Article

Employer of Record (EOR): Guide to Global Hiring in 2025

March 13, 2024

Expanding your business into new markets or hiring talent internationally can be a complex process. One solution many companies use is an Employer of Record (EOR). This service simplifies global hiring, ensuring compliance with local laws, managing payroll, and handling HR duties.

In this guide, we explore what an EOR is, how it works, and why it’s critical for global hiring in 2025.

What is an Employer of Record (EOR)?

An Employer of Record (EOR) is a third-party organization that becomes the legal employer of a company’s workforce on behalf of that company. The EOR manages all employment-related tasks, including payroll, benefits, taxes, and compliance with local labor laws. While the EOR handles these administrative responsibilities, the client company still maintains control over day-to-day operations and decision-making regarding their employees. The EOR is particularly useful for companies that want to expand internationally without establishing a legal entity in a foreign country.

What Are Employer of Record Services?

An Employer of Record (EOR) handles a range of tasks essential for managing employees, particularly when hiring in foreign countries. Here’s a closer look at the key responsibilities of an EOR:

Ensuring Compliance with Local Labor Laws

One of the primary roles of an EOR is to ensure that your company remains compliant with local labor laws in the country where you’re hiring. This includes understanding and adhering to regulations regarding minimum wage, working hours, overtime pay, and employee rights. The EOR keeps track of ever-changing labor laws and ensures your employment practices are always up-to-date. They also help navigate legal complexities, reducing the risk of fines, penalties, or legal disputes.

Streamlining the Onboarding Process

An EOR manages the onboarding process for new team members, making sure everything is set up correctly from day one. This includes drafting employment contracts that comply with local regulations, collecting necessary documentation, and ensuring the smooth integration of employees into your organization. The EOR also provides orientation on local workplace norms and expectations, helping new hires adjust quickly.

Running Payroll Efficiently

Payroll is a critical function that an EOR handles with precision. They ensure that employees are paid accurately and on time, considering all local payroll regulations. This includes calculating salaries, taxes, social security contributions, and other deductions. The EOR also ensures compliance with local tax laws, reducing the administrative burden on your team and minimizing errors that could lead to financial penalties.

Managing Compensation and Benefits

In addition to payroll, an EOR manages compensation and benefits packages. This includes handling mandatory benefits like health insurance, pension contributions, and paid leave, as well as optional perks like meal vouchers and transportation allowances. The EOR ensures that the benefits offered are competitive in the local market and compliant with labor laws, helping attract and retain top talent.

Handling Employee Terminations

Terminating an employee, especially in a foreign country, can be complex. An EOR handles the termination process in accordance with local laws, ensuring that all legal requirements are met. This includes calculating severance pay, providing notice periods, and managing any legal disputes that may arise. The EOR’s expertise in local labor laws helps mitigate risks and ensures that the termination process is handled smoothly and professionally.

Types of Employer of Record (EOR) Models

Partner-Dependent EOR or Aggregator Model

A partner-dependent EOR (also known as an aggregator model) works with local partners in different countries to provide EOR services. The aggregator manages the relationship and coordinates between the client company and these local entities. This model offers flexibility but may result in less control over compliance and service consistency.

Owned-Entity EOR: How Direct Ownership Enhances Compliance

An owned-entity EOR operates through its own legal entities in multiple countries. This model provides greater control over compliance, consistency, and service quality. It also offers a direct relationship between the EOR and the client company, ensuring more streamlined communication and processes.

Example of an Employer of Record (EOR) in Action

Let’s say a tech company based in the United States wants to hire software developers in Brazil. Rather than setting up a legal entity in Brazil, the company can partner with an EOR. The EOR would legally employ the developers in Brazil, handle payroll, taxes, and benefits, and ensure compliance with Brazilian labor laws. Meanwhile, the U.S. company would direct the developers’ daily work and oversee their performance. This enables the company to tap into international talent without navigating the complexities of foreign labor regulations.

What Are the Benefits of Using an Employer of Record?

Some advantages of using an EOR include faster market entry, reduced administrative burdens, compliance with local labor laws, and the ability to attract and retain top talent globally. Additionally, an EOR allows companies to avoid the high costs and complexities of setting up a legal entity in a foreign country.

Ensuring Global Compliance

An EOR helps businesses navigate complex international labor laws and regulations. By managing payroll, taxes, and legal requirements, the EOR ensures that your company remains compliant with local laws, reducing the risk of penalties or legal issues in foreign markets.

Enhancing Staffing Flexibility

With an EOR, businesses can quickly scale their workforce up or down based on demand without worrying about the complexities of employment contracts or local labor regulations. This flexibility allows companies to respond to market changes with agility and focus on their core operations.

Optimizing Cost Efficiency

Using an EOR can lead to significant cost savings by eliminating the need for establishing a legal entity in a foreign country. The EOR handles all employment-related administrative tasks, reducing overhead costs and freeing up resources for other critical business activities.

Accelerating Market Expansion

An EOR enables businesses to enter new markets swiftly by managing the hiring and onboarding processes. Without the need to establish a legal presence, companies can start operations in new regions faster, gaining a competitive edge and accelerating their global growth.

Accessing a Diverse Talent Pool

Partnering with an EOR allows companies to tap into a broader talent pool across different regions. This access to diverse skills and perspectives can drive innovation and enhance the company’s competitive advantage in the global marketplace.

How to Choose the Right Employer of Record?

Selecting the right Employer of Record (EOR) is crucial for your international expansion. Consider factors like compliance expertise, cost transparency, and service flexibility to ensure the EOR aligns with your business goals.Here are some key questions to consider when choosing the best Employer of Record (EOR) for your business needs:

What is the EOR’s experience and expertise in the specific countries where you plan to expand?
How does the EOR handle compliance with local labor laws, tax regulations, and employment contracts?
What are the costs involved, including hidden fees, and is there transparency in pricing?
Does the EOR offer flexibility in scaling your workforce up or down as needed?
What is the process for onboarding and offboarding employees, and how smooth is the transition?
How does the EOR manage payroll, benefits, and tax filings for your employees?

➡️ For a comprehensive guide on how to evaluate and choose the best EOR, explore these key questions: How to Choose an Employer of Record (EOR)? 10 Questions to Consider.

When to Use an Employer of Record?

An Employer of Record (EOR) can be a powerful solution for businesses in various situations. Below are detailed scenarios when an EOR can be most beneficial:

Using an Employer of Record (EOR) to Test New Markets

Expanding into a new market can be risky and resource-intensive. An EOR allows your company to test new markets without the need to establish a legal entity. This enables you to hire local talent, operate within the local regulations, and evaluate market potential with minimal investment. If the market proves successful, you can then transition to a more permanent presence.

EOR for Transitioning to a Local Legal Entity

If you’re planning to set up a local entity but need to start operations quickly, an EOR can serve as a temporary solution. The EOR enables you to hire employees and begin operations while you go through the lengthy process of establishing a legal entity. Once your entity is set up, the EOR can seamlessly transfer the employees to your new entity, ensuring continuity in operations.

Employer of Record (EOR) for Talent Retention and Flexibility

Top talent often values flexibility, and an EOR can help you offer that. By leveraging an EOR, you can hire employees in different regions without forcing them to relocate. This can be particularly appealing for remote work arrangements. Additionally, EORs help you offer competitive benefits packages that align with local expectations, further enhancing your ability to attract and retain skilled professionals.

How an EOR Prevents Contractor Misclassification

One of the biggest risks in hiring contractors, especially internationally, is the potential for misclassification. Misclassifying an employee as a contractor can lead to legal disputes and financial penalties. An EOR ensures that workers are classified correctly according to local laws, mitigating the risk of misclassification and ensuring that your company complies with employment regulations.

Global IP Protection through an Employer of Record (EOR)

When hiring internationally, protecting your intellectual property (IP) can be challenging. An EOR ensures that all employment contracts include the necessary IP protections according to local laws. This means that your company retains ownership of any intellectual property created by your employees, even when they are located in different countries. This is especially important in industries where innovation and proprietary technology are key assets.

Employer of Record (EOR) for Navigating Global Tax and Employment Laws

International tax and employment laws are complex and vary significantly from one country to another. An EOR has the expertise to navigate these complexities, ensuring that your company remains compliant with local tax and labor regulations. This reduces the risk of fines, legal disputes, and financial liabilities. By handling tax filings, social security contributions, and other compliance matters, the EOR allows you to focus on growing your business.

What Are the Alternatives to an EOR?

While an EOR is a flexible solution for global hiring, it’s not the only option. Businesses can also consider:

Opening a local entity: Companies can establish a legal entity in the country where they wish to hire, though this can be costly and time-consuming.
Using a PEO: A Professional Employer Organization (PEO) provides HR services, but unlike an EOR, it doesn’t become the legal employer.

➡️ Learn more in our PEO vs EOR comparison.

Staffing agencies: Staffing agencies provide temporary workers but may not offer the same level of legal and HR support as an EOR.

Employer of Record (EOR) vs. PEO

An EOR and a PEO (Professional Employer Organization) both handle HR functions, but they differ in legal responsibility. An EOR is the legal employer of record, while a PEO shares employment responsibilities with the client company. The EOR is ideal for international expansion where the client doesn’t want to establish a legal entity, whereas a PEO is more suited for domestic situations where the company already has a legal presence.

Advantages of EORs Over PEOs

Full Legal Responsibility: An EOR assumes complete legal liability for employment, ensuring full compliance and reducing the client’s risks.
No Need for a Legal Entity: EORs allow you to hire in new countries without setting up a legal entity, providing a faster and cost-effective market entry.
Global Reach and Consistency: Many EORs operate globally, offering consistent services and easing global expansion.
Flexibility: EORs offer more customization in employment contracts and benefits, better aligning with your company culture.
Faster Market Entry: EORs enable quicker hiring in new markets due to their existing legal infrastructure.

In short, while PEOs are suitable for domestic companies, EORs provide greater flexibility, comprehensive legal coverage, and the ability to expand internationally without establishing a local entity.

Employer of Record (EOR) vs. Staffing Agency

A staffing agency typically provides temporary workers to a company, handling recruitment and placement. An EOR, on the other hand, is involved in the entire employment lifecycle and is the legal employer for full-time, part-time, or contract employees. The EOR focuses on compliance and administration, while the staffing agency primarily focuses on sourcing talent.

Advantages of EORs Over Staffing agencies

Full Legal Responsibility: Unlike staffing agencies, an EOR is the legal employer, handling compliance with labor laws, payroll, benefits, and taxes, reducing the client’s legal exposure.
Long-Term Employment: EORs support permanent, full-time employees, allowing businesses to build long-term teams rather than just filling short-term roles.
Comprehensive HR Support: EORs offer ongoing HR services, including onboarding, payroll, and benefits management, giving companies more control and consistency in managing their workforce.
Global Reach: While staffing agencies may be limited in geographic scope, EORs can help you hire and manage employees in multiple countries, making global expansion smoother and more compliant.

In summary, while staffing agencies are best for short-term staffing needs, EORs offer full legal responsibility, long-term employment solutions, and comprehensive HR support, making them a better choice for companies looking to build a stable, global workforce.

Employer of Record (EOR) Vs Open a Legal Entity

Establishing a local entity in a foreign country involves high costs, legal complexity, and long setup times. Using an EOR, on the other hand, allows businesses to start hiring almost immediately without the need for a local entity. This makes an EOR the faster and more cost-effective option for companies looking to expand into new markets.

➡️ For more insights into the differences between setting up a local entity and using an EOR, check out our article on Local Entity Setup vs. Employer of Record.

Global Reach: Where Are Employer of Record (EOR) Services Available?

EORs are present in most countries around the world. Find out more in our country-specific guides:

EORs in Brazil
EORs in Mexico
EORs in Argentina
EORs in Colombia
EORs in Guatemala

Employer of Record (EOR) Costs: What to Expect

When using an Employer of Record (EOR) to expand internationally, it’s important to understand the key cost components involved:

Per Employee Fees: A recurring fee per employee, either a flat rate or a percentage of the employee’s salary, covering payroll, tax filing, and compliance.
Setup and Onboarding Fees: One-time fees for establishing the employment relationship, handling paperwork, and ensuring compliance.
Compliance and Legal Support: Costs for basic compliance are usually included, but specialized legal services may incur additional charges.
Payroll and Benefits Management: Standard payroll is covered in the per-employee fee, but offering custom benefits can lead to extra costs.
Security Deposit: Some EOR providers may require a security deposit as a financial safeguard. This deposit is typically refundable and used to cover any unforeseen costs or risks associated with employment.
Country-Specific Costs: Expenses vary by country due to differences in labor laws, tax rates, and mandatory benefits.

➡️ For more details on EOR costs, visit: How Much Does an EOR Cost?.

Exploring Alternatives to an Employer of Record (EOR)

When expanding into new markets, companies often consider various strategies for managing their workforce. While an EOR offers a streamlined approach, other options such as setting up a legal entity or engaging contractors might be more suitable depending on your specific needs and long-term goals. Below, we’ll explore these alternatives in detail.

Establishing a Legal Entity

Setting up a legal entity in a foreign country involves creating a branch or subsidiary that complies with local laws and regulations. This approach provides full control over business operations and the employment process but comes with significant challenges and responsibilities.

Advantages:

Full Control: You have complete authority over your operations, employees, and decision-making processes.
Local Presence: Establishing a legal entity enhances your credibility and allows for a stronger brand presence in the new market.
Long-term Stability: If you plan to maintain a permanent presence in the country, setting up an entity is a more sustainable solution.

Challenges:

Complexity and Cost: Setting up a legal entity requires navigating local bureaucracy, legal fees, and administrative tasks, which can be time-consuming and costly.
Compliance: You are responsible for ensuring compliance with all local labor laws, tax regulations, and reporting requirements, which can vary significantly from one country to another.
Time-Consuming: The process of establishing a legal entity can take months, delaying your market entry and expansion plans.

Engaging Contractors

Another alternative is to engage independent contractors in the target market. This approach allows you to leverage local expertise and flexibility without the commitment of hiring full-time employees.

Advantages:

Cost-Effective: Contractors are typically paid on a project or hourly basis, reducing fixed employment costs like benefits and payroll taxes.
Flexibility: Engaging contractors allows you to scale your workforce up or down based on project needs without long-term commitments.
Speed: Hiring contractors can be faster than setting up a legal entity or using an EOR, allowing for a quicker entry into the market.

Challenges:

Limited Control: Contractors operate independently, which means you may have less control over their work processes and priorities.
Compliance Risks: Misclassifying workers as contractors when they should be employees can lead to legal and financial penalties.
Lack of Loyalty and Continuity: Contractors may not be as invested in your company’s long-term goals, and there’s a higher risk of turnover.

For a more detailed comparison of these alternatives and to understand which option might be the best fit for your business, you can explore further insights on this page: Employer of Record vs Entity Setup vs Engaging Contractors.

Frequently Asked Questions (FAQ)

Can an EOR help onboard contractors?

Yes, many EORs, including Europortage, can assist with onboarding contractors while ensuring compliance with local laws.

What are the benefits of using an EOR in 2025?

Faster market entry, reduced administrative burdens, and full compliance with local labor laws.

How quickly can I start hiring with an EOR?

Most EORs can onboard employees within weeks, depending on local regulations.

Is Europortage an Employer of Record (EOR)? Exploring Our Services

Yes, Europortage is an Employer of Record providing comprehensive EOR services to businesses looking to expand globally. We specialize in payroll, compliance, and HR management, ensuring that your international employees are managed in full compliance with local laws. Whether you’re hiring in Brazil, Mexico, or beyond, Europortage helps you grow your global workforce with ease. Visit Europortage to learn more about our services.