An Employer of Record (EOR) is a third-party organisation that becomes the legal employer of your workers in a foreign country. The EOR handles employment contracts, payroll, tax withholding, statutory benefits, and regulatory compliance — while you retain full day-to-day management of the employee's work. It lets you hire compliantly in countries where you don't have a legal entity.
How the EOR model works
In an EOR arrangement, there are three parties: you (the client company), the employee, and the EOR provider. The EOR signs the employment contract with the worker and becomes their legal employer for tax and compliance purposes. You sign a service agreement with the EOR that defines the commercial terms.
Day to day, the employee reports to you, works on your projects, and is fully embedded in your team. The EOR handles the administrative and legal employment layer — payroll runs, tax filings, statutory contributions, benefits administration, and compliance with local labour law.
This separation between legal employment and operational management is what makes EOR work. You get the talent you need, operating the way you want, without the overhead and risk of managing foreign employment law directly.
When to use an EOR
EOR is the right model when you need to hire employees in a country where you don't have a legal entity, and setting one up would be too slow, too expensive, or simply unnecessary for the scale of your hiring.
Common triggers include expanding into a new market with a small initial team, hiring a specific individual who happens to be based overseas, deploying project teams on a fixed-term basis, or testing market viability before committing to entity incorporation.
EOR is also used by companies that already have entities but want to hire in additional countries without replicating their corporate structure in every jurisdiction. A company with a German entity that needs two people in Portugal and one in the Netherlands can use EOR for those hires without setting up Portuguese and Dutch subsidiaries.
What the EOR handles vs what you handle
The EOR is responsible for: drafting locally compliant employment contracts, running payroll and withholding taxes, making statutory social security and pension contributions, administering local benefits (holiday, sick pay, parental leave), managing employment terminations in line with local law, and maintaining compliant employment records.
You are responsible for: selecting and interviewing candidates, defining roles and responsibilities, managing day-to-day work and performance, setting compensation levels (within local minimums), and deciding on any supplementary benefits you want to offer.
The split is clean: you own the work, the EOR owns the compliance. What matters is that both sides are clear on who handles what, with defined processes for changes, approvals, and escalations.
What EOR doesn't cover
EOR is an employment solution, not a business presence. It doesn't give you the ability to sign commercial contracts in that country, invoice local clients, or create permanent establishment for corporate tax purposes. If you need to trade locally, you'll eventually need an entity.
EOR also has limitations around intellectual property — since the EOR is the legal employer, IP assignment clauses need to be carefully structured to ensure your company retains ownership of work product. Reputable EOR providers handle this as standard, but it's worth verifying.
Finally, EOR works best for ongoing employment relationships. For short engagements (under 3 months) or truly independent project work, a contractor model may be more appropriate.
How to evaluate EOR providers
When comparing EOR providers, look at: country coverage (do they operate where you need to hire?), entity ownership (do they use their own entities or subcontract to third parties?), transparency on pricing (flat fee vs percentage of salary, what's included vs what's extra), onboarding timelines (how quickly can they get someone employed?), and the quality of their compliance and reporting.
Ask about their payroll cut-off dates, how they handle terminations, what reporting you'll receive, and whether they have direct experience in your specific countries. The best EOR relationships are ones where the provider understands your operational reality, not just the legal mechanics.