Employer of Record (EOR)

Why does the employer of record model exist?

Because employing somebody in a country generally requires a legal presence there, and establishing one is a substantial commitment. Registering an entity means incorporation, a registered address, local officers or directors in some places, tax and social registrations, statutory accounts and the ongoing filings that follow from all of it. An organisation that wants to employ a handful of people in a market it is still testing faces a choice between that commitment and not hiring there at all. An employer of record removes the choice by supplying the legal presence: it already holds an entity in the country, it employs the person through that entity, and it invoices the client for doing so. The client gets a properly employed person in the market without becoming an employer there itself.

What does the employer of record actually hold?

The employment relationship on paper. The contract of employment is between the worker and the provider, drafted to the requirements of the place where the work is done. The provider is the entity registered with the relevant authorities, the one that pays the worker, makes the deductions and contributions employment attracts locally, files what has to be filed, administers statutory leave and holds the employment records. It is also the party named in the formal steps of the relationship, which is why the documents an employee receives carry its name rather than the client's. What the client is buying is a compliant employment vehicle in a place where it has none, together with the administration of running that vehicle month after month.

What does the client still own?

Everything about the work. The client decides the role exists, chooses who fills it, sets the priorities, reviews the output and forms the view of whether the person is doing well. In practice the worker experiences the client as their employer: they attend the client's meetings, use the client's systems and take direction from the client's managers. That gap between the formal position and the lived one is something to manage deliberately rather than leave to look after itself. Decisions that feel like ordinary management, particularly ending an engagement or changing terms, have to run through the provider because it is the party legally able to make them, and a client that assumes it can act unilaterally will discover that it cannot.

How does this differ from a co-employment arrangement?

On the question of how many employers there are. Under an employer of record there is a single legal employer, the provider, and the client is a customer buying a service; the client's authority over the person flows from the commercial agreement rather than from being their employer. Under co-employment two parties are treated as employers of the same person at the same time, each for different purposes. Those are different constructions, with different consequences for who owes what to the employee and who answers if the relationship is later challenged, and the labels are used loosely enough in the market that reading the proposal rather than the name is the only reliable approach.

The practical separator is the entity question. The employer of record model exists to solve the absence of a local entity, which is why it is reached for when hiring into a country the organisation is not established in. Co-employment generally assumes the client is already an employer and is buying help with the administration of employing, which is a different problem with a different shape. There is a further complication: because the words are not standardised, providers sometimes describe the same offering with either term depending on the market they are selling into. The way through is to ask which entity will appear on the contract of employment, which entity will be registered with the authorities, and what the client is being asked to warrant. A fuller treatment sits in what an employer of record is.

When should a company set up its own entity instead?

When the arrangement stops being a way to test a market and becomes the way the organisation operates there. Several pressures push in that direction at once. The cost per head is fixed against a service fee rather than against the actual cost of employing, so it scales with the number of people rather than with the complexity being handled. Control tightens: decisions a direct employer would simply make have to be routed through a provider, and the response time of that route becomes noticeable at volume. Certain arrangements become awkward or unavailable, particularly equity, some benefits, and anything that assumes the employing entity is part of the group itself.

There is no threshold that applies to every organisation, and treating somebody else's as a rule is how companies end up with an entity they cannot staff or a provider relationship they have outgrown. The more useful question is what the country is for. A market being tested with a few people, which the organisation might leave, is what the model was designed for. A market that has become a hub, with managers, contracts and commitments running for years, is one where the organisation is already operating as a business and should probably be registered as one. Comparing the two honestly means costing the entity properly, including the administration, filings and advice it will need, rather than against the service fee alone. The related domestic arrangement is described under payrolling.

How does an exit or a transfer to your own entity work?

It is a change of employer for the person, not a paperwork adjustment, and that is the framing to start from. Their contract is with the provider; if the client establishes an entity and wants to employ them directly, the relationship has to end with one party and begin with another, or be transferred where local law provides a mechanism for doing so. Whether continuity of service is preserved, what happens to accrued leave and to any statutory entitlement that depends on length of service, and whether the employee has to agree at all are local questions with local answers, and they differ sharply between places that otherwise look similar.

So the terms governing this belong in the agreement at the start rather than in a negotiation at the end. Settle notice, whether the provider restricts the client from employing the person directly and for how long, what happens to records, and who tells the employee what is happening. Employees are rarely enthusiastic about learning that their employer is changing from a conversation that sounds improvised, and the version they hear first tends to be the version they believe. Take advice from employment counsel in the country concerned before committing to a sequence, because a transfer that is routine in one place requires consent, consultation or a prescribed process in another, and getting the order wrong is not something that can be corrected afterwards.

What has to be confirmed jurisdiction by jurisdiction?

Nearly everything that matters. Whether the model is permitted in the country at all and on what terms, since some places restrict or license the supply of labour in ways that bear on it. What the mandatory terms of an employment contract are, which cannot be varied by agreement between the client and the provider. Which benefits and protections attach automatically. How notice, termination and any required process operate. And what the position is on intellectual property created by the worker, because the person is employed by the provider rather than by the client, so the chain by which work product reaches the client has to be constructed rather than assumed to exist.

Data protection deserves a separate look, since employment records will sit with the provider and may cross borders in the process. So does the question of whether the arrangement creates a taxable presence for the client in that country, which turns on local tax law and on what the person actually does there; a client whose worker negotiates and concludes contracts is in a different position from one whose worker does not. None of this is a reason to avoid the model, which exists precisely because the alternative is heavier. It is a reason to treat each new country as its own exercise with advice from local employment and tax counsel, rather than assuming the arrangement that worked in the last one transfers to the next.