What Is an Employer of Record? The Complete Guide for Global Hiring
Everything you need to know about Employers of Record — what they are, how they work, what they cost, and when your company needs one. A practical guide for teams hiring internationally without setting up foreign entities.
Key Takeaways
- An EOR is a third-party organization that legally employs workers on behalf of another company, handling payroll, taxes, benefits, and compliance in countries where you don't have a legal entity
- You keep full operational control — the EOR handles the legal employment relationship while you manage the employee's day-to-day work, goals, and performance
- Companies typically use EORs when expanding internationally to avoid setting up foreign entities, which costs $20K-$100K+ per country and takes 2-6 months
- The global EOR market is projected to reach $6.6 billion by 2028, growing at 6.9% CAGR — driven by remote work and the demand for borderless hiring
In This Guide
What Is an Employer of Record?
An employer of record (EOR) is a third-party organization that becomes the legal employer of your workers in a foreign country. The EOR takes on all formal employment responsibilities — payroll processing, tax withholding, benefits administration, and compliance with local labor laws — while you retain full day-to-day management of the employee's work.
In practical terms, the employer of record meaning is simple: it's a way to legally hire someone in a country where your company doesn't have a registered business entity. Instead of spending months and tens of thousands of dollars incorporating abroad, you partner with an EOR that already has legal entities in your target countries. They put the employee on their local payroll, and you pay the EOR a service fee.
The Relationship in Simple Terms
Your Company
Selects the employee, assigns their work, manages their performance, sets their role and responsibilities
The EOR
Becomes the legal employer, runs payroll, withholds taxes, provides locally compliant benefits and contracts
The Employee
Works for your company in practice, receives pay and benefits through the EOR, is protected by local labor law
You may also hear this model called "international PEO" in some contexts, though there's an important distinction. A PEO (Professional Employer Organization) requires you to already have a legal entity in the country — the PEO co-employs workers alongside your existing entity. An EOR requires no entity at all. For a deeper comparison, see our guide on EOR vs PEO differences.
Important Distinction
An EOR is not a contractor arrangement. Employees hired through an EOR receive full employment protections under local law — including minimum wage, overtime, paid leave, severance, and social security contributions. This protects both the worker and your company from misclassification risk.
How Does an EOR Work?
The EOR process is straightforward. From identifying a candidate to having them fully onboarded and compliant, the typical timeline is 1-2 weeks — compared to 2-6 months if you were setting up your own foreign entity. Here's how it works step by step:
You Identify Talent in a Target Country
You source and select your candidate through your own recruiting process — job boards, referrals, recruiters, or internal networks. The EOR doesn't find talent for you (that's a staffing agency). You choose exactly who you want to hire.
The EOR Creates a Locally Compliant Employment Contract
The EOR drafts an employment agreement that meets all local legal requirements — including mandatory clauses for probation periods, notice periods, non-compete terms, and statutory benefits. In countries like Brazil or France, employment contracts must follow strict templates. The EOR handles this complexity.
The EOR Runs Payroll, Withholds Taxes, and Provides Benefits
Each pay cycle, the EOR calculates the employee's gross-to-net pay, withholds income tax and social contributions, remits payments to the relevant tax authorities, and deposits the net salary to the employee. They also administer statutory benefits like health insurance, pension contributions, and paid leave per local law.
You Manage the Employee's Daily Work
The employee reports to you, follows your processes, uses your tools, and works toward your company's objectives. The EOR has no involvement in work assignments, performance reviews, or team dynamics. From the employee's perspective, they work for your company — the EOR is simply the administrative entity on their payslip.
The EOR Handles Termination if Needed
If you need to end the employment relationship, the EOR manages the process in compliance with local labor law. In many countries (especially in Europe, Latin America, and parts of Asia), termination requires mandatory notice periods, severance calculations, and specific documentation. Getting this wrong can result in wrongful termination lawsuits — the EOR ensures it's done correctly.
When Do Companies Need an EOR?
Not every international hiring situation requires an EOR. But in most cases where you're hiring employees (not contractors) in a country where you don't have a legal entity, an EOR is the fastest and most cost-effective path. Here are the most common scenarios:
Expanding to a New Country
You've decided to hire in Germany, India, or the Philippines, but you don't have a legal entity there. Setting one up would cost $20K-$100K+ and take 2-6 months. An EOR lets you hire in 1-2 weeks with zero entity setup.
Hiring Remote Workers Abroad
You found the perfect candidate, but they live in a country where your company has no presence. Rather than forcing them to relocate or engaging them as a contractor (with misclassification risk), an EOR provides compliant full-time employment.
Testing a New Market
Before committing to full entity setup, you want to test demand in a new market with a small team. An EOR lets you hire 1-5 people to validate the opportunity without the overhead and commitment of incorporating abroad.
Small Team, Big Costs Don't Make Sense
You need 1-20 employees in a country. Entity setup, maintenance, local accounting, and compliance would cost more than the EOR fee. The breakeven point where owning an entity makes sense is typically around 15-20+ employees in most countries.
You Need to Onboard Fast
Entity registration in countries like Brazil or India can take 3-6 months. If you have a signed candidate waiting, you can't afford that timeline. EOR onboarding typically takes 5-14 business days, depending on the country and the complexity of the employment terms.
EOR vs Direct Hiring: Key Differences
The core question most companies face is whether to hire through an EOR or set up their own legal entity for direct employment. Here's how the two approaches compare across the factors that matter most:
| Factor | EOR | Direct Hiring (Own Entity) |
|---|---|---|
| Setup time | 1-2 weeks | 2-6 months |
| Setup cost | $0 (no entity needed) | $20K-$100K+ per country |
| Ongoing cost | $199-$699/employee/month | Entity maintenance + in-house HR |
| Compliance risk | EOR assumes liability | You assume full liability |
| Scalability | Add/remove employees easily | Fixed overhead regardless of headcount |
| Operational control | Full operational, shared legal | Full control |
| Best for | 1-20 employees, speed, market testing | 20+ employees, long-term commitment |
The general rule of thumb: if you're hiring fewer than 15-20 people in a country, an EOR is almost always more cost-effective than entity setup. Once your headcount grows beyond that threshold, the per-employee EOR fees start to exceed what you'd pay to maintain your own entity and in-house HR.
Many companies also use a hybrid approach — starting with an EOR to test a market quickly, then transitioning to their own entity once the team reaches critical mass. Most EOR providers support this transition and will help transfer employees to your new entity. For a detailed comparison of the top providers, see our guide on the best employer of record companies in 2026.
What Does an EOR Handle?
An EOR takes responsibility for all the legal, administrative, and regulatory aspects of employing someone in a foreign country. Here's a breakdown of what's typically included:
Payroll Processing & Tax Withholding
Calculates gross-to-net pay, withholds income tax and social security contributions, remits payments to local tax authorities, and delivers payslips to employees — all on the correct local schedule (monthly in most of Europe, bi-weekly in others).
Employment Contracts
Drafts and maintains locally compliant employment agreements that include all mandatory clauses required by local law — probation periods, notice periods, working hours, intellectual property assignments, and non-compete provisions.
Benefits Administration
Enrolls employees in mandatory statutory benefits (health insurance, pension, social security) and administers supplemental benefits like private health coverage, dental, life insurance, and meal vouchers that are standard in certain markets.
Statutory Compliance & Labor Law
Ensures adherence to local employment regulations including minimum wage, overtime rules, maximum working hours, mandatory rest periods, annual leave entitlements, maternity/paternity leave, and anti-discrimination requirements.
Work Permits & Visa Sponsorship
Sponsors and processes work visas and permits for employees who need authorization to work in the target country. This is particularly relevant when hiring foreign nationals or relocating existing team members to a new market.
Termination & Severance
Manages the termination process in full compliance with local law — including required notice periods (up to 3 months in some European countries), severance pay calculations, exit documentation, and any mandatory consultation processes with works councils or unions.
HR Documentation & Record-Keeping
Maintains all required employment records, handles statutory reporting to government agencies, manages employee data in compliance with local privacy regulations (like GDPR in Europe), and produces required annual filings and tax documentation.
Workers' Compensation & Insurance
Provides required workers' compensation coverage and employer liability insurance. In many countries, employers are legally required to carry specific insurance policies — the EOR ensures these are in place from day one.
Benefits of Using an EOR
The advantages of an EOR go beyond just avoiding entity setup. Here's why thousands of companies — from Series A startups to Fortune 500 enterprises — are using EOR services in 2026:
Speed: Hire in Days, Not Months
Entity registration in most countries takes 2-6 months. An EOR can onboard an employee in 5-14 business days. When you've found the right person, you can't afford to lose them to a competitor while you wait for incorporation paperwork. Speed is often the primary reason companies choose an EOR, especially in competitive talent markets.
Compliance: Reduce Legal Risk in Unfamiliar Jurisdictions
Employment law varies dramatically by country. Germany requires works council consultation for layoffs. Brazil mandates 13th-month salary payments. India has state-level labor law variations. An EOR has local legal expertise in every country they operate in, ensuring you never accidentally violate a regulation you didn't know existed.
Cost Savings: Avoid Entity Setup Costs
Setting up a foreign entity costs $20K-$100K+ per country when you factor in registration fees, legal counsel, registered agents, local accounting, and initial compliance setup. For 5 employees at $500/month EOR fees, your first-year cost is $30K — significantly less than entity formation plus ongoing maintenance. The math changes at 15-20+ employees, at which point entity ownership becomes more economical.
Flexibility: Scale Up or Down Without Entity Overhead
If a market doesn't work out, you can wind down EOR employees cleanly without the burden of dissolving a foreign entity (which itself can take months and cost thousands). This makes EORs ideal for market testing, project-based international hiring, and companies whose headcount fluctuates across countries.
Focus: Spend Time on Business, Not Foreign Labor Law
Without an EOR, your HR and legal teams need to become experts in every country's employment regulations. With an EOR, those teams can focus on company culture, talent development, and business strategy while the EOR handles the administrative burden of multi-country compliance.
Talent Access: Hire the Best Person Regardless of Location
The strongest argument for EOR services is that they remove geography as a constraint. When you can hire compliantly in 150+ countries, you're no longer limited to the talent pool in your headquarters city. This is especially powerful for specialized roles where the best candidates may be in Berlin, Bangalore, or Buenos Aires.
EOR Costs and Pricing Models
EOR pricing has become more transparent and competitive over the past two years, with most providers moving toward fixed per-employee fees. Here are the two common pricing models:
Fixed Fee Per Employee
$199 - $699/month
The most common model. You pay a flat rate per employee per month regardless of their salary. This is the standard pricing at Deel ($599), Remote ($599), Oyster ($599), and Papaya Global ($650). Some providers like Remofirst and Multiplier offer lower rates starting at $199-$300/month.
Most predictable cost structure. Best for higher-salary employees.
Percentage of Payroll
10% - 25% of salary
Some providers (often regional or country-specific EORs) charge a percentage of the employee's gross salary. This can be more economical for lower-salary employees in emerging markets, but costs scale quickly for higher-paid roles.
Better for lower-salary markets. Less predictable as salaries change.
What's Typically Included vs. Extra
Usually Included
- Payroll processing & tax withholding
- Locally compliant employment contracts
- Statutory benefits enrollment
- Labor law compliance
- Onboarding & offboarding
- HR platform access
Often Extra
- Premium health & dental insurance
- Equity & stock option management
- Visa & work permit sponsorship
- Dedicated account manager
- Background checks
- Equipment provisioning
Cost Comparison: EOR vs Entity (First Year, 5 Employees)
EOR Route
- Entity setup: $0
- EOR fees (5 x $500/mo x 12): $30,000
- Employee salaries: Same in both
- Total overhead: ~$30,000
Own Entity Route
- Entity setup (legal, registration): $30K-$80K
- Annual maintenance (accounting, compliance): $15K-$30K
- Employee salaries: Same in both
- Total overhead: ~$45K-$110K
For a detailed comparison of EOR provider pricing and features, check out our guide to the best employer of record companies in 2026.
How to Choose an EOR Provider
With dozens of EOR providers on the market, choosing the right one comes down to a handful of critical factors. Here's what to evaluate:
For our ranked comparison of the leading EOR providers with detailed analysis of each factor, see our best employer of record companies in 2026 guide.
Frequently Asked Questions
What is an employer of record in simple terms?
An employer of record (EOR) is a company that legally employs workers on your behalf in a foreign country. You find and manage the employee — telling them what to work on, setting goals, conducting performance reviews. The EOR handles the "paperwork side" — payroll, taxes, benefits, and making sure everything complies with local law. It's the fastest way to hire someone in a country where your company doesn't have a legal presence.
Is an EOR the same as a staffing agency?
No, they serve very different functions. A staffing agency finds and supplies temporary workers — you tell them what role you need filled, and they provide candidates. An EOR employs workers you've already selected. You do the recruiting and choose exactly who you want to hire. The EOR simply provides the legal employment infrastructure. Think of it this way: a staffing agency helps you find people, while an EOR helps you employ people you've already found.
How much does an employer of record cost?
Most EOR providers charge a fixed fee of $199-$699 per employee per month. The big names (Deel, Remote, Oyster) cluster around $599/month. Budget-friendly providers like Remofirst start at $199/month. Some regional EORs charge a percentage of payroll (10-25%) instead. The total cost also includes the employee's salary, employer-side taxes, and statutory benefits — the EOR fee is just the service charge on top.
Can an EOR help with work visas and permits?
Yes. Since the EOR is the legal employer in the target country, they can sponsor work visas and permits on behalf of your employee. This is particularly useful when relocating existing team members to a new country or hiring foreign nationals who need work authorization. Most major EORs offer visa support, though it's sometimes an add-on service with an additional fee (typically $1,000-$5,000 depending on the country and visa type).
What's the difference between an EOR and a PEO?
The critical difference: a PEO requires you to already have a legal entity in the country where you're hiring. A PEO co-employs workers alongside your existing entity, sharing HR and compliance responsibilities. An EOR requires no entity — the EOR becomes the sole legal employer. If you don't have an entity in the target country (and don't want to set one up), you need an EOR, not a PEO. For a full breakdown, see our EOR vs PEO comparison guide.
Do I lose control of my employees when using an EOR?
Absolutely not. This is the most common misconception about EORs. You retain full operational control — assigning work, setting priorities, conducting one-on-ones, managing performance, and making promotion decisions. The EOR handles only the legal and administrative side: employment contracts, payroll, tax filing, and compliance. Your employees report to you, use your tools, follow your processes, and are part of your team. The EOR is invisible in the day-to-day work relationship.
About the Author
Vik Chadha
Founder & CEO, Globalify
Vik Chadha is the Founder & CEO of Globalify and CEO of HiveDesk, a workforce management platform for contact centers. He previously co-founded GlowTouch (now UnifyCX), a global BPO company he helped scale to operations across 6 countries. With over 15 years of experience in the CX industry, Vik combines deep operational knowledge with technology innovation to help companies build and optimize global teams.
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