What is an Employer of Record (EOR)?
An Employer of Record (EOR) is a third-party organization that legally employs workers on behalf of another company. The EOR handles all administrative and legal employment duties, including payroll, taxes, benefits, and local compliance, while the client company keeps full day-to-day control over the employee’s work.
Because the EOR is the legal employer in the country of hire, this arrangement lets businesses employ talent in places where they have no legal entity of their own—making it a cornerstone of modern global employment.
How does an Employer of Record work?
When a company wants to hire someone in a location where it isn’t established as a legal employer, it engages an EOR that already has a registered entity there. The worker is hired onto the EOR’s payroll and becomes its employee on paper, but reports to and is managed by the client company in practice. The EOR handles the administrative and legal machinery of employment; the client keeps full control over the role, tasks, and performance.
In practical terms, the EOR assumes responsibility for:
- International payroll and taxes — calculating wages, withholding income tax, and remitting social contributions in the local jurisdiction.
- Benefits administration — enrolling the employee in statutory and supplemental benefits such as health insurance, pension, and paid leave.
- Compliance — keeping employment contracts, terminations, and working conditions aligned with local labor law.
- Onboarding and offboarding — issuing compliant contracts, collecting documentation, and managing lawful separation.
- Full employment status — establishing the worker as a bona fide local employee, with the statutory rights and protections that come with it.
Employer of Record vs. PEO
An EOR is often confused with a Professional Employer Organization (PEO), but the two differ in one decisive way: who the legal employer is. A PEO uses a co-employment model, sharing employer responsibilities with a client that already has its own legal entity in the country of hire. An EOR becomes the sole legal employer, which means the client does not need a local entity at all.
| Feature | Professional Employer Organization (PEO) | Employer of Record (EOR) |
|---|---|---|
| Local legal entity required? | Yes — the client must own one | No — the EOR provides it |
| Employment model | Co-employment (shared responsibility) | Sole legal employer (fully transferred to the EOR) |
| Best for | Consolidating HR where you already operate | Hiring where you have no business presence |
| Day-to-day management | Client | Client |
One important nuance: co-employment is a US-specific legal structure, and most countries do not recognize it. As a result, services marketed as “international PEO” are almost always structured as an EOR behind the scenes.
Employer of Record vs. staffing agencies and contractors
Companies can engage international talent in several ways, and an EOR is one option among them. A staffing agency recruits and supplies workers, often for temporary or project-based needs. Independent contractors offer flexibility and are well suited to project-based, specialized, or short-term work. An EOR is the right fit when you want to bring someone on as a full, long-term employee—with local payroll, benefits, and protections—in a country where you have no legal entity. Each model serves a different purpose; the EOR is the one built specifically for compliant, long-term employment abroad.
Benefits of using an Employer of Record
Hire globally without a local entity
Entity setup—foreign subsidiary incorporation, tax registration, and local banking—can take months and cost tens of thousands of dollars. An EOR lets a company hire compliantly in a new market in days, using the EOR’s existing infrastructure instead.
Speed and simplicity
Because the EOR already handles local payroll, contracts, and benefits, onboarding a new international hire becomes a matter of days rather than a multi-month entity-setup project.
Compliance and reduced risk
Labor law, tax rules, and mandatory benefits vary widely between countries and change often. The EOR stays current with those requirements and carries the compliance burden, reducing the client’s risk of costly compliance missteps. This is especially valuable in regions like Latin America, where statutory mandates—such as 13th-month pay (aguinaldo), strict severance rules, and localized benefits—are complex and easy to get wrong.
Access to global talent
By removing the entity barrier, an EOR lets companies recruit the best person for a role regardless of where they live—an increasingly important advantage for building distributed and remote teams.
When should a company use an EOR?
An Employer of Record is most useful when a company needs to employ someone lawfully in a place where it isn’t set up to do so. Common scenarios include:
- Hiring remote or international talent without opening a local entity for each country.
- Testing a new market before committing to a full subsidiary.
- Converting contractors to employees when a working relationship becomes long-term or full-time.
- Retaining talent after a relocation, acquisition, or restructuring.
- Scaling quickly across borders while keeping compliance centralized.
Considerations and potential drawbacks
An EOR is not the right fit for every situation. Per-employee service fees mean that, at high headcount in a single country, establishing your own entity may eventually become more cost-effective. The client also cedes some administrative control over employment terms, since the EOR is the legal employer bound by its own contracts and local rules. For most companies hiring a handful of people across several countries, however, those trade-offs are outweighed by the speed, compliance, and reach an EOR provides.
Employer of Record FAQ
How much does an Employer of Record cost?
EOR providers generally use one of two pricing models: a flat monthly fee per employee (often a few hundred dollars per employee per month) or a percentage of the employee’s payroll (commonly in the range of 10–15%). Actual fees vary by country, salary, and provider, so it’s best to request a quote for the specific markets where you plan to hire.
Who owns the intellectual property created by an EOR employee?
The client company does. Because the EOR is the legal employer, a reputable provider uses employment contracts that assign the worker’s intellectual property to the EOR and then on to the client—an “employee-to-EOR-to-client” chain that keeps 100% of the work product owned by the company that directs the work.
Is an Employer of Record the same as a staffing agency?
No. A staffing agency sources and supplies temporary workers, while an EOR legally employs people you have already chosen, usually for long-term, full-time roles.
Who is the legal employer under an EOR arrangement?
The EOR is the legal employer of record for tax, payroll, and compliance purposes. The client company remains the day-to-day manager, directing the employee’s work and responsibilities.
Do I need my own legal entity to use an EOR?
No. That is the core advantage of an EOR over a PEO: the EOR already has a registered entity in the country of hire, so you can employ workers there without establishing one yourself.
Is using an Employer of Record legal?
Yes. EOR services are a well-established, compliant way to employ workers internationally. The model exists specifically to keep employment lawful across different tax and labor jurisdictions.