Employer of Record (EOR)

How does an EOR arrangement work?

An EOR arrangement commonly involves a client company, a provider, and a worker. The provider’s identified local entity is named as the employer in the worker’s employment agreement, while the worker performs services for the client. The client commonly selects the worker and directs day-to-day work, including priorities and performance expectations.

A common documented structure uses two agreements: a service agreement between the client and the provider, and an employment agreement between the provider and the worker. The service agreement sets out the agreed services, employment costs, and responsibilities. The employment agreement sets the worker-facing terms under the applicable local route.

The provider may carry out agreed employer administration, while the client supplies the operational information and cooperation the arrangement requires. The exact employing entity, contract structure, work direction, and allocation of duties vary by provider, country, and agreement. The EOR label alone does not settle every legal responsibility or outcome.

What does an EOR usually handle, and what stays with the client?

An EOR may handle agreed employment administration. Depending on the provider and country, this can include onboarding, payroll and salary payments, tax withholding, benefits and leave administration, and changes to the employment agreement. Some arrangements also cover right-to-work checks, disciplinary processes, and termination administration.

The client commonly directs the worker’s day-to-day activities. It may define the work, provide accurate information about hours, overtime, leave, and job requirements, and cooperate on employment actions. When work takes place at the client’s site or under its direction, the client may also have workplace duties under the agreements and local rules.

Provider terms and local law determine the actual allocation. The client should confirm which entity performs each task, what information it must supply, and how changes, disputes, and termination will be handled. Naming a provider as the employer does not by itself assign every responsibility or liability to that provider.

How does an EOR differ from a local entity, PEO, contractor engagement, and staffing agency?

The central question is who employs or contracts with the worker, and for what purpose. In an EOR service, a provider entity employs a worker for the client. Under a direct-employer route, the client or its affiliate is the named employer and handles the applicable employer registration and administration. Using a local entity is one direct-employer route, but some countries may offer other routes.

In the United States, a professional employer organization (PEO) commonly supports an existing employer by performing or sharing specified HR or federal employment-tax functions under a service agreement. Federal tax rules give a certified PEO defined treatment for qualifying work-site employees and the remuneration it pays. They do not establish that every PEO replaces its customer as employer for all purposes. By comparison, an EOR offering is structured around the provider entity employing the worker for the client. The legal effects of either arrangement still depend on the applicable rules and facts.

A direct contractor engagement is intended as a business-to-business or self-employed services relationship, while an EOR is intended as an employment route. The contract label alone does not determine the worker’s status.

“Staffing agency” can describe different services. A recruitment agency may introduce a worker whom the client then hires directly. A temporary staffing agency may employ or contract with a worker and assign that person to work under the client’s supervision and direction. An EOR service is commonly offered as an employment route for a client-selected worker, but the EOR label does not determine whether agency-work or labour-leasing rules apply in a particular country.

These labels do not create a universal allocation of liability. The parties need to review the actual relationship, applicable law, and agreements.

When might an EOR fit, and when might another arrangement fit?

An EOR may fit when a company intends an employee relationship and needs a provider entity to employ a particular worker in the relevant jurisdiction. The company should first confirm that the provider will accept the worker, role, work location, and country route, and that the proposed employment arrangement matches its operating needs.

Another arrangement may fit when the company can use its own direct-employer route, when the facts support a genuine independent-contractor relationship, or when recruitment or a temporary staffing arrangement better describes the work. The choice depends on the intended relationship and the real working arrangement rather than the preferred label.

This is a decision framework, not a legal conclusion. Before proceeding, the parties should confirm the applicable local route, the employing or contracting entity, the scope of work direction, and the responsibilities set out in the agreements.

What should a company check before using an EOR?

Before using an EOR, a company should review the proposed arrangement for the specific country, worker, and role:

• Confirm the employing entity and local route. Identify the entity named in the employment agreement, the work location, and any country-specific terms that apply.
• Review both agreements. Review the client-provider service agreement and the worker’s employment agreement, including which document takes priority if their terms differ.
• Map responsibilities. Confirm who handles employer administration, supplies information about hours and leave, directs the work, and manages workplace obligations or employment changes.
• Review worker-facing terms. Check the offered pay, benefits, leave, and other employment terms that affect the worker’s experience.
• Understand the full charges. Review salary, benefits, employer costs, provider fees, and any charges that may apply to changes, cancellation, termination, or transition.
• Confirm the change and exit process. Check how the parties will coordinate employment changes, termination, and any transition to another arrangement.
• Review data and other relevant terms. Check the data-processing terms and any other provisions that matter for the role or working arrangement.

The answers depend on the provider, employing entity, worker, country, and contracts. Confirm them before the employment relationship begins.