Employer of Record (EOR)

An Employer of Record (EOR) is a service provider that hires employees as the legal employer on behalf of another organization. While the client company manages the employee's day-to-day responsibilities, the EOR handles administrative tasks such as payroll, required tax withholdings, employment agreements and other hiring and personnel records. Many businesses use an employer of record to hire employees in states or countries where they don't have a legal entity, which is a locally registered legal business structure. This is a common solution when a business is expanding into new markets or building remote teams.

As companies begin operating in new states or countries, they often encounter different employment laws, payroll tax obligations, onboarding processes and hiring requirements than those in locations where they already operate.

Understanding the role of an employer of record can help businesses evaluate whether this hiring model fits their expansion plans, workforce needs and long-term operational goals.

What Does an Employer Of Record Do?

Although responsibilities vary by provider and location, an employer of record typically manages several administrative functions throughout the employment relationship, including:

Employment agreements and onboarding process. Prepares employment agreements, tax forms and hiring paperwork so new hires can complete all necessary administrative steps before their first day.
Payroll processing and administration. Processes payroll based on local pay schedules, including calculating employee wages, withholding and remitting required taxes, and administering other payroll deductions where applicable.
Required local filings and documentation. Prepares or submits employment-related forms, maintains personnel records and manages required filings that may vary by state or country throughout the employment relationship.
Offboarding and separation support. Coordinates administrative offboarding activities, including processing final pay, issuing required notices and preparing separation documents, based on applicable local requirements.

When Should A Business Use An Employer Of Record?

Businesses can use an employer of record in a variety of hiring situations.Here are 4 common use cases:

Hiring in a new country. Organizations expanding internationally may use an EOR to hire employees before establishing a local legal entity.
Hiring a small number of employees in a new location. Companies that need only a few employees in another state or country may use an EOR instead of creating a separate employment structure for such a small workforce.
Short-to-mid-term "test and learn" expansion. Organizations exploring opportunities in a new market may use an EOR to hire employees while evaluating customer demand, operational needs or long-term workforce plans before establishing a permanent presence.
Fast hiring needs when internal HR bandwidth is limited. During periods of increased hiring, an EOR can prepare employment agreements, onboard new hires, process payroll, manage tax withholdings and maintain employee records while internal HR teams focus on recruiting and workforce planning.

When Might an EOR Not Be the Right Fit?

Although an employer of record can support many hiring scenarios, it may not be the right fit for every organization. Business goals, hiring plans and operational requirements all play a role in determining whether an EOR or another employment model is the right choice.

Long-term expansion. Companies planning a permanent presence in a new market may find that establishing a local legal entity better supports their goals.
Specialized roles. Some positions, such as healthcare professionals or licensed financial advisors, require direct local licensing, certifications or employer registrations that may limit whether an EOR is an appropriate hiring model.
Benefits. Certain executive compensation packages and highly customized retirement and equity programs sometimes require benefits structures that extend beyond what an EOR typically offers.
Data access and privacy needs. An EOR may be less suitable when a company requires direct control over sensitive employee data, restricted system access or location-specific privacy practices.

Employer Of Record vs. PEO: What Is The Difference?

Although an employer of record (EOR) and a professional employer organization (PEO) both provide employment-related services, they support different business needs.

EOR

Serves as the legal employer
A local entity is typically not required
Common for domestic and international expansion
Manages payroll and employment administration
Client oversees daily job responsibilities

PEO

Uses a co-employment relationship
Requires the company's own entity, although some PEOs offer services through a partnership with an EOR
Supports payroll and HR administration
May include benefits administration services

Comparison of EOR, PEO, HRIS and staffing agency

This table provides more information on the difference between an EOR and a PEO, as well as how they compare to HR software systems and staffing agencies.

Option	Who Is The Legal Employer?	Do You Need A Local Entity?	Best For	Common Limits
Employer Of Record (EOR)	The EOR is the legal employer on paper for the worker in the location covered by the EOR.	Typically no (often used specifically when you don’t have an entity in that location).	Hiring in a new state or country quickly, testing a market, employing a small number of workers where you lack an entity.	Less direct control over certain employment administration details, ongoing per-worker fees, long-term expansion may favor setting up an entity.
Professional Employer Organization (PEO)	Your business remains the employer, with the PEO supporting HR administration via a shared-employer model (details vary by agreement).	Typically yes (commonly used when you already have an entity where employees work).	US-based SMBs that want support with payroll, HR administration, benefits administration and compliance support while keeping their own entity.	Usually not the right fit for hiring in places where you don’t have an entity, scope varies by contract and location.
HR Software Only (HRIS/Payroll Software)	Your business.	Yes for hiring in a jurisdiction (you’re employing directly).	Teams that want tools for recordkeeping, onboarding workflow and payroll processing, with in-house HR oversight.	Software does not replace HR expertise, compliance responsibilities remain with the business, may require multiple tools for benefits and HR workflows.
Staffing Firm / Temp Agency	The staffing firm is typically the employer of the assigned worker.	Typically no for the worker relationship, but it depends on the arrangement and location.	Short-term projects, seasonal coverage, rapid access to contingent workers without adding headcount immediately.	Not designed for building a long-term employee team, markups can be significant, worker classification and control requirements can be complex.

What Should You Check Before Choosing an EOR?

Choosing an employer of record involves more than comparing service offerings. Use this due-diligence checklist to help you make a more informed decision. Before signing up for this global HR outsourcing solution, review the:

Countries and states where services are available
Payroll process and payment timelines
Division of responsibilities in the contract
Data privacy practices and access controls
Intellectual property ownership provisions
Termination support and notice requirements
Available benefits by country or state
Onboarding process for new hires
Reporting tools and customer support

Frequently Asked Questions About Employer Of Record (EOR)

Who handles payroll taxes with an employer of record?

The employer of record typically handles payroll tax administration because it serves as the legal employer. Depending on local requirements, the EOR may calculate wages, withhold and remit applicable taxes, and maintain payroll records.

Organizations should review a provider's services to understand which payroll-related responsibilities remain with the client company.

What is the difference between an EOR and a staffing agency?

The primary difference between an EOR and a staffing agency is that an employer of record becomes the worker's legal employer on behalf of the client company, while a staffing agency focuses on recruiting and placing candidates. After placement, the client company's relationship with the worker depends on the staffing arrangement and the services provided by the agency.

Can you use an EOR for contractors or only employees?

Employer of record services are generally used for employees because the provider becomes the worker's legal employer. Independent contractors are typically engaged under a different type of working relationship and require different service models.