What is an EOR? A Guide to Employer of Record Services

#What is an EOR? A Guide to Employer of Record Services

Employer of Record (EOR) services are gaining popularity worldwide as a way for companies to hire foreign employees without establishing entities in other countries. Despite this growing interest, many still do not know exactly what an EOR is, how it works, or why it is a good investment.

In this guide, we clarify what an EOR does, what value you get from working with an EOR, and how an EOR is different from a staff agency and POE.

##Key Takeaways

• EOR stands for Employer of Record. It is a legal entity with the right to employ workers in foreign countries.
• An EOR handles payroll, tax, and regulatory compliance while the employer handles operational tasks with the employee. Partnering with an EOR provides access to a global talent pool and fast expansion into new markets.

##Table of Contents

• [What is an EOR?](##What is an EOR?)
• [ How an EOR works in practice](##How an EOR works in practice)
• [How can you benefit from using an EOR?](##How can you benefit from using an EOR?)
• [The difference between an EOR, PEO, and staffing agency](##The difference between an EOR, PEO, and staffing agency)
• Conclusion
• FAQs: What does EOR stand for?

##What is an EOR?

In its simplest form, it is one organization that employs people on behalf of another organization. The Employer of Record (EOR) becomes the legal employer in the eyes of the local authorities and manages the payroll, tax obligations, compliance with local employment laws, and benefits administration related to the employment relationship.

The client company manages the day-to-day operational aspect of the relationship, like setting performance goals, conducting reviews, and managing daily work tasks.

This dual employment model separates legal employment from operational management, making it possible for companies to hire local and international employees without the need to establish legal entities in those jurisdictions.

##How an EOR works in practice An EOR company supports the full employment lifecycle from onboarding to termination, while ensuring compliance with local labor laws. By partnering with an EOR, your company is protected from financial and legal risks, such as non-compliance with local employment regulations.

1. Hiring and onboarding

Once you’ve selected your candidate, the EOR issues an employment contract that complies with local employment laws on your behalf. This contract is tailored to meet the mandatory legal requirements for that jurisdiction, including notice periods, working hours, statutory employee rights, and tax obligations.

If necessary, the EOR can do background checks if you require these before the employment contract is issued.

The employee signs the employment contract with the EOR, establishing the EOR as the legal employer. Your company retains the right to define the role, job responsibilities, and performance objectives. Furthermore, the EOR ensures registration with local tax, social security, and workers' compensation authorities.

Expert insight: Remote work is a strategic advantage for companies wanting to expand globally. Discover ‘10 Benefits of Hiring Remote Workers in 2026.’

2. Payroll and tax compliance

After finalizing onboarding, the EOR assumes responsibility for payroll processing according to the laws of the foreign country. This includes paying employees in the currency of the country, withholding taxes from the employee’s salary, and submitting taxes to the local tax authority. Social security and health insurance are also managed by the EOR, reducing compliance risk.

Without an EOR to manage administrative burdens, employers are left to establish local entities and deal with payroll nuances. If you have workers in multiple countries, this only compounds the challenges, but EOR services remove the responsibility from you completely.

3. Benefits administration

Employee benefits can vary widely across countries and can be challenging for your HR team to manage. The EOR, however, can ensure access to mandatory leave, universal healthcare, retirement, pension, and unemployment benefits by having experts who understand local laws working within their companies.

If relevant, the EOR can align additional benefits to the local market standards, helping you to remain competitive as an international employer.

4. Ongoing compliance with international employment laws

The EOR will continue to manage international employees throughout the employment lifecycle, ensuring compliance with applicable regulations and updating policies as changes occur. Employment terms are consistently monitored for changes to minimum wage amounts, working hours, mandatory paid time off, and leave benefits.

The EOR acts as the legal employer in the event of compliance visits and audits, removing the responsibility from your company to collect documents and attend compliance meetings.

5. Termination and offboarding

Should the employment relationship end, the EOR will manage the process in accordance with local labor regulations. They handle the following processes on your behalf:

• Application of statutory notice periods.
• Calculation of severance pay (where relevant).
• Preparation of termination documents, including final payroll and tax obligations.

Termination laws tend to be highly regulated in foreign countries, and having an EOR manage this function for you removes the burden of disputes, penalties, and wrongful termination claims.

Terminating a remote contract is never easy, and without the proper management of legal risks and the impact on your team, it can turn into a real challenge. In ‘How to terminate a remote employee’, we discuss the do’s and don’ts of remote terminations to help you manage the process fairly and consistently.

##How can you benefit from using an EOR? One question that is often asked regarding an EOR is: ‘What will be gained from partnering with an EOR?’ That’s a fair question, and answering it will clarify how an EOR adds value to your global expansion strategies.

Distributed workforce model

With a distributed workforce model, companies hire employees all over the world and they work remotely, relying on technology for collaboration. This requires a strong technological, legislative, and HR framework to manage.

Since the EOR has multiple legal entities worldwide, the necessary framework is already in place for hiring and engaging international employees. An EOR simplifies global hiring, takes over administrative responsibilities, and payroll services, leaving companies to focus on core business functions.

The current digital transformation is having a profound impact on remote working. It is making it easier than ever before for companies to have a distributed workforce. We unpacked this topic and looked at future perspectives on global remote work in ‘Global Remote Workforce Future: Beyond Hiring Practices’.

Expansion into new markets

One barrier to entering new markets is often the lack of a legal entity in that country. This makes hiring foreign employees really challenging. But an EOR helps you onboard within days rather than weeks or months.

You don’t need to register a legal entity, open bank accounts, or register with local tax authorities. The Employer of Record has the local expertise and resources to do this for you, turning global expansion from a high-risk, capital-intensive exercise into a viable, rapid-execution process.

Reduced compliance risk

Managing global employees without the proper expertise and knowledge of local regulations creates a high-risk situation for employers. Human resources teams can only scale so quickly to accommodate expansion efforts, and essentially, it’s not a cost-efficient strategy for a local HR department to take this on.

EOR service providers can act as the legal employer in the country where you want to hire, and take on the HR related tasks. As the local legal entity, it is the responsibility of the EOR partner to do all the risk management. This leaves you free to manage the day-to-day operations of your business.

Payroll management

Managing payroll, even when you know all the local tax rules and statutory requirements, can be a big job. Now imagine trying to do this for a global workforce. The value of an EOR record becomes more apparent as you calculate the costs of doing this in-house and consider what it will take to file payroll taxes in a foreign country.

Payroll mismanagement is also a major point of contention in the employer-employee relationship. Not only does it erode the trust you’ve just built with your new employee, but it also leaves you open to penalties and fines. Avoiding this exposure is key, and a global EOR can help you do that.

Expert Insight: Choosing a global payroll provider requires careful evaluation. Rivermate founder, Lucas Botzen, shares his thoughts on how to do this effectively in ‘Choosing a Global Payroll Provider: 8 Factors to Evaluate’.

The difference between an EOR, PEO, and staffing agency

The terms EOR, POE and staffing agency are often used interchangeably, but they are quite different. Choosing the wrong model can cause staffing difficulties, as well as legal and financial risks.

Employer of Record (EOR)	Professional Employer Organization (POE)	Staff Agency
Sole legal employer	Co-employment model (shared responsibility)	Legal employer
Removes the need for a local entity	Employer must be the legal local entity	No need for the employer to establish a local entity
Long-term, permanent placements	Long-term, permanent placements	Short-term or contract placements
Payroll, taxes and labor law compliance managed by EOR	Payroll, taxes and labor law compliance shared with employer	Payroll, taxes and labor law compliance remain agency responsibility
Local and international hiring	Local hiring	Mostly local hiring with limited international hires
Employs a selected number of employees	Employs the full workforce	Employs only the number of requested employees

We see from this comparison that an EOR is ideally suited for hiring of permanent global employees, where the EOR will be the sole legal employment entity, taking full control and responsibility for payroll, taxes and compliance.

For a deeper look at the differences between an EOR and a PEO, ‘Comparing EOR and PEO: Understanding Differences and Needs’ provides a full breakdown of the two entities and tells you how you can choose the right one.

Conclusion

An Employer of Record is a legal entity that hires global employees for another organization. By acting as the legal employer, the EOR handles payroll, tax, and compliance responsibilities while a client company handles the day-to-day operational details of the work relationship.

Whether you want to expand into new global markets or increase the scope of your talent pool locally, an EOR reduces employment risk while helping to accelerate growth. Partnering with an EOR is the bridge between your business goals and the world’s best talent.

Rivermate invites you to partner with us for your global hiring needs. We believe in clearing away any obstacles standing between you and the top talent the world has to offer. If you require high-level expertise, onboarding speed and peace of mind about your global employees, contact us to discuss your staffing needs.

FAQs

What does EOR stand for in business?

EOR stands for Employer of Record. It refers to a local entity that has the right to act as a legal employer for its clients in multiple countries. It handles onboarding, payroll and tax compliance, benefit administration, and termination of the employment relationship. All regulatory obligations fall on the EOR, including payroll, tax, and compliance audits. The EOR places mainly permanent, long-term employees in foreign countries.

Is using an Employer of Record legal in all countries?

Yes, an Employer of Record (EOR) is legal in most countries; however, it must comply with the rules and regulations set by the governing authorities. Some jurisdictions impose limits on the use of EORs to manage employment relationships. These limits are communicated in local labor laws and employment regulations.

What industries will benefit from using an EOR?

Most industries will benefit from using EOR services to hire local and global talent without being the legal employer. While the IT and healthcare industries are two well-known EOR industries, universities, NGOs, events management companies, insurance companies, and crypto companies also use EORs.