Employer of Record

How an employer of record works

You find the person you want to hire. The EOR then becomes their legal employer in that country. It issues a locally compliant employment contract, registers the worker with tax and social security authorities, runs monthly payroll in local currency, withholds income tax and social contributions, provides statutory benefits and handles leave, sick pay and termination rules.

You manage the work: goals, schedule, tools, performance reviews and day-to-day decisions. The EOR invoices you each month for the employee's full cost plus its service fee.

The practical split looks like this:

• You own: selection, job duties, performance, pay decisions within local rules, equipment, IP and confidentiality expectations.
• The EOR owns: the employment contract, payroll, tax filings, mandatory benefits, statutory leave administration, payslips and the legal side of offboarding.

The EOR is not a recruiter. Some offer sourcing as an add-on, but the core service starts after you have chosen the person.

When companies use an EOR

The classic case is global hiring without setting up a subsidiary. Opening a legal entity in a new country can take months and involves registered addresses, local directors in some countries, bank accounts, accounting and ongoing filings. For one to twenty employees, an EOR is usually faster and cheaper.

Other common uses:

• Testing a market. A software company hires three sales reps in Germany through an EOR before deciding whether to open a GmbH.
• Converting contractors. A team of long-term freelancers in Latin America who really function as employees can be moved onto an EOR to reduce misclassification risk.
• Acquisitions and transitions. Keeping acquired staff on payroll while entities are merged.
• Remote hires in other US states. Some domestic EORs handle state registration, withholding and unemployment insurance for a single out-of-state hire.

Once headcount in a country passes roughly 15 to 30 people, many companies find a local entity is cheaper over time, and they transfer employees off the EOR.

What an EOR costs

Pricing is usually a flat monthly fee per employee, on top of the employee's salary and the employer-side statutory costs. For international EOR services, fees commonly fall around $400 to $1,000 per employee per month, depending on the country and provider. Some providers charge a percentage of payroll instead, often in the range of 10% to 20%.

Watch the extras: foreign exchange margins, onboarding and offboarding fees, deposits (often one to three months of employment cost held as security), and charges for supplementary benefits like private health insurance.

A worked example: a US company hires a customer success manager in Poland at a gross salary equivalent to $4,000 a month. Employer social contributions add about 20%, or $800. The EOR fee is $599. Monthly invoice: roughly $5,400. Opening a Polish entity would avoid the $599 fee but add accounting, legal and payroll vendor costs that easily exceed $7,000 a month for a single employee.

Employer of record vs PEO

These are confused all the time because both take on HR administration. The difference is who the legal employer is and whether you need your own entity.

A PEO uses a co-employment model. You and the PEO share employer responsibilities, but you must already have a legal entity in the country, and you remain the employer for most legal purposes. PEOs are mainly a US product used by small and mid-sized businesses to access better benefits and offload payroll and HR admin.

An EOR is the sole legal employer. You do not need an entity. That is why EORs dominate cross-border hiring and PEOs dominate domestic small-business HR.

Short version: no entity in the country, use an EOR. Have an entity and want help with benefits and admin, look at a PEO.

Risks and what to check before signing

An EOR reduces risk. It does not remove it.

• Permanent establishment. If an EOR employee signs contracts or generates revenue on your behalf in a country, tax authorities may decide your company has a taxable presence there. Sales roles carry the most risk. Get tax advice before hiring revenue-generating staff abroad.
• Termination rules. Many countries require notice periods, severance and a valid reason for dismissal. An EOR cannot make an at-will termination legal in a country that has no at-will employment.
• IP assignment. Make sure the employment contract assigns work product to you, not to the EOR, and that local law recognizes that assignment.
• Owned vs partner entities. Some EORs own their entities in each country; others use local partners. Partner networks can mean slower answers and inconsistent service. Ask which countries are owned.
• Data protection. The EOR processes employee personal data, so in the EU you need a GDPR-compliant data processing agreement.

Employment law varies widely by country and by US state, so confirm specifics locally.

Common mistakes

Treating EOR employees like contractors is the big one. They are employees with statutory rights, so managers cannot drop them with a week's notice or ignore local working-time limits.

The second is staying on an EOR too long. Fees that make sense for three people become expensive at forty. Review the entity question every year in each country where you have more than about 10 EOR employees.

The third is forgetting the employee experience. Payslips, benefits questions and leave requests go through the EOR, so slow or unclear support lands on your people. Ask current customers how quickly the provider answers employee questions before you sign.