What is an Employer of Record

An Employer of Record (EOR) is a solution that enables companies to hire workers overseas without having a local registered company entity. Instead of directly hiring a candidate, you partner with a local in-country organization in the country where you wish to hire, and they hire the candidate on your behalf.

On paper, the employee works for the Employer of Record, who puts them on their payroll, pays the relevant taxes, and handles their paycheck at the end of pay period. In terms of day-to-day operations, you manage their workload and responsibilities.

What is an Employer of Record?

An Employer of Record is an employment solution that allows you to quickly and compliantly hire someone, wherever they are in the world – without opening a legal business entity in that location.

When you are growing a global business, you want to be able to hire for the best person for the job, rather than the best person in your region. However, hiring employees abroad can come head to head with local compliance laws. You can’t legally hire employees in a country where you don’t have a legal entity set up, and establishing an entity is a lengthy and expensive process.

That’s where an EOR, also known as a global PEO come into play.

When does an employer of record make business sense?

Companies don’t turn to an EOR by accident. They use it as a strategic lever to accelerate international hiring without compromising compliance or control. You’ll typically see an EOR in play when:

• Expanding into new markets without an entity: An EOR allows you to hire locally while deferring, or even avoiding, entity establishment.
• Competing for global talent: You can extend formal offers in any country where the right candidate lives, without relocation or legal hurdles.
• Hiring ahead of infrastructure: Need someone on the ground before your legal and operational setup is ready? An EOR fills the gap, fast.
• Mitigating misclassification risks: If the role looks, acts, and feels like employment, using an EOR avoids exposing your company to compliance violations that result in large fines and penalties.

Each of these use cases speaks to the same goal: building international teams quickly and compliantly, without overextending your internal resources.

What services does an EOR offer?

An EOR takes on the hiring of a company’s employees in a new location, allowing the company to remain legally compliant with all local employment laws, labor regulations, workplace safety requirements, anti-discrimination statutes, and mandatory benefits legislation. The EOR provider serves as the official employer, handling administrative duties and ensuring adherence to employment standards, while the company retains control over the employee’s daily tasks and responsibilities.

In terms of the relationship, the company will maintain regular communication with the employee and typically assign a direct manager or team lead to oversee work-related matters, much like they would if the employee were part of the same organization.

However, if there is an issue regarding payroll processing, taxation, contracts, or other employment law – the employee would need to take that up with the representative from the Employer of Record. Tasks that an Employer of Record will generally take on include:

Payroll management

An employer of record is responsible for payroll taxes, registering with the local tax authorities, filing all documentation, and ensuring legal local compliance. They will also manage the specific details of a payroll process, collecting forms like W-2 or I-9 forms, taking deductions, sending pay slips and tax returns, and any other documentation necessary.

Contracts

Onboarding employees through an Employer of Record service should heavily simplify the process of setting up employment contracts. An EOR will run background checks and look out for any red flags. They will also create employment contracts that are fully compliant with local laws. For example, if you’re hiring in a specific region, the EOR will ensure the contract aligns with local regulations for PTO, sick days, and other requirements.

Benefits

The same is true for employee benefits, with expectations varying widely from location to location. EORs will make relationships with various benefits providers, from pension funds to health insurance providers, and sometimes even training companies, supporting the employees under their responsibility with all their benefits, both mandatory and non-mandatory.

Working with local authorities

An employer of record will need to work very closely with the local authorities in each region where your company has employees, dictating the need for a “boots on the ground” approach.

They will need to obtain local insurance, bank accounts, registration, and more, and will need to have relationships with local authorities where they understand the language, culture, and expectations, making sure that you hire in compliance.

Termination

In some cases, you might need your Employer of Record provider to support termination or switching contracts to a new arrangement. This could be because an employee is relocating back to HQ or to a new region, or because they are being promoted for example. If an employee is being fired or is leaving the company, you’ll want the EOR to support this without heavy termination fees or waiting until a contract has finished its term.

HR advice

Your EOR is your expert on the ground in the new region, so they will be your first point of contact for all local questions and challenges. This could be getting visas for employees, creating equity arrangements, ensuring local holidays and expectations are met, or anything else under the sun. With all these complexities, local labor laws experts can be very significant.

For a full breakdown of how EOR benefits and insurance work, including what’s mandatory, what’s optional, and what to ask providers, see our dedicated guide.

“Employer of Record is not a standard solution anymore. Each ‘Client Employer’ and Client Employee’ have their own unique needs coupled with varying labor laws in different countries. ‘Hyperlocal’ employment solution delivery supported with HR (hire to retire), Payroll, Legal & Local Compliance in a timely manner supported with a smart tech is what will set an EOR provider apart.

Contrary to popular belief, SMEs & even Startups are now more open to EOR, however, a lot of awareness is still required. EOR Employees expect similar benefits to their counterparts in other geographies. Employee satisfaction plays a major role in influencing the EOR decision.

While North America (36%) still accounts for the largest market, EMEA (29%) has increased strongly due to the geopolitical instability with the Ukraine / Russia situation and growth in Africa. APAC (26%) and upcoming LATAM (9%) are accounting for the remaining percentages.”

Gagan Gupta – MD, Procloz for EOR

Employer of Record Advantages

There are a number of reasons why companies choose to use an Employer of Record, especially when deciding if an EOR is right for your global workforce. Here are some of our favorites:

Strategic benefits:

• Expand into new markets: EOR enables rapid market entry without the need for entity establishment, allowing companies to test new territories and scale their presence efficiently.
• Attract a wider talent pool: In the era of great resignation, you want the broadest range of candidates to choose from. With EOR, the world is truly your oyster when it comes to attracting international talent.
• Save money: It’s expensive to open an entity, and even more expensive to close it down if your business doesn’t work in the new location. EOR lets you test the waters and see if it’s a good fit, at lower costs.

Compliance and risk management:

• Minimize risks: By leveraging local expertise and established compliance frameworks, companies reduce their exposure to legal, regulatory, and financial risks in unfamiliar markets.
• Avoid misclassification: When you transition an international contractor to a full-time employee, it can be complicated to onboard them compliantly. An EOR simplifies the process.
• Sidestep regulatory responsibilities: Opening an entity in a new region means complying with local laws and responsibilities, from benefits and taxes to PTO and sick leave. An EOR ensures full local compliance with these requirements – for example, when a US company hires in Australia, the EOR handles all regional regulations and requirements.

Operational efficiency:

• Alleviate administrative burdens: EOR providers handle complex HR tasks, payroll processing, and compliance requirements, allowing companies to focus on their core business operations.
• Speed up time to hire: When you’re opening an office in a new region, there are many hurdles to jump over, which can leave a candidate waiting. Using an EOR can help you jump these hurdles and speed up the hiring process of overseas workers.
• Flexibility in staffing: Companies can quickly adjust their workforce according to business needs, whether scaling up in new markets or maintaining temporary project-based teams.

What is the difference between EOR and a domestic PEO?

You may have heard of a domestic Professional Employer Organization (PEO), and heard the term used interchangeably with Employer of Record. But a A domestic PEO is something entirely different, intended to be relied on for in-country employment, not expanding globally.

U.S. organizations use a domestic PEO to secure better benefits, such as health insurance and pension plans, by pooling multiple businesses to achieve economies of scale. The PEO manages benefit arrangements but does not employ your candidates or provide a global solution with in-country partners.

What are the different EOR models

EOR services operate under two distinct models. In the first model, known as the aggregator model, EOR providers partner with local independent in-country partners (ICPs). In simple terms, clients work through the EOR provider to connect with these local partners for their international operations.

The second model, the wholly owned infrastructure model, operates differently. Here, the global EOR provider directly owns local offices across various countries, either through new establishments or acquisitions. In other words, it’s a single integrated company operating its own network of international branches, all managed from central headquarters.

Each model offers unique advantages. The aggregator model provides greater flexibility in employee compensation and customized solutions through its diverse network of providers. In contrast, the wholly owned model delivers more standardized processes across all foreign subsidiaries, offering consistent operational stability.

Employer of Record alternatives?

1. Global Employment Organization  (GEO): is often used to refer to a single company who owns EOR providers in various countries worldwide. This is in contrast to an Employer of Record who aggregates local partnerships in the necessary regions. A GEO is a more limited solution, as the local partners of a GEO can’t usually be replaced, making service levels worse, and adding a conflict of interest when it comes to data integrity and compliance. Working with an EOR service provider who offers the service through external third-party partnerships will usually give you more flexibility and control.
2. Staffing agencies. A staffing agency is a solution for recruiting candidates and onboarding new hires to your business. If you’re looking to onboard a team of developers in a new region, a staffing agency might be able to find talented recruits and help you with the interview and enrolment process. However, they are unable to handle the complexities of compliant employment management. This includes critical tasks like tax withholding, social security contributions, benefits administration, data security, and ongoing employment matters. Their role effectively ends once they’ve placed the employee.
3. Direct sourcing/contingent workforce This approach involves directly engaging independent contractors or temporary workers without using an intermediary.
   While it offers cost savings and direct control over talent selection, it requires significant internal resources to manage compliance, contracts, and payments.
   Companies must carefully navigate worker classification laws and maintain proper documentation to avoid misclassification risks. This model works best for organizations with strong HR infrastructure and experience in managing contingent workers across multiple jurisdictions.

How is an EOR different from a staffing agency?

The distinction is in the scope and duration of employment. A staffing agency typically supplies temporary workers for project-based needs. Their services focus on short-term roles and often include placement, scheduling, and wage distribution.

An employer of record, in contrast, becomes the legal employer for long-term or full-time international hires. It handles every aspect of employment – from contracts and onboarding to payroll, taxes, and statutory benefits – while the company maintains full control over the employees’ daily responsibilities.

For businesses evaluating EOR vs payroll providers and staffing agency models for long-term international expansion, an EOR offers a more comprehensive, scalable and compliant solution than either of these services.

How to choose the right Global Employer of Record for your business?

There are many companies on the market that will offer Employer of Record solutions, so it’s important to establish a checklist of the most important considerations to work through when you’re making your choice. Make sure to research:

• Experience: How long has the EoR been working in the chosen region, and do they have a local presence that understands the culture and expectations of that location?
• Reviews: Speak to other companies who have worked with the potential EOR. Are they happy with their experience, and does the EoR generally have a strong reputation for the work they do?
• Technology: What tools and processes do they offer, and how will they integrate with yours? Ideally, you want an all-in-one solution that covers full-time employment (FTE), as well as part time employment (PTE) and EOR.
• Benefits: The EoR may be handling benefits such as a pension, insurance, and training. How are these handled, including pricing, support, and governance?
• Communication: Does the vendor provide local support in your time zone or a single person to speak to across all of your offices who understand the entire portfolio?
• Data privacy: How is sensitive information about employees protected, both for security and compliance with regulations? Are there steps taken to ensure data accuracy and anti-fraud?
• Scalability: Your EoR provider should support EoR at scale, meaning the ability to support rapid hiring across multiple countries.

Where global companies are hiring through EORs

The complexity of global hiring varies by market. Here’s how EORs are used in key regions where speed, compliance, and cost-efficiency are especially valuable:

• Spain: Hiring under collective agreements and rigid labor protections is simplified with an EOR model that handles local nuance.
• Canada: With province-specific employment standards and tax rules, EORs ensure consistent, compliant hiring across regions.
• India: From state-by-state employment laws to complex income tax requirements, EORs help companies build distributed teams without operational overhead.
• China: An EOR manages employment within China’s highly regulated labor framework, reducing the friction of market entry.
• United Kingdom: As regulations shift post-Brexit, EORs allow companies to continue hiring UK talent without restructuring their presence.
• Singapore: As a launchpad for Asia-Pacific operations, Singapore sees high EOR usage to streamline workforce onboarding across functions.
• France: With strong labor protections and employer liabilities, an EOR ensures compliant hiring from day one.
• Mexico: EORs help companies navigate strict employment regulations, tax obligations, and social security mandates.
• Thailand: When immigration and local labor laws make direct hiring challenging, EORs provide a practical alternative.
• Colombia: Rapid policy updates and evolving tax regulations make EORs a key asset for maintaining ongoing compliance.

Check out the information about each country here:

• Employer of record in Spain
• Employer of record in Canada
• Employer of record in India
• Employer of record in China
• Employer of record in the United Kingdom
• Employer of record in Singapore
• Employer of record in France
• Employer of record in Mexico
• Employer of record in Thailand
• Employer of record in Colombia

How much does an employer of record cost?

While the best EOR service providers enable quick and risk-free expansion into new markets, cost remains a critical consideration. Companies choose EOR not only for speed but also to avoid the heavy expenses of traditional expansion. Therefore, carefully evaluating Employer of Record pricing is essential when selecting a provider.

The cost of an EOR service should be lower than establishing your own entity, since you avoid the substantial expenses of traditional expansion: maintaining local premises, managing bank accounts, securing insurance, and handling tax compliance

Employer of Record typically offer two main pricing models, each with distinct advantages depending on your hiring needs:

Percentage-based pricing model

Under this model, you pay a percentage of each employee’s salary to the EOR provider. While this can be cost-effective for hiring junior staff, it becomes more expensive as salaries increase.
The challenge with percentage-based pricing is predictability: every salary adjustment or competitive compensation package directly impacts your EOR costs, making it difficult to forecast long-term expenses.

Flat fee pricing model

This straightforward model charges a fixed price per employee, regardless of their position or salary level. It provides consistent, predictable costs whether you’re hiring executives or entry-level staff. The transparent nature of this model makes it easier to forecast expenses when expanding your workforce, though it’s important to verify there are no hidden costs like termination or insurance fees.

At Papaya, we believe in complete transparency. Our Employer of Record service costs $599 per employee (see our pricing here). This simple fixed fee includes all services, with no hidden costs, plus the benefits of our advanced payroll platform and direct EOR relationships.

The Papaya advantage for EOR at scale

Papaya Global’s brand of Employer of Record solutions is designed with an eye for enterprises. That means, as one of the best global payroll service and EOR providers, the highest standards in place for security, technological capabilities, and global compliance. We handle employment in over 160 countries, allowing you to quickly and compliantly onboard new candidates, no matter where talent is located.

Our designated country experts are held up to the highest standards so that you’re always getting the best boots-on-the-ground compliance and taxation know-how in every country you operate in. with our own in-house legal team and our center of excellence, we never leave you with a question unanswered.
Of course, it doesn’t stop there. Our technology allows you to manage ALL your EOR workers from the same platform – so that you always get full visibility of your entire workforce. Discover how implementing a growth strategy for payroll providers can enhance scalability and long-term performance.

Schedule a demo today to understand how we can help your EOR at scale.