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Employer of Record

A third-party company that legally employs workers on behalf of another business, managing payroll, taxes, and compliance across jurisdictions.

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FAQs

What is the difference between an EOR and a PEO?

A Professional Employer Organization (PEO) co-employs workers alongside the client company, which must already have a legal entity in that jurisdiction. An Employer of Record is the sole legal employer and is used when the client has no entity in that location. EOR enables hiring anywhere without a local subsidiary; PEO requires one.

Is using an EOR compliant for long-term employment?

EOR is fully compliant for long-term employment in most jurisdictions. However, some countries have regulations around how long a worker can be employed through a third party (e.g., certain South American countries require entity establishment after 12 months). Reputable EOR providers keep clients informed of jurisdiction-specific limits.

When should a company switch from EOR to establishing a local entity?

Most EOR providers recommend considering entity establishment when you have 10–15+ employees in a single country, as the per-employee EOR cost exceeds entity maintenance costs at that scale. Also consider switching if you need local banking, contracts with government entities, or are required to have a local entity by a major client.

Related Terms

Payroll Tax

Taxes levied on wages and salaries, split between employee withholding and employer contributions, funding social programs like Social Security and Medicare.

W-2 Employee

A traditional full-time or part-time employee whose taxes are withheld by the employer, documented annually on IRS Form W-2.

Benefits Administration

The management of employee benefits programs including health insurance, retirement plans, PTO, and other compensation components.

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An Employer of Record (EOR) is a third-party organization that becomes the legal employer of a company's workforce in a given jurisdiction, taking on full legal and administrative responsibility for employment compliance, payroll processing, tax withholding, benefits administration, and HR management — while the client company retains day-to-day direction and management of the workers' activities.

EOR services are most valuable for companies hiring employees in states, countries, or regions where they do not have a legal entity — allowing them to onboard talent quickly without the cost and time of establishing a local subsidiary or branch. For global hiring, this typically means complying with local labor law, social security contributions, mandatory benefits, employment contracts, and termination requirements in each jurisdiction.

The EOR model has exploded in popularity with the rise of remote work, which decoupled employee location from office location. Companies like Deel, Remote, Oyster HR, and Rippling EOR now offer the ability to hire full-time employees in 150+ countries without establishing local entities, often onboarding a new employee in as little as 24–48 hours.

Cost of EOR services typically ranges from $199 to $699 per employee per month depending on country and provider, in addition to actual salary and benefits. While not cheap, this compares favorably to the cost of establishing and maintaining a legal entity, which can cost $5,000–$50,000 to set up and requires ongoing legal and accounting maintenance.

EOR should be distinguished from Professional Employer Organizations (PEOs), which are co-employment arrangements requiring the client to have an existing legal entity in the jurisdiction. EOR eliminates that requirement entirely.