What is an Employer of Record?

How the model works

An EOR holds an employment entity in the country where your hire lives. You sign a service agreement with the EOR, the EOR signs a local employment contract with the person, and payroll, tax withholding and statutory benefits run through the EOR's entity. You pay one invoice: gross salary, employer contributions, and the EOR fee.

The direction of work stays with you. The EOR carries the employment liability and the filing obligations.

Who uses it

Companies hiring one to twenty people in a country, teams testing a market before committing capital, and organisations that inherited a remote employee through an acquisition. It also suits a fixed term project where an entity would outlive its purpose.

Above roughly twenty employees in one country, the fee stack usually overtakes the cost of your own entity.

EOR vs PEO vs own entity vs contractor

A PEO co-employs alongside your existing local entity, so it does not remove the entity requirement. An own entity gives you full control and the lowest per head cost at scale, at the price of registration, accounting, filings and wind down. A contractor is not an employee at all, and treating one like an employee is the single most common route to a misclassification claim.

What an EOR is responsible for

Local employment contracts and compliant clauses, payroll calculation and filing, employer and employee contributions, statutory leave and benefits, termination process and severance calculation, and record retention. Good providers also handle mandatory insurance and occupational health registration.

What it is not

An EOR is not your tax adviser, not a shield against corporate tax presence, and not a route to employ someone in a country where it has no entity and no partner. It does not take on your intellectual property obligations unless the contract assigns them to you explicitly, which is a clause to check line by line.

How pricing works

Two models dominate: a flat monthly fee per employee, or a percentage of gross salary. Flat fees are easier to forecast. Percentage pricing quietly scales with every pay rise.

The headline fee is rarely the whole cost. Ask about FX markup on the salary conversion, security deposits held against severance, off-boarding fees, minimum terms and charges for expenses processing.

Risks and limits

Partner entities introduce a counterparty you have no contract with. Deposit terms can lock up meaningful working capital. Notice periods in the service agreement sometimes exceed the employee's own notice, leaving you paying for both.

Ask for the entity name, the deposit policy and the exit terms before you compare prices.

When to graduate to an entity

Run the arithmetic when you pass roughly fifteen to twenty employees in a country, when you need to sponsor visas at volume, or when local benefits become a hiring obstacle. Set up usually takes two to four months , so start the comparison a quarter before you expect to cross the line.