Definition
An employer of record (EOR) is a third-party organization that legally employs a worker on behalf of another company. The EOR runs payroll, withholds taxes, provides benefits, and carries employment compliance obligations, while the client company directs the day-to-day work. It is commonly used to hire in locations where the client has no legal entity.
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.
Software that handles it
- Employer of Record (EOR)
We shortlist employer of record services from verified product data so you can compare country coverage, compliance ownership and contract terms side by side.
- Global Payroll
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Related terms and guides
- GuideEOR vs PEO
Frequently asked questions
Who is the legal employer when a company uses an EOR?
The EOR is the legal employer of record for the worker. It signs the employment contract, runs payroll, withholds taxes, and carries compliance duties under local law. The client company directs the daily work and pays the EOR a fee, but it is not the formal employer in the jurisdiction.
How is an EOR different from a PEO?
A PEO shares employer responsibilities with a client that already has its own legal entity and EIN. An EOR takes on full legal employment, so the client needs no local entity. The IRS describes PEOs as handling payroll administration and tax reporting for their clients.
Does hiring through an EOR remove misclassification risk?
Using an EOR means the worker is a properly documented employee rather than a contractor, which addresses classification risk. The DOL notes that employee status turns on the economic reality of the relationship, not labels, so an EOR fits genuine employment, not contractor arrangements.