Hiring internationally offers game-changing benefits, from accessing a wider talent pool to significant cost savings. However, the complexities of global hiring – navigating foreign labor laws, managing payroll across borders, and ensuring compliance – can be daunting. In fact, a recent survey of nearly 500 small businesses revealed that while 54% plan to hire internationally, many are hindered by these very challenges.
This is where an Employer of Record (EOR) solution provides a strategic advantage. Here we explain in detail what an EOR is, how it works, and its key benefits and potential drawbacks compared to other hiring models.
What is an Employer of Record (EOR)?
An Employer of Record is a third-party service provider that legally hires and manages international employees on behalf of another company.
By becoming the official legal employer for compliance and payroll purposes, the EOR allows businesses to focus on their core operations while maintaining control over day-to-day tasks and responsibilities assigned to their employees.
The EOR plays a vital role in managing key administrative functions, including:
- Onboarding new employees
- Processing payroll and ensuring accurate tax compliance
- Managing workers’ compensation and benefits
- Adhering to local labor laws to avoid compliance issues.
An EOR acts as a bridge for companies expanding globally, eliminating the need to establish a physical presence or subsidiary overseas and to understand foreign labor and payroll laws.
What Does an EOR Do?
Managing a global team comes with a lot of moving parts and that’s where an Employer of Record (EOR) steps in. An EOR takes the administrative burden off your plate, handling the legal, HR, and compliance responsibilities needed to hire and manage employees in other countries.
Here’s a closer look at the core functions an EOR typically takes care of:
1. Employment Contracts and Onboarding
An EOR drafts compliant employment contracts in the country or region of hire. They then onboard the employee, ensuring that the employee is set up in the payroll and benefits system.
2. Payroll Processing
One of the most critical roles of an EOR is managing payroll and taxes for international employees. They ensure:
- Employees are paid on time and in their local currency.
- Taxes are withheld and filed according to local regulations.
- Compliance with all local laws by submitting required tax forms and avoiding penalties.
3. Benefits Administration
The Employer of Record will take care of benefits administration tasks for foreign employees:
- Managing Benefit Contributions and Allocations
The EOR ensures employees received their employee benefits as they fall due (such as paid parental leave) and keep track of benefit accrucals and allocations (such as paid time off) - Educating Employees About Benefits
The EOR ensures employees fully understand the benefits available to them. This may include hosting informational sessions, creating detailed guides, or offering one-on-one support to explain options. - Designing and Managing Benefits Packages
EORs work with businesses to create region-specific benefit plans. These plans often include health insurance, retirement contributions, paid leave, parental benefits, and wellness programs tailored to local labor laws and cultural expectations.
4. Worker’s Compensation and Unemployment Claims Management
EORs manage the administration of claims for workers’ compensation and unemployment, ensuring employers are not burdened with the complexities of these processes:
- Filing claims promptly with relevant authorities.
- Coordinating with insurance providers for resolutions.
- Monitoring claim statuses and keeping the process on track.
5. Labor Law Guidance and Compliance
EORs ensure compliance with local labor laws by leveraging their legal expertise and knowledge of the target country’s regulations. This includes:
- Drafting compliant contracts and policies.
- Providing ongoing guidance to client companies to navigate updates in labor laws.
6. Additional Services
EORs may also provide a range of other services as optional add-ons including:
- Procuring and delivering office equipment (e.g., laptops, printers).
- Managing logistics for remote or hybrid work setups.
- International recruitment and executive search.
- Work visa and permit support.
REMOTE PEOPLE NOTE
This is not a complete list of the duties and responsibilities that EORs typically assume. Every Employer of Record is different.
Employer of Record vs PEO
Professional Employer Organizations (PEOs) and Employers of Record are often mentioned together, and these terms are sometimes used interchangeably. While both solutions help businesses manage employees, understanding their differences is key to choosing the right option for your needs.
The main difference lies in their legal responsibilities. An EOR acts as the legal employer on behalf of the workforce of your company. By contrast, a PEO operates as a co-employer, assisting with payroll, benefits, and compliance. The PEO does not usually take sole responsibility for employment compliance.
For example:
- If you choose a PEO, you’ll need to establish a legal entity in the country where your employees are based. Once that’s in place, the PEO can assist with HR tasks like payroll and benefits administration.
- If you don’t want the hassle of setting up entities in foreign countries, an EOR is the better choice. They take on the responsibility of being the legal employer, managing compliance, and ensuring employees are paid correctly, freeing you to focus on your business.
In summary, if your company is expanding internationally and doesn’t have local entities, partnering with an EOR is the simplest way to hire and manage a global workforce. On the other hand, if you already have entities in place, a PEO can streamline your HR processes.
EOR vs. Contractor
When expanding internationally, businesses often choose between hiring employees through an Employer of Record or working with independent contractors. While both options can support global operations, they serve different purposes and involve varying levels of responsibility.
Key Differences:
- Legal Status
An EOR legally employs workers on behalf of your company and ensures compliance with local labor laws. Conversely, contractors are self-employed individuals who operate independently and are responsible for their taxes and benefits. - Compliance
Hiring through an EOR ensures compliance with labor regulations in the employee’s country, reducing the risk of penalties for misclassification. Contractors may expose businesses to compliance risks if their role resembles a full-time employee’s. - Control and Benefits
Employees under an EOR receive health insurance, paid leave, and retirement contributions. Contractors do not typically receive such benefits, as they are considered external to the company.
Which to Choose?
If your business needs long-term, full-time workers or wants to provide benefits while maintaining compliance, an EOR is the better choice. Contractors are ideal for short-term projects or specialized roles where flexibility is key.
EOR vs. AOR (Agent of Record)
While both Employers of Record and Agents of Record (AOR) help businesses navigate global hiring, their functions and responsibilities differ significantly.
Key Differences:
- Scope of Responsibility
An EOR is the legal employer for workers, managing payroll, taxes, benefits, and compliance. An AOR, in contrast, typically focuses on administering compliance and contract management for independent contractors without acting as the employer. - Target Workforce
EORs are used for hiring full-time employees, while AORs specialize in handling independent contractors and ensuring they meet local legal requirements. - Legal Employer Status
An EOR assumes full legal responsibility for employees, whereas an AOR acts as a third-party intermediary between the business and contractors.
Which to Choose?
If your business is focused on hiring full-time employees and managing payroll and benefits, an EOR is the right option. If you’re engaging independent contractors and need support with compliance and contracts, an AOR is more suitable.
Feature | Employer of Record (EOR) | Agent of Record (AOR) |
Scope of Responsibility | Manages payroll, taxes, benefits, and compliance. | Focuses on contractor compliance and contracts. |
Workforce Target | Full-time employees. | Independent contractors. |
Legal Employer Status | Acts as the legal employer. | Does not act as the legal employer. |
Use Case | Hiring and managing full-time international employees. | Ensuring contractor compliance and agreements. |
Employer of Record vs. Staffing Agency
Understanding the distinct roles of an Employer of Record (EOR) and a staffing agency is key to choosing the right solution for your business needs. While they might seem similar at first glance, their services and focus are actually quite different.
- Staffing Agencies
These agencies provide access to pre-screened talent for short-term, project-based, or temporary needs. They are ideal for companies looking to quickly fill positions without managing the hiring process. - Employer of Record Services
EORs enable businesses to hire talent they’ve sourced directly, ensuring compliance with local labor laws. Through the EOR’s legal framework, companies can onboard employees seamlessly while avoiding the complexities of payroll, taxes, and benefits management in a foreign country.
Combining staffing agencies with EOR services can create a powerful hiring strategy for companies aiming to build a global workforce, ensuring flexibility and compliance.
6 Benefits of Employer of Record Services?
Partnering with an Employer of Record (EOR) offers numerous advantages for businesses looking to expand internationally. By managing compliance, payroll, and HR processes, EORs simplify global hiring while reducing risks. Below, we outline the key benefits of using an EOR:
1. Reduced Compliance and Risk Management Burden
Hiring international employees requires strict adherence to foreign employment laws. Without compliance, businesses risk significant fines, penalties, or legal disputes.
An EOR helps reduce this burden by managing:
- Ensuring full compliance with local labor laws.
- Handling tax filings and proper employee classifications.
- Overcoming language barriers and cultural nuances in foreign markets.
By entrusting compliance to an EOR, companies can operate confidently and minimize legal risks.
2. Cost-Effective Global Expansion
Setting up a legal entity in another country can be both time-consuming and costly, often requiring thousands of dollars annually and complex registration processes. For example, establishing a business in China involves significant expenses and extensive bureaucracy.
- EORs provide a cost-effective alternative by enabling businesses to:
- Hire employees without forming a local entity.
Operate in new markets without the need for physical infrastructure.
This makes global expansion faster, easier, and more affordable.
Partnering with an EOR is a more affordable way to grow your company on a global scale.
We’ll explore EOR costs in greater detail later on in this article.
3. Stronger Focus on Core Business Activities
Managing international HR, payroll, and compliance tasks can drain valuable resources, especially for small to midsize companies. By outsourcing these responsibilities to an EOR, businesses can:
- Redirect their attention to strategic priorities like product development and market growth.
- Free up internal teams for customer engagement and other mission-critical activities.
4. Reduced Administrative Workload
Hiring internationally often involves extensive paperwork, from benefits administration to contract management. An EOR takes over these time-consuming administrative tasks, enabling your team to focus on high-impact business operations.
Key administrative services include:
- Managing employee benefits and contracts.
- Ensuring smooth onboarding and payroll processes.
With an EOR, your HR team can concentrate on scaling operations rather than handling routine paperwork.
5. Prevention of Misclassification of Workers
Misclassifying workers as contractors instead of employees is a common risk for companies hiring internationally. Many countries enforce strict regulations that distinguish between employees and contractors, with steep penalties for non-compliance.
An EOR mitigates this risk by:
- Ensuring proper worker classification under local labor laws.
- Taking full responsibility for compliance, so your business avoids legal pitfalls.
6. Faster Employee Hiring and Termination Processes
Navigating the legal and procedural requirements for hiring and terminating employees in different countries can be challenging. EORs streamline these processes, enabling businesses to:
- Onboard talent quickly and compliantly.
- Scale their workforce up or down with flexibility.
- Respond to new market opportunities faster than competitors.
With the expertise of an EOR, businesses can expand their global teams seamlessly and with agility.
Cons of Employer of Record Services
While Employer of Record services provide numerous advantages, they also come with potential limitations. Understanding these drawbacks is essential before committing to an EOR partnership.
Inconsistent Service Quality Among EORs
Not all EOR providers deliver the same level of service. Some excel in compliance but lack advanced payroll systems or have limited coverage in specific countries.
SOLUTION
- Vet potential EOR partners thoroughly.
- Read reviews, request client references, and clearly outline service expectations in a written agreement.
- Establishing a strong partnership from the outset can prevent future service issues.
Hidden Costs
Some EOR agreements may include unexpected fees, such as charges for contract termination, customized employee benefits, or specialized legal services. These costs can inflate your budget and create financial surprises.
SOLUTION
- Request a transparent breakdown of all fees before signing a contract.
- Document all pricing structures in writing and negotiate terms that align with your budget.
Dependency Risk
Relying heavily on an EOR can create vulnerabilities if their services are disrupted or terminated. This could lead to payroll delays, compliance issues, or employee dissatisfaction.
SOLUTION
- Diversify your approach by building internal knowledge of compliance and HR processes.
- Develop contingency plans, such as alternate service providers or backup workflows.
- Regularly review your EOR partner’s performance to ensure they meet your evolving needs.
Scalability Challenges for Long-Term Growth
While EORs are ideal for small teams or market entry, they may become restrictive as your global presence grows. High costs and reliance on third-party systems can limit efficiency for larger enterprises.
SOLUTION
- Monitor the costs and operational challenges of maintaining EOR services.
- When your team scales, consider transitioning to a local entity to gain greater control and flexibility.
Pros and Cons of Employer of Record Services – At a Glance
Pros | Cons |
Reduced Compliance Risks: EORs handle foreign legal requirements, minimizing the risk of penalties. | Inconsistent Service Quality: Some EORs may lack robust systems or global coverage. |
Cost-Effective Expansion: Businesses can enter international markets without creating local entities. | Hidden Costs: Additional fees may arise for contract termination or special services. |
Focus on Strategic Goals: HR and payroll tasks are managed, freeing up resources for growth. | Dependency Risks: Relying on EORs can create vulnerabilities if services are disrupted. |
Reduced Administrative Workload: Administrative tasks like benefits and contracts are handled by the EOR. | Scalability Challenges: EORs may not be ideal for larger teams or long-term operations. |
Worker Misclassification Prevention: EORs ensure proper worker classification to avoid compliance issues. | |
Faster Hiring Processes: EORs streamline onboarding and termination globally. |
How Much Do EOR Services Cost?
When it comes to EOR service costs, you should expect to pay anywhere from $100 to $700 per hired employee per month. The pricing may also be structured as a percentage of each employee’s salary.
In addition to that service fee, you may be charged other fees:
- Onboarding fee (typically a one-time fee)
- Deposit
*Not all EORs post their pricing publicly. You may need to speak directly with the company to learn more about pricing.
REMOTE PEOPLE FURTHER READING
Read our 2025 EOR Cost Guide for more important information about these costs and a comparison of over 60 EOR providers.
Should You Use an Employer of Record?
Though EOR services are a newer form of employment, the EOR market is projected to reach $6794.5 million by 2028. Many companies are taking advantage of employers of record. But is it the right fit for you?
If you’re having trouble deciding whether you should work with an EOR, answer the following questions:
- Are you looking to expand into one or more foreign countries but don’t have the desire or ability to set up a legal entity in those areas?
- Do you have enough cash flow to pay several hundred dollars per month per employee for employer of record services?
- Are you struggling to handle your business’s international hiring needs in-house or otherwise?
- Do you have an immediate need to add international employees to your team?
- Do you suspect that becoming and remaining compliant with foreign employment laws would be an issue for your company?
If you answered “yes” to any of the above questions, we advise that you explore EOR services for your business. You could find that a work arrangement involving an EOR is a total game-changer.
How to Get Started With an EOR
Have you decided to go forward with an employer of record service? Gathering insight into what to expect during the process can prevent frustration and save you time. Here’s a step-by-step procedure for how to get started with an EOR
- Do some research into your company’s needs.
What roles do you want to hire international talent for? What goals are you hoping to meet by bringing an EOR on? - Dive into your EOR provider options.
Get to know top-quality employer of record organizations. Then, narrow your list down to those you believe can meet your specific needs. - Talk to your shortlisted EORs
Discuss their pricing and how they approach international employee contracting. It’s also important to determine which duties the EOR will handle and how you’ll compensate for any gaps. - Select and sign up for your EOR.
Follow the EOR’s sign-up process, being very mindful of the terms and conditions of the arrangement. - Check in with the employer of record regularly.
Regularly check-in with your EOR to assess the success of the partnership and address any issues that may arise. - Draft a plan
Outline how you intend to scale with or disconnect from the EOR in the near or distant future.
REMOTE PEOPLE FURTHER READING
Delve into our comprehensive guide, “How to Choose an Employer of Record (EOR) in 7 Steps”, to gain valuable insights on selecting the perfect EOR for your business needs.
So, there you have it – everything you need to know about employer of record services as a business. We hope you found all the information you were looking for, and we wish you the best in your efforts to expand and solidify your firm as a formidable contender in your industry.
How to Choose the Right Employer of Record (EOR) for Your Business
Selecting the right Employer of Record (EOR) is a vital decision for companies looking to expand globally. With so many options available, the process can be overwhelming and time-intensive.
Partnering with an EOR broker like Remote People simplifies this process by connecting you with the most suitable EOR providers based on your specific needs.
What Does an EOR Broker Do?
An EOR broker evaluates your business requirements, including:
- Regional presence: Ensuring the EOR operates in your target markets.
- Compliance support: Helping you navigate local labor laws and regulations.
- Service offerings: Matching you with providers that align with your hiring needs.
The broker’s expertise ensures you are paired with top-tier EOR providers that excel in these areas.
Why Choose Remote People?
Remote People saves you time and resources by:
- Conducting in-depth assessments to identify your ideal EOR match.
- Offering exclusive discounts negotiated with trusted EOR providers.
- Providing a seamless and efficient solution for international hiring.
With Remote People, finding the perfect EOR becomes effortless. Let our team guide you in streamlining your global expansion efforts and achieving cost-effective, compliant international hiring.
Contact Remote People today to simplify your global hiring process and unlock new market opportunities with confidence.
Frequently Asked Questions (FAQs)
Authors:
Susan is an experienced, certified HR and compliance professional who provides HR and compliance strategies to companies with global and US-based teams.
