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As the global workforce continues to remain flexible and talent shortages still plague many industries, organizations are increasingly hiring across borders. However, hiring and managing employees in different countries can get complicated…and fast! That’s where an Employer of Record (EOR) comes in. EOR companies become the legal employer of your international workforce, taking care of payroll, HR, taxes and compliance, leaving you to focus on core business.
However, before you move forward with an EOR solution, it’s important to understand the legal landscape—and where potential risks could arise.
First, is an Employer of Record (EOR) legal in the country or countries where you want to expand your workforce? The rules for EORs vary depending on the region, so it’s important to know where it’s fully permitted.
Second, what key legal factors should you understand before moving forward? Knowing the legal landscape ahead of time can help you avoid costly mistakes and stay compliant.
Third, how can an EOR make international hiring smoother and help your organization grow confidently across borders?
We’ll cover everything you need to know right here.
What is an Employer of Record (EOR)?
Let’s start out by defining what an Employer of Record (EOR) is. An EOR is a third-party organization that provides a legal structure/vehicle to overseas companies, allowing them to hire an international workforce. As part of this role, the EOR manages payroll, benefits, taxes, and compliance with local labor laws.
What immediate benefit does an EOR provide? An EOR allows businesses to legally hire workers in various regions without the company itself having to set up a physical location in the target country. Instead, the EOR is authorized in the country to take on the role of the local business entity. In the meantime, the company is free to focus on day-to-day employment responsibilities like task management and training of their workers.
An EOR is a great model for organizations that need to adapt to market conditions and scale their business. They can grow quickly without the hassle of setting up legal entities in every country where there are opportunities. By taking care of all the formalities, the EOR supports global businesses with a wide range of employment solutions.
That is, if the EOR is considered legal under the country’s rules.
Is an EOR Legal in All Countries?
Is an EOR considered a legal option in all countries. In short, no. The legality of EORs depends on each country’s labor and taxation laws and any global restrictions.
It also depends on where the EOR is based. EORs based in the United States and some other countries are prohibited from operating in Cuba, Iran, North Korea Russia, Syria, and some regions of Ukraine.
While many countries recognize EORs, they also may have restrictions or specific regulations governing their use. For instance, Australia, the U.S., and the U.K. are for the most part EOR-friendly, while countries like China, Japan, and United Arab Emirates (UAE) impose strict labor laws that are more complex and difficult to navigate.
Across regions like the European Union (EU), the EOR model is recognized, but individual countries like Austria, Belgium, France, Germany, Italy, Portugal, and Spain each have their own labor laws that regulate (though don’t prohibit) EOR activities by foreign businesses. So that means an EOR that is fine in one country may not be considered compliant with the labor laws of a neighboring country.
There are also some countries which are proposing restrictions on EOR, like the Netherlands, but are yet to come into effect.
We consider the legality of EOR in six of the most popular countries for EOR services below.
Legal Restrictions on EOR in Germany
In Germany, there is a German Temporary Employment Act, known as the Arbeitnehmerüberlassungsgesetz (AÜG).which covers labor leasing activities. This law mandates that companies supplying employees to work under the supervision and direction of a third party must obtain an AÜG license from the Federal Employment Agency (Bundesagentur für Arbeit). The AÜG requires equal pay and working conditions for temporary workers compared to permanent staff and limits the duration of temporary assignments to a maximum of 18 months per worker with a client.
For EOR providers in Germany, this means they are generally considered temporary work agencies and must comply with the AÜG’s licensing requirements. Non-compliance can lead to significant fines up to €500,000, prohibition from engaging in labor leasing activities, and possible reclassification of the employment relationship, making the client the direct employer. Therefore, EOR services must ensure full compliance with the AÜG to operate legally in Germany.
Note, there appears to be some EOR companies that are offering ongoing contracts in Germany under a “consultancy” arrangement: The worker becomes a “regular” employee of the EOR based in Germany, and then is assigned to the client company as a ‘consultant’. Whether or not such an arrangement is compliant with the AUG will depend on the specifics of the case.
Legal Restrictions on EOR in France
Generally speaking, Employer of Record arrangements in France are not restricted. However, for any France EOR that supports independent contractors through contractor of record services the wage portage (portage salarial) regulations apply.
Portage salarial is governed by the French Labor Code. Under Articles L1254-1 to L1254-31 of the Code du travail, portage salarial is a unique employment arrangement where a specialized company (the portage firm) becomes the technical employer for freelancers or contractors and the contracts their services to a client company.
The portage firm is responsible for payroll, and social security contributions, much like a UK umbrella company.
Companies interested in becoming an EOR in France will need to consider whether they need to register as a portage firm if they wish to support contractors. This includes providing employees with professional liability insurance and adhering to labor laws and regulations applicable to portage salarial. Failure to comply may result in fines, legal sanctions, and reclassification of the worker as an employee of the client company.
Legal Restrictions on EOR in the United States
In the United States, EOR services operating as Professional Employer Organizations (PEOs) are subject to state-level regulations. PEOs enter into co-employment relationships with clients, sharing employer responsibilities. Many states require PEOs to register, obtain licenses, or meet financial assurance requirements. For example, Florida mandates licensing, financial statements, and background checks under Chapter 468, Part XI. Similarly, Texas requires registration and compliance with financial responsibility under Chapter 91 of the Texas Labor Code. Regulations vary significantly between states, and some states like California do not have specific PEO statutes but require compliance with general labor laws.
EORs operating in the United States must ensure that they comply with PEO and employee leasing rules. This includes obtaining necessary licenses, meeting financial requirements, and adhering to reporting obligations. Non-compliance can result in penalties, including fines and legal action, and may lead to loss of the ability to operate within the state.
Note, there have been instances of US EORs being reported to authorities for not complying with PEO regulations.
Legal Restrictions on EOR in China
In China, EOR services are not directly regulated. However, some third-party labor arrangements are regulated under the Labor Contract Law of the People’s Republic of China. Articles 66-75 of the Labor Contract Law govern labor dispatch, limiting its use to temporary, auxiliary, or substitute positions, and stipulating that dispatched workers should not exceed 10% of the total workforce. The law mandates equal pay for equal work for dispatched employees.
Whether or not EOR providers in China might be considered labor dispatch agencies, and need a labor dispatch operation permit, depends on the scope of their services. Non-compliance can lead to administrative penalties, fines, and potential civil liabilities toward the dispatched workers, and may result in forced cessation of illegal operations.
Legal Restrictions on EOR Services in Australia
In Australia, certain states have implemented labor hire licensing schemes to regulate providers and protect workers from exploitation. Often, these licensing regimes apply to the activities of EORs in Australia.
In Queensland, the Labor Hire Licensing Act 2017 requires labor hire providers to obtain a license, comply with fit and proper person tests, and meet regular reporting obligations. Similarly, Victoria’s Labour Hire Licensing Act 2018 mandates licensing and compliance with workplace laws.
EOR providers operating in these states must obtain labor hire licenses and comply with state-specific obligations. Failure to comply can result in significant fines (up to AUD 400,000 for companies in Queensland), prohibition from providing labor hire services, and reputational damage. It’s essential for EOR services to ensure they meet all licensing and compliance requirements to operate legally in Australia. Additionally, all Australian EORs must adhere to the Fair Work Act 2009, which establishes minimum employment standards at the federal level.
Legal Restrictions on EOR Services in Singapore
Singapore was once a popular location for companies to hire via EOR services. However, as of 2024, Singapore’s Ministry of Manpower has announced that Singapore EORs can no longer sponsor work visas/employment passes in Singapore.
With so many expat workers in Singapore, this is a major restriction for businesses looking to hire top talent in Singapore.
How to Protect Yourself Legally When Using an EOR
Companies that are thinking about partnering with an EOR need to do their homework before agreeing to this arrangement. They also need to know some key legal considerations and steps that can help to make this a successful choice for expanding their workforce capabilities. Here’s a few to get you started:
Do Your Due Diligence
Before deciding to use the support of an EOR, it’s important to research their legal standing and review their track record in the country where you plan to hire workers. Ask for references from their clients who’ve hired the EOR to set up their legal employment entity there. Verify a few things, such as if they’ve complied with the local labor and tax regulations and if they possess the required credentials. For example, are they registered as an official staffing provider in the country you are targeting?
You’ll also want to ensure that they have measures in place to protect sensitive employee and company data – especially in regions with unfamiliar legal landscapes like those in the Middle East and Africa. Lastly, confirm how they protect the well-being and fair treatment of employees. As an ethical employer, the EOR must align with your core values and practices.
Review the Local Labor Laws in the Target Country
Since every country will have its own set of labor laws, including tax regulations and workers’ rights, it’s important to take the time to review them before hiring in the country you plan to hire in. Confirm that the EOR is carefully following the specific country’s legal framework. There can also be variations in regions within the target country, so be sure to ask about this too. Deloitte provides an international employment law guide that is a good place to start.
Use a Clear, Complete, and Legally Binding Contract
Clear, legally binding agreements between the company and the EOR are essential to define responsibilities and ensure compliance with all relevant laws. A complete contract with the EOR will outline factors such as how employment contracts are managed, how any tax liabilities are handled, and what steps they take to ensure employee data is protected. In addition, the contract should be transparent about fees and payment terms. Have the contract reviewed by an expert in EOR laws to avoid potential legal challenges.
Have a Risk Management and Contingency Plan
As with all business decisions, have a plan to handle any potential circumstances that can arise from using an EOR. Certain legal risks are to be expected at times because of changes in the labor and tax laws of other countries. Employee disputes are just part of hiring, however when it happens in unfamiliar regions, it can become complicated and stressful. By creating contingency plans and having someone to oversee risk management, your experience partnering with an EOR can be a pleasant one.
Monitor EOR Compliance with Frequent Audits
Once you’ve chosen an EOR provider and the terms are agreeable, know that it’s still your responsibility to monitor things. As the actual employer, you are still accountable if the EOR doesn’t remain licensed or compliant with the laws in the new country. Set up a schedule to audit the EOR’s business practices and request updates on a frequent basis. The damage caused by data breaches, labor law violations, and employee disputes are preventable, as long as you keep a watchful eye.
How EORs Benefit Organizations
Expanding into new countries can be a smart, strategic move for any organization, but it also comes with significant challenges. This is where an Employer of Record (EOR) can make a major difference.
One of the biggest advantages of using an EOR is the ability to legally hire and operate in a new country without the need to set up your own local entity. In many regions, establishing a legal entity is a requirement before hiring employees and doing so independently can be costly, complex, and time-consuming. Mistakes, even unintentional ones, can expose companies to legal risks, fines, and tax penalties.
An experienced EOR handles these challenges for you. They stay up to date with evolving international employment and tax laws, manage administrative tasks like payroll and benefits, and ensure ongoing compliance with local labor regulations.
By partnering with an EOR, companies can enter new markets faster, access fresh talent pools, and test expansion strategies without overcommitting resources. Whether used as a flexible, short-term bridge or a long-term global employment solution, an EOR allows businesses to focus on what they do best, growing their core operations, while minimizing risk and complexity abroad.
Mitigate your Legal Risks when Choosing an EOR
Using an Employer of Record (EOR) is a legal and effective solution for hiring globally, as long as your provider fully complies with local labor, tax, and employment laws. To protect your business, it’s important to partner with an EOR that understands the legal landscape in every country where you plan to operate.
Remote People’s EOR service helps you expand safely and confidently across borders by providing compliant, fully supported Employer of Record solutions tailored to your global hiring needs.
To get the latest updates on which countries are restricting or banning EOR services see our ‘Is This the End of EOR?‘ Guide.
FAQs About Employer of Record (EOR) Legality
Yes, using an Employer of Record (EOR) is fully legal in the United States. However, the EOR must comply with all federal and state employment laws, including IRS guidelines and Department of Labor regulations. Choosing a reputable, experienced EOR ensures that worker classification and payroll practices are properly handled.
In some countries, yes. Certain EOR providers can sponsor work permits, such as a KITAS in Indonesia or a work visa in the U.K., as part of their services. However, visa sponsorship availability depends on local immigration laws, so it's important to confirm whether your EOR offers this support in your target country.
If an EOR fails to comply with labor, tax, or immigration laws in a given country, your business could still face legal exposure, fines, or penalties. That's why it’s vital to work with an EOR that has deep expertise in the local laws of every country where you operate. Remote People’s EOR broker service helps ensure you only partner with trusted, fully compliant providers.
Yes. While EOR services are widely accepted in places like the U.S., Canada, and most of Europe, some countries have tighter restrictions. For example, China requires licensed labor dispatch arrangements, and Saudi Arabia and Qatar impose strict rules on third-party employment. Always consult local guidelines - or work with experts - to navigate these markets safely.
