What is an Employer of Record (EOR)?
An Employer of Record (EOR) is a third-party organization that legally employs workers on behalf of another company. The EOR handles payroll, tax withholding, benefits, and local compliance, while the client directs the worker's daily tasks and deliverables.
In more detail
An EOR becomes the official legal employer of a worker in a jurisdiction where the client company does not have a registered entity. The EOR signs the employment contract, runs payroll in local currency, withholds income tax and social contributions, provides statutory and supplemental benefits, and handles terminations in line with local labor law. The client still makes every practical decision about the work: what the worker does, when, and to what standard.
EORs exist because opening a foreign subsidiary is expensive and slow. For companies hiring one to twenty international workers, an EOR avoids months of entity setup, local accounting, and permanent establishment exposure while still letting the worker be a proper W2-style employee with benefits rather than a 1099 contractor.
How an EOR works
- Client identifies the worker and agrees on compensation.
- EOR signs a local-law employment contract with the worker.
- EOR issues a single invoice to the client (usually USD) covering salary, benefits, statutory costs, and EOR fee.
- EOR runs monthly payroll in local currency, deposits taxes, and files statutory returns.
- EOR manages benefits, leave, and offboarding if needed.
Related terms
Common follow-up questions
No. A staffing agency primarily sources and places candidates. An EOR is the legal employer of record for workers you have already identified or sourced yourself, handling payroll, compliance, and benefits on an ongoing basis.
Typically no. Because the EOR is the legal employer in the foreign jurisdiction, the client company avoids setting up a local subsidiary or triggering permanent establishment for tax purposes in most cases.
The client company. The EOR only handles the employment relationship. Task assignment, performance standards, and strategic direction remain with the client.