where they don’t have a legal entity, without violating local employment laws. 

At a high level, an EOR becomes a proxy employer that also absorbs all the legal liability. This makes it ideal if you’re expanding internationally, experimenting with new markets, or hiring talent in countries with complex labor laws.

Key responsibilities of an EOR include:

• Drafting and signing the employment contract under local labor law
• Running compliant payroll, including salary, taxes, bonuses, etc.
• Managing social security contributions, unemployment insurance, and other statutory benefits
• Handling local holidays, paid leave, sick leave, and termination protocols
• Ensuring global HR compliance with country-specific labor regulations
• Supporting offboarding or contract renewals
• In some cases, assisting with employee relocation and sponsoring work permits or visas.

Usually EOR costs are priced as a recurring fee per month per employee or as a percentage of gross salary.

Use cases and benefits of using an EOR:

• Global expansion: Quickly and compliantly hiring talent in another jurisdiction without a legal entity
• Time-sensitive hires: Bypass long entity setup times and get someone started within days.
• High-compliance markets: Operate in countries with strict labor laws without risk.
• Risk mitigation: Avoid misclassification penalties by hiring as employees, not contractors.
• Talent retention: Offer full-time roles with benefits to contractors you want to convert.

5 common misconceptions about AOR and EOR

Business owners usually have several misconceptions about how AORs and EORs work, often leading to misguided decision-making. Here are a few common ones:

AORs and EORs serve a similar purpose

As Kallel puts it:

“A misconception I encountered was that AORs were just "lightweight EORs" or a way to save money on employment costs.”

Well, AORs aren’t lightweight EORs. In reality, they serve completely different purposes. 

Instead of being “cheap labor hacks,” they’re actually about risk allocation and compliance. An AOR service serves solely an administrative purpose, while an EOR service serves that and takes on full liability.

EORs and AORs are only useful for global hiring

While EORs and AORs are most often used for global hiring of employees and contractors, respectively, they can also be extremely valuable within your own country. 

In regions with complex labor laws (like the U.S. with varying state regulations), an EOR/AOR can simplify compliance and reduce HR overhead.

Using an AOR or EOR is too expensive to be worth it

At first glance, the service fees can feel like an added expense. But compare that to the cost of setting up a legal entity, hiring local counsel, figuring out payroll systems, and ensuring compliance. Then factor in the risk of fines or penalties from misclassification or tax issues.

AORs and EORs often save money in the long run by reducing both admin overhead and risk exposure. Plus, they significantly speed up your ability to hire and scale.

You lose control when using EORs

Many companies worry that working through an EOR means giving up managerial control over employees. That’s not the case. An EOR handles the legal, tax, payroll, and liability side of employment, but you still manage the employee’s day-to-day responsibilities, performance, and outcomes.

You are only limited to cash payments with EORs

Business owners often think that they can only pay their EOR employees with cash, however, that’s false. While it’s a little more complicated to pay your international employees with equity/stock compensation, EORs can help you ensure that you’re compliant and also advise you on correctly disbursing equity to your employees.

For instance, in the US, you can’t issue Incentive Stock Options (ISOs) to EOR employees since they can only be given to direct employees, but you can give them Non-Qualified Stock Options (NSOs). EORs will help you deal with all these complexities.

How To Decide Between AOR and EOR

Hiring globally, or even across states, often starts with a simple goal: get the right talent, fast. 

But choosing between an AOR or an EOR depends on understanding how your work arrangement actually functions.

According to Jessica Jimenez, Senior Compliance Director at Atrium:

“One of the most common errors companies make is engaging independent contractors through an AOR when what they really need are temporary employees through an EOR.”

For instance, imagine a company that’s scaling rapidly and is covering a maternity or medical leave. 

Instead of going through a staffing partner or using an EOR to hire a temporary employee, they bring on contractors via an AOR. The problem? These workers often behave like employees with set schedules, core duties, and ongoing work. That’s a misclassification risk waiting to happen.

Similarly, if the work a contractor does is integral to your business, they may legally be considered an employee, no matter how your contract is written. 

According to Jimenez, it's unlikely that a biotech company, for example, can classify lab researchers as contractors because that’s central to their operations.

According to Kallel, deciding between AOR and EOR starts by asking the right questions. He says:

“​​My practical advice is that you should understand the actual work arrangement instead of trying to force-fit a classification. Ask yourself:

- How much control do we need over their schedule and methods?

- Is this truly project-based work or ongoing core operations?   

- What's the legal threshold for employee classification in that specific country?”

To decide whether you need an AOR or EOR, use the 3Ps Framework - People, Place, Purpose.

• People: How integrated is this person with your team? Are they joining meetings, using your tools, or expected to follow your internal processes?
  • More integration = EOR.
• Place: Where is the person located, and what are the labor laws there?
  • If the country or state has strict contractor laws, EOR may be safer.
• Purpose: Is this role focused on delivering a scoped project or contributing to ongoing operations?
  • Project-based work = AOR. Core, ongoing work = EOR.

If you’re going with an AOR, make sure they offer:

• Clear classification summaries, with legal reasoning for each contractor.
• Country-specific compliance insights, especially in high-risk jurisdictions.
• Support for independent contractor autonomy, including contracts and best practices.
• Streamlined invoicing, tax, and payment processes, with multi-currency support.

And, if you’re going with an EOR, look for:

• Established entities in your target countries, ready to hire locally.
• Localized onboarding and benefits, tailored to employee expectations.
• Accurate, on-time payroll and tax filings, managed end-to-end.
• Support for employee engagement, since the EOR is their legal employer, but you own the relationship.

Here’s a quick decision checklist: 

Question	If Yes →	If No →
Is this project-based, short-term, or specialized work?	➤ Consider AOR	➤ Go to next question
Will you control how and when they work?	➤ Consider EOR	➤ Go to next question
Is the role part of your core business operations?	➤ Likely EOR	➤ Go to next question
Will they work with multiple clients, not just you?	➤ Consider AOR	➤ Go to next question
Are local labor laws contractor-friendly?	➤ Possibly AOR	➤ Consider EOR for safety
Do you need to provide benefits, PTO, or equipment?	➤ Definitely EOR	➤ AOR might still be viable

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This article covered the key differences between AORs and EORs and gave you a practical decision-making framework to decide between the two.

Both of them are useful tools for hiring employees/contractors internationally, but legal compliance risks remain.

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