Employer of Record (EOR)
Summary Definition: A third-party service provider that assumes legal responsibility for employment tasks, like payroll and local tax compliance, on behalf of another company.
What is an EOR?
An employer of record (EOR) is a third-party service provider that employs workers for a client company, taking full legal responsibility for all employment-related tasks. This includes following local labor laws and managing payroll, benefits, and taxes. The client company, meanwhile, retains managerial control over the employee’s work and development.
Key Takeaways
- An employer of record (EOR) is a legal employment entity for client companies that want to expand into new regions or countries.
- Unlike a professional employment organization (PEO), EORs assume all legal duties and liabilities for hiring and maintaining a local workforce.
- Working with an EOR instead of setting up a local legal entity saves client companies substantial time and resources, allows for faster expansion and growth, and minimizes the risk of violating local labor, employment, or tax laws.
Global EORs
Also known as a global employment organization (GEO), a global employer of record provides most of the same services as a standard employer of record but on an international scale. This can be especially helpful for companies looking to establish or expand a global presence without the accompanying legal complexities.
To that end, global EORs are especially helpful with local labor law compliance, payroll administration, and regulatory requirements unique to a given area or county. This saves the client company time and resources while enabling seamless engagement with local employees.
What Does an Employer of Record Do?
The core purpose of an EOR is to serve as a legal entity that complies with local employment regulations on a client’s behalf. Depending on where the client and EOR are located, EOR services include a wide range of tasks, such as:
- Benefits administration
- Recruiting and onboarding support
- Payroll processing and taxes
- Handling unemployment or workers’ compensation claims
- Guidance on unique contract and labor laws
- Equipment and workplace management
How EORs Work
When a client organization partners with an employer of record, both parties agree to specific roles regarding hiring and retaining skilled workers. The EOR is delegated logistical and administrative employment tasks, while the client organization focuses on managing each employee’s work assignments, performance, engagement, etc.
For example, imagine a company from Oregon needs to set up strategically located distribution warehouses in several states. To staff those locations, it partners with an EOR that already has a legal presence and employment infrastructure in each state. The company in Oregon can onboard and assign each worker tasks, but the EOR is responsible for every worker’s compensation, benefits, safety, etc.
EOR vs. PEO
Despite sharing several characteristics, an employer of record isn’t the same as a professional employment organization (PEO). The most significant difference between a PEO and EOR is the legal status each has when complying with employment and labor laws.
PEOs co-employ workers, which means they share legal responsibilities with the client, and both can be liable for any compliance violations. Conversely, client companies forgo administrative and legal roles when working with an EOR, meaning only the EOR is liable for violations.
In other words, PEOs employ workers with a client company, while EORs employ workers on behalf of a client company.
Some of the other differences between EORs and PEOs include:
| EOR | PEO | |
| Scope of Service | Entirely in charge of all employment, HR, and payroll matters | Provide HR support and share administrative authority with clients |
| Geographic Presence | Specialize in global business operations and international presence | Usually focus on domestic business operations and presence |
| Legal Entities | Serve as a local legal entity so clients don’t have to create one | Partner with a client’s local legal entity |
Employer of Record vs. Staffing Agency
Unlike a PEO, staffing agencies have little in common with an EOR. A staffing agency connects client companies with prospective employees and primarily handles recruitment efforts, such as job postings, background checks, and initial candidate screening.
Their role is limited to finding and placing candidates to fill short-term or temporary staffing needs, and they don’t manage ongoing employment responsibilities like an EOR.
Employer of Record Benefits
The most obvious advantage to using employer of record services is how much time, money, and energy an organization can save by not having to create legal entities or learn local labor laws each time it wants to expand into a new area.
There are, however, several other EOR benefits that businesses may not be as apparent:
- Accelerated Expansion: By delegating legal and logistical requirements to an EOR, client companies can onboard talent and start operations faster.
- Minimized Compliance Risks: EORs specialize in complying with local labor, tax, and employment laws, significantly reducing the risk of a violation and penalty.
- Streamlined Compensation: EORs provide comprehensive HR support and compensation packages suited to the local labor market, allowing for a smoother onboarding process for new hires and client companies.
- Efficient Market Testing: Partnering with an EOR can be a much less expensive way to test the viability of expanding into a new region before making a long-term commitment.
The Tools You Need to Attract and Retain
Embed employee experience features from recruiting, onboarding, and beyond with tools built for the modern workforce. Kick off day one with a welcome message using video. Connect your employees with collaboration tools and peer groups. Develop your team with relevant and interesting training. Keep the conversation going with surveys. And do it all while automating and collecting data to proactively make improvements.