Definition
An employer of record (EOR) is a company that legally employs a worker for another business. It runs payroll, withholds taxes, provides benefits and carries the local employment duties, while the client directs the daily work. Businesses use an EOR to hire in a country or state where they have no legal entity of their own.
Also known as: EOR
How it works
The client company selects a candidate and tells the EOR the agreed role, pay, and start date. The EOR issues a compliant employment contract under local law, becomes the legal employer, and adds the worker to its payroll. It withholds and remits payroll taxes, administers statutory benefits, and handles terminations according to local rules.
The client keeps control of the work itself: setting goals, assigning tasks, and managing performance. In return, the client pays the EOR the worker's cost plus a service fee, usually monthly. Because the worker is on the EOR's payroll, the client avoids registering a local entity before it has the headcount to justify one. Many companies later convert EOR employees to their own payroll once they open an entity.
Example
A software company with no foreign subsidiary wants to hire an engineer in another country. It engages an EOR, which signs the employment contract, runs local payroll, and administers statutory benefits while the engineer reports to the company's engineering manager.
How it differs from similar terms
Employer of Record vs Professional Employer Organization. A PEO enters a co-employment arrangement with a client that already has its own entity and EIN, mainly in one country. An EOR becomes the sole legal employer, which is why it suits hiring where the client has no entity.
Employer of Record vs Independent Contractor. An EOR worker is a legal employee with employee protections. A contractor is engaged under a services agreement and, under the DOL's economic-reality test, may still be an employee if the relationship reflects employment.
Free checklist
Buyer's checklist: Employer of Record (EOR) Services
Everything to check before you sign with a employer of record provider, on one printable page.
- 10 questions to ask every vendor, with how to verify each answer
- 12 capabilities to confirm in a demo
- 6 pricing questions about fees outside the quote
- A scorecard of the 5 products we rank highest, with what we verified
Facts as of Oct 25, 2026 · LeadChange Research Team
What it checks
- Own entities versus partner network
- Country coverage and local expertise
- Compliance liability and indemnification
- Payroll accuracy and pay frequency
- Benefits and statutory entitlements
- Termination and offboarding process
- Fee structure and currency handling
- Intellectual property and confidentiality terms
and 2 more questions in the full checklist
Sample question
Own entities versus partner network
Ask for a list of countries where the provider operates through its own entity and where it uses a partner, and the name of the entity that will sign the contract in your country.
Frequently asked questions
What does EOR stand for in HR?
EOR stands for employer of record: the company that is the worker's legal employer on paper, while another business directs the work. The EOR signs the employment contract, pays the worker and files the payroll taxes.
How much do EOR services cost?
EOR providers usually charge a monthly fee for each employee, on top of the salary and the employer's local costs. Some also ask for a deposit or charge currency conversion. Fees vary by provider and country, so compare the published prices and ask each provider for a quote for the same country.
What is the difference between an EOR and payroll?
A payroll provider pays your employees and files taxes, but you stay the employer and need your own legal entity. An EOR becomes the legal employer itself, so you can hire where you have no entity.
How is an EOR different from a PEO?
A PEO shares employer duties with a client that already has its own legal entity and tax ID. An EOR takes on full legal employment, so the client needs no local entity.
Does hiring through an EOR remove misclassification risk?
It addresses it when the role is real employment: the worker becomes a documented employee instead of a contractor. The Department of Labor says employee status depends on the economic reality of the relationship, not on labels.
Who is the legal employer when you hire through an EOR?
The EOR is. It signs the employment contract under local law, puts the worker on its own payroll, withholds and remits payroll taxes and administers statutory benefits. The client company still directs the daily work and pays the EOR the worker's cost plus a service fee, usually monthly.
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