What Is an Employer of Record? Benefits, Meaning & Examples

This is an expert guest post by Yaryna Kobryn from Anywherer. 

Hiring across borders sounds great until you realize just how complex it can get. 

Setting up a legal entity in every country you want to hire in? Not exactly simple. That’s why many companies end up turning to the employer of record (or EOR, for short) model. It lets you hire international employees without establishing a local business, and takes care of essentials like payroll and compliance so you don’t have to. 

The global EOR market is predicted to grow from roughly $4.42 billion in 2023 to $8.59 billion in 2030 at a compound annual growth rate of 6.8% during this span of years. The growth of EOR services is emphasized further with the changes in the world of remote work, considering the number of employees working on a remote basis has grown significantly in recent years, from 20% in 2020 to 28% by 2023. 

Plus, Gallup estimates that 53% of US workers who have remote jobs are currently in a hybrid arrangement, with 60% preferring it to remote or on-site work. This change emphasizes the fast-growing demand for flexible workforce solutions — something we’ll explore in this article, along with the benefits of the employer of record model and how exactly it compares to other global hiring options. 

What is EOR in HR? 

An employer of record is a third-party organization that employs workers legally on behalf of another company. 

So, what exactly does this mean for you? The EOR becomes responsible for all legal and compliance functions of employment, which includes paying the employee, taxes, benefits, as well as abiding by local labor laws. Ultimately, you can focus on your business while the EOR takes care of the HR headaches. 

The client company is usually involved in the day-to-day management of the employee's work but is not legally responsible as an employer. 

If you’re looking to hire in new locations, EOR services allow employees to be recruited without establishing a compliant local legal business. Plus, they eliminate expensive and complex setups entirely. With EOR companies, you can be at ease knowing you will be compliant with local and federal employment laws. This works great for foreign firms that wish to quickly and effortlessly expand or even reach new markets.

The benefits of using an employer of record 

When deliberating whether to use an employer of record, it’s important to consider the benefits that come with it. Here are some of the main advantages: 

• Growth made easier: With an EOR, businesses may hire staff from other countries without having to open a local office in that country. This greatly simplifies expansion and allows the business to enter new markets at a faster rate. 

• Compliance with local and federal employment laws: Compliance can indeed be a tricky issue, particularly when you’re dealing with foreign markets with tough labor regulations. EOR companies resolve this problem by managing all the local employment policies and laws so businesses don’t have to pay the fines that come with non-compliance. 

• Quick hiring process: Want to hire fast? An EOR speeds up the process because you don’t need to wait for local registrations or setting up a legal entity. Indeed, an EOR makes it easier to expand into different regions quickly. 

• Cost savings: Establishing a local entity in foreign countries almost always leads to exorbitant costs. An EOR helps mitigate a majority of these expenses, thus making businesses’ international relocation easy and cost-effective. 

• Focus on core business functions: Companies using EORs don’t have to deal with HR functions, which can prove to be a difficult problem. Thus, experts can now solely look at the primary activities business issues with and leave the administrative work like payroll and benefits to the experts. 

• Risk reduction: EORs protect companies from employment-related risks, including disputes over contracts and taxes, lowering the potential legal and even financial exposure a company would otherwise incur. 

The risks of using an employer of record 

Besides its advantages, employing an EOR also has associated risks that need to be carefully managed: 

• Lack of control over employment terms: The EOR is the employee's direct employer, so the client company will generally have limited control over matters like employee contracts, benefits and other employment-related issues. You’ll want to make sure the EOR’s terms align with your company’s needs. 

• Quality of service: There are different providers with their own set of advantages and disadvantages, so you need to check them out. Inadequate service or delays may adversely impact employee morale as well as the business. 
• Costs of EOR services: An EOR may help in saving costs, but users need to scrutinize the cost structure carefully. Some EORs are known to include steep administrative or servicing charges that offset potential savings. 

EOR case studies 

Still curious about how it works in real life? Let’s take a look at how some companies that have successfully used EORs: 

Mawla's global expansion 

Mawla, a firm exploring to expand its operations on a global scale, worked with Boundless, an EOR service provider, to source senior-level technical talent across the globe. 

This partnership consequently helped Mawla deal with multi-country employment issues such as HR, compliance and taxation without the need for individual legal entities in every country. With the EOR taking care of all employment-related administrative work, Mawla was able to concentrate on achieving its overall business goals. 

Edge Solutions’ global talent acquisition 

Athyna, an EOR provider, partnered with Edge Solutions, a technology firm that was attempting to increase its market stake overseas. 

Edge Solutions’ collaboration with Athyna facilitated international hiring after many EOR service providers did not meet the hiring criteria Athyna had set. EOR services allowed Edge to scale faster with the right talent. 

Rapid staffing for a Singapore-based tech project 

A staffing firm working on behalf of a tech giant collaborated with People2.0, an EOR provider, to quickly staff a project in Singapore. 

Leveraging People2.0's comprehensive EOR solution, the staffing firm met the client’s needs within a tight 45-day timeline, guaranteeing compliance with local and national regulations and operational efficiency. 

Employer of record vs PEO 

Both employer of records and professional employer organizations (or PEOs) assist with HR functions, but they actually have differences in terms of responsibilities and services. The differences between them are quite distinct, so it’s important for a company to determine what exactly best suits its needs. 

Aspect	EORs	PEOs
Legal employer	EOR becomes the legal employer of the workers.	The client company remains the legal employer.
Scope of services	Focuses on managing payroll, taxes, benefits, as well as legal and regulatory compliance in various jurisdictions.	Offers a wider array of services, like recruitment, training, HR management and even benefits administration.
Employee management	The client company manages the day-to-day activities of the employee.	The PEO shares responsibility for people management with the client company, often including performance management and other HR tasks.
Geographic flexibility	Highly flexible for international hiring, allowing businesses to hire in various countries without requiring the establishment of a separate legal entity in each one.	PEOs generally operate in a specific jurisdiction or country, though there are some providers that have international capabilities.
Risk sharing	The EOR assumes full responsibility for compliance with local and federal labor laws, taxes, as well as employment-related risks.	The PEO shares the responsibility for compliance, but ultimately, the client company is still legally responsible for certain aspects, including workplace safety.

Employer of record vs staffing agency 

An EOR works as a legal employer whereas a staffing agency operates differently, acting as a recruitment partner offering workers on a temporary basis. EORs manage all legal employment issues while staffing agencies handle most of the recruitment. 

Aspect	EORs	Staffing agencies
Legal employer	The EOR is the legal employer for the workers.	The staffing agency is often the legal employer, or they may act as a contractor for temporary workers.
Employment duration	Employees are generally hired for long-term roles and are considered full-time workers.	Staffing agencies largely focus on providing temporary as well as contract workers for short-term or project-based employment.
Scope of services	EOR handles all legal, tax and compliance responsibilities, ultimately managing the employment record of the workers.	Staffing agencies provide recruitment services, but they do not usually handle payroll, benefits or compliance for full-time workers.
Control over employees	Clients manage the day-to-day work of employees, but the EOR manages legal responsibilities.	Staffing agencies typically maintain control over workers’ conditions and may not allow the client to fully control the employee’s work environment.
Geographic flexibility	EORs allow companies to hire employees globally, ensuring compliance with local and federal laws.	Staffing agencies generally operate within a single country or region and may have limited ability to source international workers.

Examples of leading employer of record companies 

While looking for an employer of record, there are some companies that are more well-known than others because of their distinct features, global presence, as well as the standing of the industry. 

Here’s a look at some of the top EOR providers, which provide a myriad of services meant to assist and simplify the process of hiring outside of a company’s home country and managing an international workforce with ease. 

1. Papaya Global 

 
Papaya Global has a proprietary, highly automated platform that successfully simplifies global payroll and compliance. Papaya Global integrates HR and accounting modules, enabling effortless management of employees around the world for over 140 countries. 

2. Deel 

 
Deel’s EOR service allows organizations to employ workers in over 150 countries. Designed specifically for large and small remote teams, the platform provides unequaled user experience with effortless onboarding, payment, as well as compliance features for local laws and regulations. 

3. Velocity Global 

 
Velocity Global focuses on helping companies with global expansion by providing EOR and workforce management services. They offer solutions in more than 185 countries for large enterprises as well as small and medium-sized businesses interested in international hiring without locally incorporated entities. 

4. Remote 

 
Remote is known for its simple EOR solution for remote teams. Their core focus is to eliminate the hassle that comes with international hiring by covering the whole value chain like payroll, benefits, compliance, as well as global tax management in more than 60 countries. 

5. G-P 

 
G-P offers EOR services with a notable concentration on company expansion and coverage of more than 187 countries. They ease the complexity of hiring and managing staff by providing structures to do just that without establishing a local entity for the business. 

Final thoughts 

For companies that want to hire internationally without the hassle of establishing local offices, an employer of record is the best choice. EOR providers take care of compliance, legal and payroll obligations, ultimately enabling businesses to center their attention towards growth and other operations. 

Nevertheless, relying on an EOR comes with its own fair share of risks, like poor service or limited control over employment conditions, but the advantages of rapid hiring, lower expenses and mitigated risks tend to be greater. Ready to expand globally? An EOR could very well be your perfect solution. 

Got a question about EORs? Let us know in the comments section below.