When should you use an employer of record vs. a staffing agency?

Hiring across borders or even scaling rapidly within one market isn’t straightforward. Founders, HR leads, and operations teams often wrestle with a critical question: how do we bring talent on board quickly while staying compliant and avoiding unexpected costs?

Choosing the wrong hiring model can expose companies to compliance risks, misclassified workers, or mounting administrative overhead. In 2025, workers in roles like trucking or construction lost more than $20,000 per year in income due to misclassification, while employers face IRS penalties for unpaid tax liabilities and fines.

For scaling startups, these setbacks mean delayed launches, unhappy investors, and frustrated employees.

That’s where two distinct models come into play: an Employer of Record (EOR) and a staffing agency. Both can help you add talent, but they serve very different purposes. Understanding when to use each one is essential for managing global growth effectively.

This guide breaks down the differences between an EOR and a staffing agency, the benefits of each, and how to decide which option aligns best with your goals.

What are the key differences between an employer of record and a staffing agency?

At first glance, both an employer of record (EOR) and a staffing agency help companies fill roles quickly. But the way they operate, and the responsibilities they take on, are very different.

Here are the key differences:

Aspect	Employer of Record (EOR)	Staffing agency
Employment relationship	Acts as the legal employer in-country	Sources candidates
Compliance	Manages employment contracts, payroll taxes, employee benefits, international labor laws, health insurance, and other legal and administrative aspects	Limited to recruitment; compliance handled by employer
Payroll	Runs payroll, disburses salaries, and files taxes locally	Typically not included (except in some temp staffing models)
Best suited for	Long-term global hiring, global team building, compliance-heavy markets	Short-term projects, temporary coverage, seasonal or contract roles
Risk mitigation	Mitigates misclassification, tax exposure, and legal penalties	Limited; legal and financial risks fall on the client company
Scope	End-to-end employment solution	Recruitment and placement service

Alt text: Table comparing staffing agencies and an employer of record
Caption: Explore the differences between a staffing agency and employer of record

Companies often use them for different goals: staffing agencies specialize in filling immediate gaps, and EORs are used to expand teams across borders without legal or operational risk.

$865K settlement underscores why compliance comes first Alt text: Visual representation of online grocer Weee!’s delivery employee Caption: Weee! misclassified its delivery drivers as contractors Source Online grocer Weee! agreed to pay $865,000 in August 2025 to resolve allegations of misclassifying delivery drivers in Massachusetts. Over 160 workers will receive restitution after being denied proper pay stubs and legally mandated sick time. The Attorney General’s office found that the company treated employees as independent contractors, leaving them without access to state-protected employee benefits such as 40 hours of job-protected sick time. As part of the settlement, Weee! agreed to classify drivers correctly and comply with wage and hour employment laws moving forward. This case underscores the financial and reputational costs of misclassification and why compliance-first hiring models like an employer of record or a contractor of record help businesses avoid these risks from the outset.

What are the benefits of using an employer of record?

An Employer of Record (EOR) goes beyond recruitment to take on full legal and administrative responsibility for your employees abroad. This model offers several clear advantages:

• Global compliance is made simple: An EOR becomes the legal employer, drafting contracts, filing taxes, and managing statutory benefits in line with international labor laws. This reduces the risk of misclassification or regulatory penalties.

• Faster market entry: Setting up a foreign entity can take six to 12 months and cost upwards of $20,000–$50,000, with recurring costs. With an EOR like Rivermate, you can legally hire in days without entity formation delays.

• Consolidated payroll processing and benefits: Instead of dealing with multiple vendors, companies pay a single monthly invoice.
  Employees get consistent onboarding, payroll, and benefits across geographies. Rivermate, for example, offers every employee of our client company—whether they’re joining for the first time or moving between markets—a dedicated onboarding session. In this live session, they don’t just hear about policies. They experience how everything works:

  • What it means to be employed through an EOR
  • How to navigate the Rivermate dashboard with confidence
  • Where to access payslips, request reimbursements, and track expenses

• Reduced operational load: HR, finance, and legal teams save time by outsourcing administrative tasks like visa paperwork, payroll filings, and benefit enrollment. This frees them to focus on strategy and employee engagement.

• Scalability with confidence: Whether hiring 10 employees in a new market or expanding across multiple countries, the EOR model provides predictability and legal protection as teams grow.

For startups and mid-sized companies scaling internationally, these benefits make an EOR model the safer and more sustainable option compared to piecemeal hiring or local entity setup.

Case study: How IT Svit retained key talent with Rivermate Caption: IT Svit case study Source* When one of IT Svit’s key engineers needed to relocate to Canada, the company faced a tough choice: lose a critical team member or figure out how to employ them compliantly abroad. Setting up a local entity would have taken months and cost tens of thousands of dollars. That’s where Rivermate stepped in. By partnering with us as their Employer of Record, IT Svit kept their engineer on board, avoided compliance risks, and saved both time and money. Why IT Svit chose Rivermate Flexibility that mattered: We set up employment in the exact Canadian province requested, without surprise costs. Personal service: Quick, detailed responses to every unique request. Problem-solving mindset: No matter how specific the challenge, we found a path forward. What changed for IT Svit 150+ countries covered: IT Svit could now retain suitable talent beyond borders with full legal compliance Zero disruption: Projects continued smoothly while their engineer relocated Time saved: We handled contracts, payroll, and filings so their team didn’t have to Cost control: No expensive entity setup or unnecessary overhead Employee satisfaction: Their engineer enjoyed a smooth transition and ongoing support Caption: IT Svit client testimonial for Rivermate Source* By choosing Rivermate, IT Svit turned what could have been a major setback into a success story, retaining a star engineer, safeguarding compliance, and proving that borders don’t have to limit growth.

What are the benefits of using a staffing agency?

A staffing agency helps companies source, screen, and place candidates. Unlike an Employer of Record, it doesn’t take on payroll or long-term compliance, but it can deliver real advantages when you need flexibility or speed. Here are some of them:

1. Rapid hiring cycles

A staffing agency maintains broad candidate networks, often organized by industry. This makes it possible to fill roles quickly—sometimes within days—when you face workload spikes or urgent project deadlines.

2. Flexible workforce options

A staffing agency is well-suited for businesses that need to scale headcount up or down. They can provide:

• Temporary workers for seasonal demand
• Contractors for project-based work
• Temp-to-permanent staff who start on contract before moving to permanent roles

This flexibility keeps labor costs aligned with business cycles and reduces the risk of over-hiring.

3. Lower recruitment burden

The recruitment process is resource-heavy. A staffing agency takes on job postings, resume screening, background checks, and early interviews, so your HR team can stay focused on onboarding and retaining core international employees.

4. Access to specialized and passive talent

Staffing agencies often specialize in fields like IT, healthcare, or finance. Their recruiters understand niche skill sets and maintain relationships with both active candidates and “passive” professionals who aren’t applying but are open to new roles.

5. Cost alignment with projects

For short-term or pilot projects, a staffing agency can be cost-effective. You only pay for the duration of the assignment rather than committing to full-time salaries, benefits, and compliance costs.

6. Reduced risk in candidate selection

While agencies don’t take on full legal responsibility, many offer guarantees. If a candidate doesn’t work out within a set period, they’ll provide a replacement, minimizing disruption to your team.

Did you know? With Rivermate you can: Cut HR and admin costs by up to 70% Get candidates in five days from 150+ countries Scale anytime. Even convert contractors to employees.

7. Confidentiality and discretion

For executive or sensitive hires, a staffing agency can run discreet searches that protect confidentiality during transitions such as restructuring or leadership changes.

8. Strategic on-site support

Some staffing services embed recruiters within your team, offering workforce planning, retention strategies, and cultural alignment support that extend beyond candidate placement.

9. Technology-driven recruitment

Staffing services often use applicant tracking systems, automation, and analytics to streamline the process, giving you better visibility into candidate pipelines and decision-making.

To summarize, a staffing agency excels when speed, flexibility, and access to specialized talent are the priorities. They are best suited for short-term staffing, project-specific roles, or industries with fluctuating labor needs.

When should you use an employer of record?

Caption: Rivermate, your global HR powerhouse

Source

An Employer of Record (EOR) becomes essential during hiring in international markets or when compliance risk is high. Here are the most common scenarios where businesses choose an EOR over traditional hiring models:

1. Expanding into new countries

If you want to hire in a country where your company has no legal entity, an EOR allows you to employ staff legally in days instead of waiting months for entity setup. This is particularly valuable for startups and mid-sized companies testing new markets.

With Rivermate, for example, you can launch in 150+ countries immediately, skipping costly entity setup and delays.

2. Avoiding worker misclassification

Relying on contractors abroad carries risks if local authorities determine the worker should be classified as an employee. Misclassification fines and back taxes can be significant. An EOR eliminates this risk by being the legal employer and handling compliant contracts.

Do you know what permanent establishment risk is? Permanent establishment (PE) risk can expose your business to unexpected taxes, heavy fines, and reputational damage. For multinationals, managing this risk is critical to operating safely across borders. When you proactively manage PE risk, you: Stay compliant with local tax regulations Avoid penalties, back taxes, and interest charges Protect your reputation with customers, investors, and regulators Effective PE risk management means analyzing where your activities may trigger tax presence, keeping up with regulatory changes, and putting internal controls in place to monitor exposure. Many companies also lean on expert legal and tax partners to structure operations defensibly. An EOR helps by acting as the legal employer in-country, reducing the risk of creating unintended tax presence while keeping hiring fully compliant.

3. Managing global payroll and benefits

Running payroll across multiple jurisdictions is complex, each with local employment laws, benefits requirements, and reporting rules. An EOR centralizes payroll and benefits administration into one streamlined system, ensuring consistency for employees worldwide.

Rivermate, for example, unifies payroll, benefits, and tax filings into one dashboard with a single monthly invoice.

4. Hiring for long-term roles abroad

A staffing agency is effective for temporary projects, but for full-time employees, companies need a compliant structure. An EOR is designed for ongoing employment, ensuring continuity and stability for international team members.

5. Scaling without administrative overhead

As companies grow across borders, HR and legal teams can become overwhelmed by the paperwork and compliance checks. An EOR reduces this burden by handling contracts, tax filings, and employment regulations, letting internal teams focus on growth strategies.

Take for example Rivermate which assigns a dedicated account manager and 24/7/365 expert support, reducing internal overhead as you scale.

6. Relocating key talent

If an existing employee moves abroad, companies may face tax and compliance challenges. An EOR provides a compliant way to retain that employee without setting up a local subsidiary or risking permanent establishment.

In short, use an EOR model when your priority is long-term, compliant international hiring. It’s the most reliable way to expand globally without legal exposure or delays.

When should you use a staffing agency?

While an Employer of Record covers long-term, compliant international hiring, there are situations where a staffing agency is the more practical option.

1. Filling short-term gaps

A staffing agency excels when companies need immediate support for temporary roles, such as covering maternity leave, seasonal demand, or urgent project requirements. Agencies can often place candidates within days.

Example: A hospital needs to cover maternity leave for a registered nurse. A staffing agency can place a qualified nurse within days, ensuring patient care isn’t disrupted.

2. Project-based hiring

For businesses running time-bound projects, a staffing agency provides contractors or temporary workers who can contribute without requiring long-term contracts. Once the project ends, the workforce can be scaled down quickly.

Example: A contractor wins a six-month infrastructure project but lacks enough certified electricians. A staffing agency provides licensed workers for the duration of the project, with no long-term commitment.

3. Testing roles before full-time hiring

Some companies use a staffing agency for temp-to-perm arrangements, bringing in candidates on a temporary basis before converting them to permanent employees once fit and performance are confirmed.

Example: A mid-sized accounting firm wants to trial a junior auditor before adding them permanently to the team. A staffing agency supplies the candidate on a temp-to-perm basis, reducing hiring risk.

4. Accessing niche or specialized skills

A staffing agency that focuses on industries such as IT, healthcare, or finance can connect employers to professionals with hard-to-find skill sets. This can be valuable for projects requiring expertise that the company does not need permanently.

Example: A software company requires a data scientist skilled in natural language processing for a three-month product pilot. A specialized staffing agency quickly helps source quality candidates without the company needing to recruit globally.

5. Managing high-volume, low-complexity hiring

In industries with high turnover—like retail, customer support, or warehousing—a staffing agency can help companies maintain consistent headcount without stretching in-house HR teams.

Example: A nationwide retailer faces holiday-season demand spikes. A staffing agency supplies hundreds of seasonal associates across stores, keeping shelves stocked and checkout lines moving without overburdening internal HR.

6. Expanding search for qualified candidates

A staffing agency widens your reach beyond the limits of your own sourcing channels. They often maintain networks of candidates who aren’t actively applying for jobs but are open to the right opportunity.

Many also specialize in industries where talent shortages are common, giving you access to candidates you might not find through standard postings. This expanded reach helps companies fill hard-to-hire roles faster and with a better fit for their needs.

Example: An automotive supplier needs engineers with experience in electric vehicle battery design but struggles to find suitable talent locally. A staffing agency taps into its nationwide and international networks, connecting the company with specialized engineers ready to relocate or work remotely, solving a talent shortage that could have slowed innovation.

7. Decrease costs

Working with a staffing agency can reduce costs compared to hiring permanent employees. Companies don’t typically cover benefits or long-term payroll taxes for agency staff, since those are handled by the staffing agency.

You also avoid expenses tied to unemployment claims once assignments end. In addition, your temporary workforce can ease pressure on your existing team, reducing the need for costly overtime.

Example: cost comparison: temporary vs. permanent hiring (U.S., 2025)

Assumptions

• Role: Administrative assistant (seasonal support for 8 weeks)
• Hourly wage: $25/hr
• Hours/week: 40
• Duration: 8 weeks (320 hours total)

1. Permanent hire costs

Base salary:

• $25/hour × 40 hours/week × 52 weeks = $52,000/year
• For an 8-week period: $8,000

Benefits:

• Benefits typically add ~31% to base salary
• Over 8 weeks: $8,000 × 0.31 = $2,480

Tax and training overheads:

• Payroll taxes, recruiting, training, admin, onboarding, conservatively estimated at 20–30% of base salary
• Estimated additional cost: $8,000 × 0.25 = $2,000

Estimated total cost for 8 weeks:
$8,000 (wages) + $2,480 (benefits) + $2,000 (other overheads) = $12,480

2. Temporary hire via staffing agency

• Cost may vary, but agencies typically charge the hourly wage plus agency fee portion.
• At a total billing rate of $30/hour:
  • $30 × 320 hours = $9,600
  • Agency covers benefits, payroll tax, admin

In summary, a staffing agency’s role is best suited for temporary staffing, short-term contracts, or specialized project work. But when the priority is building a stable, compliant international team, companies often turn to the EOR model instead.

EOR or staffing agency? Build global teams with confidence

Caption: Rivermate home page

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Choosing between an employer of record vs staffing agency depends on your goals. A staffing agency works best for short-term coverage and project-based hiring, while EORs provide the compliance, payroll, and stability needed for long-term international expansion.

For scaling companies, the EOR model reduces legal risk, simplifies global payroll, and accelerates the global hiring process in new markets, without the cost and delay of setting up entities.

Rivermate combines local expertise with high-touch support, helping you manage employment in 150+ countries with clarity and care.

Ready to scale your team across borders? Book a 30-minute consultation today and see how Rivermate can help you hire confidently worldwide.

FAQs

1. What is the difference between EOR and staffing?
   An Employer of Record is the legal employer, managing compliance, payroll, and contracts across borders. Staffing agencies source and place talent, often for temporary roles, but do not handle ongoing employment obligations.

2. What is the difference between an agency of record and an employer of record?
   An agency of record or Contractor of Record (COR) manages the compliant engagement of independent contractors, handling contracts, classification, and payments. An Employer of Record (EOR), on the other hand, becomes the legal employer for full-time staff, covering payroll, benefits, and local compliance.

3. What is the difference between a staffing agency and an employer?
   A staffing agency recruits candidates but may not act as their legal employer. The client company generally becomes the employer. With an EOR like Rivermate, the provider becomes the official employer while you manage daily work.

4. When to use an employer of record?
   Use an EOR when hiring internationally without a local entity, avoiding misclassification risks, or managing global payroll. Rivermate’s EOR services allow companies to expand into 150+ countries with speed and confidence.