Employer of Record (EOR): What It Is and How It Works
A third-party organization that serves as the legal employer for workers in countries where a company doesn't have a legal entity, handling payroll, taxes, benefits, and compliance while the client company manages day-to-day work.
An Employer of Record (EOR) is a third-party service that legally employs workers on behalf of another company, enabling businesses to hire internationally without setting up foreign subsidiaries. Companies use EORs to quickly expand into new markets, ensure compliance with local labor laws, and reduce the administrative burden of global hiring. For workers, EOR employment means receiving compliant local contracts, statutory benefits, and payroll in their local currency while working day-to-day for the client company.
Employer of Record (EOR)
An Employer of Record is a third-party organization that becomes the legal employer for a worker in a specific country, taking on all employment responsibilities including payroll processing, tax withholding, benefits administration, and regulatory compliance. The client company retains control over the employee’s daily work, assignments, and management, while the EOR handles the legal and administrative employment functions. This arrangement allows companies to hire employees in countries where they lack a legal entity.
- Legal employer relationship - The EOR is the official employer on paper, responsible for employment contracts, termination procedures, and legal compliance in the worker’s country
- Global coverage - Major EOR providers operate in 150+ countries, enabling companies to hire almost anywhere without establishing local entities
- Cost range - EOR services typically cost $300-700 per employee per month, varying by country and service level (compared to $20,000+ to set up a foreign subsidiary)
- Compliance handling - EORs manage local labor laws, statutory requirements, tax filings, and employment regulations to protect both company and worker
- Benefits provision - Workers receive locally compliant benefits packages including health insurance, pension contributions, and paid leave according to local standards
How EOR Works
The EOR arrangement involves a three-way relationship between the worker, the EOR provider, and the client company:
Step 1: Client company selects a candidate The client company identifies and interviews candidates in a target country where they want to hire but don’t have a legal entity.
Step 2: EOR creates the employment contract The EOR drafts a locally compliant employment contract, becoming the legal employer of the worker in that jurisdiction.
Step 3: Worker onboards through the EOR The employee completes onboarding paperwork with the EOR, including tax forms, benefits enrollment, and compliance documentation.
Step 4: Client company manages day-to-day work The client company directs the employee’s daily tasks, projects, and responsibilities as if they were a direct hire.
Step 5: EOR handles ongoing employment administration The EOR processes payroll, withholds and remits taxes, administers benefits, and ensures ongoing compliance with local laws.
Step 6: Client company pays the EOR The client pays the EOR a monthly fee that includes the employee’s salary, benefits costs, taxes, and the EOR service fee.
Top EOR Providers
Several established companies offer global EOR services:
Deel - One of the largest EOR providers, operating in 150+ countries with strong self-service tools and competitive pricing. Known for fast onboarding and contractor-to-employee conversion.
Remote.com - Owns legal entities in all countries they operate in (rather than using partners), offering direct control and often lower costs. Strong focus on compliance and intellectual property protection.
Oyster - Emphasizes distributed work culture with a focus on employee experience. Offers competitive benefits packages and career development tools for remote employees.
Papaya Global - Enterprise-focused platform combining EOR services with global payroll management. Strong analytics and reporting capabilities for larger organizations.
EOR vs Contractor
Understanding when to use an EOR versus hiring contractors is critical for compliance:
| Factor | EOR Employee | Contractor |
|---|---|---|
| Legal relationship | Formal employment through EOR | Independent business relationship |
| Control | Company directs work, sets hours | Contractor controls how/when work is done |
| Benefits | Full statutory benefits required | No benefits obligation |
| Taxes | EOR withholds and remits taxes | Contractor handles own taxes |
| Termination | Subject to local employment laws | Per contract terms |
| Equipment | Company typically provides | Contractor provides own |
| Exclusivity | Can require full-time exclusivity | Cannot require exclusivity |
| Misclassification risk | None (properly classified) | High if controlling like employee |
When to use EOR: Long-term roles, need for company control over work, roles requiring integration with the team, or when local law requires employment status.
When to use contractor: Project-based work, specialized expertise, truly independent workers who control their own methods and serve multiple clients.
Frequently Asked Questions
Who is my real employer when working through an EOR?
Legally, the EOR is your employer and appears on official documents, tax filings, and your employment contract. However, your day-to-day work, assignments, and career management come from the client company. Think of it as the client company outsourcing the legal and administrative side of employment while maintaining the working relationship with you.
Do I receive the same benefits as direct employees?
EOR employees receive locally compliant benefits that meet or exceed statutory requirements in their country. This typically includes health insurance, pension contributions, paid leave, and other mandatory benefits. However, you may not have access to company-specific perks like equity compensation or profit sharing, though some EOR providers are beginning to offer equity administration solutions.
Can the client company fire me, or only the EOR?
The client company makes the decision to end the working relationship, but the termination is legally processed through the EOR following local employment laws. This means you receive all protections under local labor law, including required notice periods, severance pay, and proper termination procedures. The EOR ensures the client company follows these requirements.
How does EOR employment affect my taxes?
The EOR handles all tax withholding and remittance as a local employer would. You file taxes as a regular employee in your country, not as self-employed or a contractor. The EOR provides you with appropriate tax documents (equivalent to a W-2 in the US) at tax time. You typically don't need to worry about international tax complications.