Employer of Record (EOR): A Complete Guide

Complex global employment laws can stop your company’s growth plan in its tracks. You face different rules and requirements in every region you hire employees, making it hard to scale your operations with confidence.

Faced with this challenge, some businesses take risky shortcuts in pursuit of their goals. Others delay their plans until they’ve accrued enough resources and expertise to make a move, often losing the opportunity in the process. However, neither approach is sustainable when the ultimate goal is to grow internationally while remaining compliant.

That’s where an Employer of Record (EOR) service like Deel comes in. We take care of all the complexities of hiring and onboarding workers abroad so you can focus on strategic priorities.

Let’s take a deeper look at EORs exploring how the service works, when it makes sense to use one, and how to choose the right provider.

What is an Employer of Record (EOR)?

An Employer of Record (EOR) service is a third-party organization that employs workers on your company’s behalf. They are named as the legal employer on the employment contract and assume all the liability. However, they’re effectively a silent partner, leaving control over daily operations and managing employees to your business.

Why might organizations choose an EOR service when staffing agencies exist? While these agencies help you recruit workers for your company, they’re a temporary solution and retain a lot of control. The EOR helps you permanently employ workers domestically and internationally without the need to establish a legal entity.

Some view EORs as a niche solution for small businesses that require support to hire abroad. However, the service has become increasingly popular among businesses of all sizes and industries over the past decade. In fact, demand for EOR services is expected to almost double over the next five years as the global market becomes ever more competitive.

Discover how Leya hired top talent and broadened its market reach with Deel.

See also: What’s the Fastest Way to Enter Markets and Hire Globally?

What services does an EOR provide?

An EOR’s appeal goes far beyond a legal arrangement. If you partner with a top provider, here are the services you can expect:

Compliance

As the legal employer, the EOR provider is responsible for drawing up contracts. They must ensure the terms and conditions comply with local labor laws in the country where you use their service to hire employees.

Afterward, the EOR sends a copy of the contract to you and the employee. It collects their signature and stores the document securely on their system.

The EOR is also responsible for updating the contract if the employment laws change or the worker moves to a new jurisdiction. They must either amend the terms and have the worker re-sign or help them transfer to one of your own entities.

Onboarding

When you hire an employee through an EOR service, the provider takes care of many aspects of pre-boarding and onboarding. Typically, they manage:

• Background checks
• Mandatory medical tests
• Tax registration
• Collecting paperwork
• Setting up payroll

Likewise, EORs handle the administration when an employee either resigns from your company or becomes directly employed by one of your entities.

Payroll

While you supply the funds, an EOR sends payments in each employee’s local currency and distributes their payslips.

Most EOR services manage this service through advanced payroll software. For example, Deel has a centralized system we use to calculate conversions, schedule payments, and store all the required paperwork. Employees can log in from anywhere to access their individual accounts and view their payroll information.

Payroll tax withholding

EORs meet all the tax obligations for employees you’ve hired through their service, including remittances, employer contributions, and reporting. They calculate any taxes owed, send them to the relevant authorities by the deadlines, and manage all the required paperwork.

Should the EOR make a mistake, they are liable for any compliance issues as the legal employer. They must pay all penalties and interest on late payments and directly resolve any legal disputes.

Benefits administration

Most countries have statutory benefits programs, which require both employers and their workers to make contributions to a fund. The EOR becomes responsible for this task as the legal employer. They must ensure the benefits packages you offer meet legal requirements and calculate all the payments you owe.

While the EOR handles benefits administration, your business doesn’t lose any control. You still decide which supplier to use and what optional benefits to include in your packages.

What are the different types of EOR service providers?

You may have heard people refer to EORs by a variety of names such as ‘wholly owned’ or ‘partner-based’. This gives the misleading impression that there are dozens of types to choose from.

In reality, most providers fall into one of two categories of EOR:

Aggregator EOR

As the name suggests, an aggregator EOR doesn’t own entities in all the countries where it operates. It relies on a network of local third-party partners to hire employees and deliver its services.

This model comes with significant drawbacks: The EOR can’t guarantee consistent service across every location and wastes time coordinating with its local partners when challenges arise. What’s more, they may attempt to pass responsibility for any compliance issues, forcing your company to deal with any penalties or legal disputes.

Wholly-owned EOR

Think of a wholly-owned EOR as the complete opposite: They own legal entities in all the countries and states where they operate and directly hire all your employees.

As a result, you avoid all the complications of the aggregator model. You receive a consistent quality of service everywhere you hire workers, and you have a single point of contact for any issues. Should any challenges arise, you know who to hold accountable.

The main drawback is coverage. Many wholly-owned EORs are limited to a single region due to the high cost and complexity of managing entities across multiple countries. You end up partnering with multiple vendors to patch up gaps, which means you spend more time on coordination.

Look for wholly-owned EORs with comprehensive coverage to overcome this limitation. For example, Deel is the world’s leading EOR with owned entities in over 110 countries, including popular locations like the UK, Spain, and UAE.

Discover how Pixis expanded its global presence efficiently with Deel.

See also: Owned Entity vs. In-Country Partner: The Best Choice for Global Hiring

What should an EOR agreement cover?

Partnering with an EOR means entrusting them with key responsibilities — but what exactly are you signing up for? Here’s what is typically included in an agreement:

• Payment terms
• Length of agreement
• Probation and notice periods
• Employee information
• Employee compensation and benefits
• The rights to any IP created by employees

Leading EORs like Deel offer extra services like contractor management and visa and immigration support. If you plan to use these services, they can be included in the agreement.

When should you use an EOR?

EOR services have a range of applications. Here’s how Deel customers are using the partnership to achieve their goals and overcome challenges:

Hiring employees abroad

Sometimes expertise is limited to specific regions. When you find the right candidate abroad, an EOR lets you hire and onboard without waiting to set up a legal entity. This gives you quick access to specialists and reduces the risk of you losing talent to competitors with local entities.

Small businesses may find an EOR is the only way they can hire abroad. With your limited resources, you’re less likely to be able to justify the cost of setting up a foreign entity to bring aboard a handful of employees.

Discover how FEMSA overcomes talent shortages and global hiring challenges with Deel.

See also: Unlock Global Talent: Deel’s International Hiring Guide

Testing new markets

EORs offer a low-risk way to explore new regions before committing to expansion plans. Rather than investing resources into entity setup, you can employ a small team on the ground and gauge your company’s traction.

If the market shows promise, you can scale up your local operations. You can choose whether to hire more workers through your EOR provider or establish a legal entity and transition employees to your direct payroll.

Likewise, if your expansion plans lead nowhere, you can exit cleanly without having to dissolve a legal entity or resolve outstanding tax obligations.

See also: How to Test New Markets and Accelerate Global Expansion with an Employer of Record

Simplifying global expansion

As your business expands globally, an EOR gives you a scalable way to manage your international hiring. You can repeat the same process everywhere you land instead of coordinating with HR, legal, and payroll country-by-country.

Streamlining expansion means your company doesn’t have to pause when it needs to act quickly. Instead of spending weeks preparing your team, you can outsource HR and accounting tasks to the EOR and get people on the ground immediately.

See also: A Guide to Standardizing Global Expansion for Enterprises

Facilitating international mergers and acquisitions

If you acquire a company abroad, an EOR enables you to employ workers in that country immediately. You don’t have to wait until you’ve established an entity or a corporate structure. This allows operations to keep running smoothly and maintain business continuity during the transitional period.

The EOR model is also ideal for de-risking global M&As. For example, Deel customer EEG used our EOR service to onboard workers across 30 countries when they acquired two companies.

Once the merger is complete, you can decide whether to keep using the EOR or move them to permanent contracts under your employ.

See also: A Guide to Using an Employer of Record to De-risk Global M&As

Supporting workforce mobility

Your industry may require workers to relocate abroad temporarily or frequently move between countries. For example, your salespeople might work in specific regions for months at a time while they demonstrate your products.

However, this exposes your business to legal risks. If you’re seen to have a presence in a country, for example, you can trigger permanent establishment and owe extra taxes.

An EOR supports workforce mobility by hiring employees abroad and sponsoring visas where necessary. Your company can offer temporary business travel or complete location flexibility without leaving itself open to compliance risks. All you have to do is create or amend your agreement with the service provider as your teams travel across borders.

Watch: Streamline international hiring with EOR visa sponsorship

What are the benefits of using an EOR?

Whether you’re expanding into a new market or hiring a single employee, partnering with an EOR can offer real advantages. Here are some of the most common benefits:

• Cost savings: Setting up and maintaining entities is expensive and resource-heavy. An EOR lets you employ workers abroad for a predictable monthly fee and eliminate most of your overhead
• Reduced risks: Aside from assuming legal responsibility, EORs have experts stationed in every country who can ensure compliance with local labor laws
• Greater agility: EORs make it possible to act quickly on hiring decisions or strategic shifts. You can capitalize on opportunities abroad and leave unfavorable markets without the usual administrative lag
• Better employee experience: Employees receive the same experience no matter their location. This fosters equitability and inclusion in the workplace, contributing to a more positive company culture
• Stronger brand reputation: Partnering with an EOR signals that you take compliance seriously. It also helps you avoid legal issues that could potentially affect employees and harm your employer brand

Discover how Lloyd’s List Intelligence expanded to new markets with Deel.

See also: More Than a Service: EOR as a Strategic Partner in Business Growth

What are the alternatives to using an EOR?

If you’re weighing up your options, you might wonder if there’s a more suitable alternative to the EOR. Here are some similar solutions:

Staffing agencies

If you’re looking for temporary workers, staffing agencies are a common alternative to an EOR service. The agency is the legal employer and handles all the recruitment, HR, and payroll on your company’s behalf.

However, agencies are best for short-term placements rather than strategic hires. You have limited control over how and where the employee works, and you may be limited to specific locations. Plus, if you end your partnership with the agency, you lose any workers on their payroll.

Contractor of Record (COR)

Consider a Contractor of Record (COR) service if you primarily hire independent contractors. The provider acts like an intermediary and handles tasks like:

• Classifying workers
• Creating contracts
• Handling invoices
• Scheduling payments

Using a COR reduces the risk of worker misclassification, which can lead to significant penalties. The provider assesses each worker to see whether they count as an employee or a freelancer in the eyes of the local law and helps you draft a compliant contract.

Professional Employer Organization (PEO)

A Professional Employer Organization (PEO) shares legal responsibility for your workforce. When you partner with them, you enter into what’s called a co-employment relationship.

As with the EOR service, the PEO takes responsibility for most HR, payroll, and benefits administration processes. Meanwhile, you retain control over your daily operations and aspects of workforce management like recruitment and performance reviews.

The key difference between a PEO and an EOR is that you still need a registered entity in the country where you hire employees. They’re a good alternative when you’re already established but need assistance scaling your business compliantly.

Employee relocations

If employees are happy to move, you could sponsor them for a work visa and relocate them to a country with owned entities.

In fact, employee relocations could become a major selling point for your company. Many candidates look for opportunities in popular countries such as the UK and Germany so you could use your visa services to attract top talent and fill critical roles.

However, visa applications can be costly and time-consuming. If you apply for the wrong category, you may even find your application gets rejected and you lose the employee. Use a dedicated service like Deel Immigration to help you simplify the process and keep costs low and manageable.

Global payroll

Global payroll software lets you consolidate payments across multiple countries into one platform. This keeps processes consistent across teams and reduces the administrative burden on your HR and accounting departments.

Consolidating your payroll is a great option if you already have entities in every country but struggle with standardization. The platform becomes your entire company’s source of truth. Everyone can follow the same process to schedule payments and handle withholdings and the software takes care of any variables like currency conversions and local contributions.

How do I choose an EOR provider?

Does an EOR seem like the next logical step for your business? Here’s how to find a service provider that fits into your company culture and contributes toward your goals:

• Clarify your hiring plans: Decide which countries you want to enter or hire employees from. Your EOR should provide coverage in all these locations through its own legal entities
• Assess your EOR provider: See how providers compare on coverage, speed, and consistency. One might seem to offer a better deal but only operate in a specific region
• Explore pricing plans: Contact providers to ask for a quote for your hiring plans. Check which services are included in the fee and consider how the pricing plans scale as you continue to expand globally
• Check the EOR’s track record: Research to see whether the provider has successfully helped its client companies maintain compliance
• Request customer testimonials: See what companies from similar locations and industries have said about using the EOR service. Has it helped them meet their goals and solve their specific challenges?
• Demo the software: Book a session with the EOR’s customer support team to explore the software features and test them in a controlled environment. They should be simple for your team to use to avoid while allowing them to carry out all their regular duties
• Review the contract: Have a legal expert look over the terms and conditions to check they meet industry standards. The contract should contain all your rights and responsibilities, such as how to handle terminations and who owns IP

See also: Best Employer of Record 2025: Insights from the G2 EOR Report

Simplify international hiring and expansion with Deel

EORs are a versatile solution. Small businesses can use them to hire abroad compliantly and level the playing field with larger competitors. Meanwhile, large global enterprises can develop scalable processes for entering new markets to lower costs and reduce risk.

Nobody’s more versatile than Deel EOR. With wholly-owned entities in over 100 countries, we’re the world’s leading EOR service and a truly global provider.

Plus, Deel lets you mix and match solutions depending on your current needs. We can set up entities for you in one country, hire your employees through EOR in another, and partner with you through our PEO in a third.

Thinking of partnering with an EOR? Book a 30-minute demo with the Deel team to see how the service can support your global hiring and expansion plans.