Employer of Record (EOR)

The global Employer of Record industry has been around since the early 2010s, created by early industry adopters such as G-P, Pebl (formerly Velocity Global) or SafeGuard Global. However, with Covid-19 and the push towards remote hiring, EORs have become much more than just a tool for young startups. It has been established as standard tool accessible to any company looking to hire outside of their own borders.

In this article, we’re looking at how the EOR phenomena has emerged and how, today’s global hiring world, they can be a competitive advantage to any company.

Employers are fast discovering the need to seek specialized talent beyond their traditional markets. This rapid change is due primarily to the global shift to remote work. Studies reveal that cross-border hiring doubled from 2020 to 2023, particularly in technical occupations, with almost 58% of organizations now hiring these skills from elsewhere.

The vast majority of modern employees prefer remote work because it offers flexibility and eliminates the daily commute. Indeed, many would resign rather than return to the office. This transformation compels employers to enter the global market in search of talent. Modern infrastructure supports remote collaboration and continues to expand. Employers can access a vast pool of job seekers and specialized skills internationally, and maintain 24/7 operations, almost a necessity more than an option.

Structuring a genuinely international team, however, poses complex challenges, including legal and administrative compliance. Companies must comply with diverse employment laws, tax obligations and benefits administration across many regulatory territories. These tasks are typically complex and costly.

Fortunately, collaborating with a top Employer of Record (EOR) offers a compliant solution. Here, the EOR becomes the legal employer on behalf of the client company, assuming responsibility for compliance and administrative duties. This solution unlocks new opportunities for hiring managers and job seekers alike.

An Employer of Record is a third-party company that manages the legal aspects of recruiting and employing staff on behalf of another company (the client company). The primary difference between an Employer of Record and a traditional employer lies in legal responsibility and operational roles:

• The employer directly hires, manages, and employs their staff. 
• This company is wholly responsible for paying salaries, providing benefits, filing taxes, and maintaining compliance with local employment regulations. 
• The employer typically establishes a local legal entity (e.g., branch or subsidiary) in the employee’s location. 
• The company assumes full legal and operational responsibility for the employment relationship.

• The EOR maintains all administrative, legal, and employment tasks in support of another business (the client company). 
• EOR responsibilities include: compliance with local labor laws, payroll, taxes, benefits, and employment contracts.

Let’s delve into the details of the duties and responsibilities of the Employer of Record:

An Employer of Record is fully responsible for employment contracts and onboarding new employees. It monitors local labor rules, providing new employees with a smooth transition. Because the EOR is aware of the local legal requirements, it drafts and distributes contracts on behalf of the client company. 

The EOR provides peace of mind regarding compliance with each country’s regulations, including working hours, termination terms, benefits, and notice periods. Contracts are frequently written in the local language.

The client company develops the job description, determines remuneration, and establishes performance goals. The EOR enters into a legally binding contract with the client and becomes the legal employer or the employer on paper. These contracts usually include the following details:

• The legal relationship between the EOR and the client.
• The administrative and compliance duties of the EOR. 
• The client company’s responsibilities.
• Terms related to fees, liability, confidentiality, termination, and commercial conditions as applicable.
• Procedures for onboarding, offboarding, and ongoing HR support.

During onboarding, the EOR handles all administrative tasks required by local authorities. These include additional services like obtaining visas or work permits, payroll and social program registration, and managing compliance documentation. The EOR shoulders the legal risk, managing compliance from hiring through the entire employee lifecycle.

As the contractually legal employer, the EOR manages tax compliance and payroll. They are responsible for salary calculations, withholding and distributing appropriate income taxes, and handling all mandatory social and security contributions in accordance with relevant laws.

The EOR files payroll taxes to government agencies and issues payslips. A considerable benefit is that the Employer of Record takes the lead in tracking tax regulations, preventing duplicate taxation and mitigating inadvertent corporate taxes. 

The EOR handles the administration of employee benefits per local regulations. They enroll employees in compulsory benefit programs such as unemployment schemes, retirement pension plans, and health insurance. The EOR also handles the administration of bonuses, wellness programs, and other benefits required by the host country.

An EOR provides complete legal and HR support. It acts as the legal employer, maintains records, handles disputes, and enforces local labor laws. The Employer of Record’s support team serves as the local point of contact for staff, ensuring workplace safety and upholding standards. In the event of changing laws, the EOR updates policies promptly. It oversees employee relations, dispatches communication to the client company, and assists in resolving HR issues.

The (ideal) result? Compliant, hassle-free employment across multiple countries with contented and productive staff. 

As the legal employer, the EOR also handles termination and offboarding. Again, the process adheres to legal compliance and labor laws to ensure a satisfactory conclusion to the working relationship. The EOR will manage notice periods and related documentation, final payroll settlements, severance payments, and discontinuation of benefits according to local mandates.

All notifications to relevant government authorities and the delivery of termination documents also fall under the EOR, based on local redundancy, layoff, or contract expiration rules. Closing tasks, such as collecting company property like laptops, discontinuing system access, and handling references, can be managed by the EOR. Subsequently, the client company remains free from legal risk.

Startups looking to expand globally: To quickly hire talent in new countries without forming local legal entities, saving time and money.

Remote-first companies: To legally employ teams globally with the assurance of streamlined payroll and compliance.

Enterprises testing new markets: For flexible, low-risk hiring to gauge prospects before committing to more permanent arrangements.

Companies avoiding the setup of a local entity: To evade the cost and time involved in launching a legal entity and hasten the commencement of work.

An EOR enables companies to hire internationally without creating a local entity. It handles payroll, compliance, and HR. Establishing a local entity is costly, multifaceted, and demands complete liability for legal and regulatory compliance while an EOR allows any company to onboard an employee in a new market quickly, compliantly and at a fraction of the costs of setting up a legal entity.

EORs hire employees as full employees with benefits and legal protections, minimizing the risk of improper designation. Contractors (aka 1099 employee) offer flexibility and lower costs, but may present tax and legal liabilities if not used appropriately.

Quick market entry. EORs enable client companies to hire safely in new territories within days, eliminating the need to establish a local entity.

Legal compliance. EORs manage local labor laws, regulations, and taxes, minimizing legal and misclassification risks.

Lower costs and reduced risk. Eludes the costs and challenges of entity setup, while minimizing compliance errors.

Streamlined global operations. EORs merge HR, payroll, and legal tasks across countries for simple international hiring.

EORs can be pricey:

With some EORs charging fees of up to $900 per employee per month, companies have reconsidered whether this is the right setup for them. However, you shouldn’t pay more than $500 per employee per month – NEVER. Make sure to compare and review as many EORs as possible prior to selecting your best EOR choice.

Permanent establishment risk remains applicable:

When the client’s activities are considered a taxable presence, aka permanent establishment, by the host country, it may result in the payment of corporate taxes. As such, some EORs may limit you in hiring specific revenue-generating roles or executive roles with them.

Restrictions in specific countries:

Some countries restrict or ban the use of EORs outright, while others impose limitations. For example, Singapore prohibits EORs from hiring foreign workers, and Germany restricts EOR employment duration to 18 months under its employee leasing (AUG license) regulations.

Local employee perception:

Employees may not perceive an EOR as their “true employer”, which can impact commitment, loyalty, and communication dynamics within the team. Read more about the benefits and limitations of EOR services in our guide, “Pros and Cons of EOR“.

Costs can fluctuate between $199 and $1,000 per month. Fees vary across different countries due to disparities in labor laws and rules surrounding social contributions, labor regulations, employee numbers, and the extent of services required by the client company.

This is a tricky one, as it solely depends on your company’s hiring plans and individual situation. However, at Employsome, we’ve created an industry-leading scorecard system to evaluate whether an EOR is great (or not).

We believe that when selecting the best Employer of Record, this means that one should evaluate both the EOR’s global service delivery capabilities and how well an EOR actually performs on the ground in the relevant country.

Our scoring model reflects this by combining two independent evaluations, the Global EOR Score and the Local EOR Score. We’ve outlined below what those scores consist of. Our goal is to help you make better decisions. If you’d like, feel free to use our free EOR comparison tool as it includes all of the mentioned scores for every EOR already.

Our Employsome Global EOR Score evaluates the provider’s overall operating model, software, support quality, and pricing transparency across all countries. It includes five categories:

🌍 1. Global Coverage & Services

We look at the EOR’s global country coverage, the operational model (owned entity or via local partners) as well as if the EOR offers additional capabilities such as contractor payments, global payroll consolidation, recruitment, equipment provisioning, and immigration services.

🤩 2. Pricing & Transparency

We evaluate whether the EOR clearly discloses pricing, including hidden fees such as FX markups, deposits, payroll add-ons, termination fees, or invoice timing rules.

📝 3. Payment & Contract Terms

We review minimum commitments, cancellation policies, notice periods, billing cycles, and invoice/payment terms.

✨ 4. Customer Experience & Support

Responsive, expert support is essential in EOR relationships. We assess how well the EOR resolves issues, communicates, and manages ongoing employee needs.

💻 5. Platform & Integrations

We evaluate the usability of the EOR’s software platform: contract generation, onboarding flow, payslips, compliance automation, reporting, and integrations.

Every country is different. As such, we create a localised score for every single country. However, we’ve summarised below how it’s structured to give you some sort of guidance when selecting an EOR yourself.

📍 1. Entity Ownership

Does the EOR operate through a local legal entity, or do they rely on local third-party partners (aka in-country partners)?

⚡ 2. Onboarding Speed

We assess how quickly an EOR can onboard employees with a compliant local employment agreements and properly set up the employee’s payroll. This can be anything from 24h to 14 days. The faster, of course, the better.

📞 3. On-Site HR Support

Very important item based on our experience. Does the EOR have local HR or payroll specialists on the ground or is everything serviced from abroad (e.g. a service center somewhere else)? This matters when issues arise locally as well as when the employee wants to speak to someone in her/his/their own language (believe me, it happens more than you think).

🎫 4. Visa & Work Permit Sponsoring

Looking to onboard an employee that requires visa and work permit sponsorship? Make sure the EOR has the capabilities and/or availability with their quota, depending on the country.

⚖️ 5. In-Country Compliance

We verify whether the EOR is properly set up and registered to comply with all local licensing requirements (e.g. the AUG setup in Germany).

📝 6. Local Add-On Offering

We check the EOR’s local offering for additional, useful services such as:

• Extended health benefits
• Equipment provisioning (e.g. can they get you laptops locally?)
• Retirement & pension plans
• Corporate services such as company incorporation, accounting bookkeeping or recruitment services

An Employer of Record provides services that include hiring and paying employees on behalf of a foreign employer. It manages compliance with relevant laws and regulations, payroll and taxes, as well as benefits. 

The leading benefits of utilizing an EOR service include quick entry to market, excluding the delay and cost of establishing permanency in the host country. This solution involves minimizing financial and legal risks, such as permanent establishment and misclassification.

The primary advantages of using an EOR include fast market entry without the need to establish a local legal entity. Furthermore, there are reduced legal and financial risks, such as the risk of a permanent establishment and the potential for misclassification or incorrectly treating an employee as an independent contractor.

This arrangement supports global workforce management via centralized payroll and HR support. EORs also offer local expertise, enabling compliance with numerous labor regulations. They provide scalable options for growing companies. This model enables companies to hire globally quickly, legally, and efficiently, while minimizing administrative burdens and costs.

To choose the best EOR for your company, check out our comparison tool, our top EORs guide, or get in touch with our EOR experts.