An employer of record, or EOR, is a company that legally employs workers on behalf of another business, handling local contracts, payroll, taxes, benefits, and compliance. It lets a company hire full-time employees in countries or states where it has no legal entity, while the company directs their daily work.
Key takeaways
- An EOR is the legal employer; the client manages the work.
- EORs are most common for international hiring without setting up a local entity.
- They handle local employment contracts, statutory benefits, payroll, and terminations under local law.
- Pricing is usually a monthly fee per employee, plus the employee's salary and employer costs.
How employer of record works
The client picks a candidate and agrees on salary. The EOR issues a locally compliant employment contract, registers the employee with tax and social security authorities, runs payroll, pays statutory benefits, and provides any required insurance. The client sets goals and manages the employee like any other team member, and the EOR invoices the client monthly.
When the relationship ends, the EOR handles termination under local rules, which in many countries include notice periods, severance, and approval processes far stricter than US at-will employment.
An EOR differs from a PEO. A PEO co-employs staff where you already have an entity. An EOR is the only legal employer, which is why it works where you have no presence at all.
Employer of record example
A Chicago SaaS company wants to hire a senior engineer in Portugal. Setting up a Portuguese entity would take months and require local accounting. Instead, it uses an EOR. The engineer signs a Portuguese employment contract with the EOR, receives the mandatory holiday allowances, and is paid in euros. The company pays the salary, employer social security contributions, and the EOR's monthly fee, and manages the engineer's work directly.
Why employer of record matters for employers
EORs make global hiring possible for companies without international infrastructure, and they reduce the risk of misclassifying overseas workers as contractors. They're usually more expensive per head than having your own entity, so companies with many employees in one country often switch to an entity later.
Choosing a provider matters: coverage by country, whether the EOR owns local entities or uses partners, benefits quality, and support response times all vary. Compare options in our EOR and global payroll guide and Deel alternatives.
Common employer of record mistakes to avoid
Using contractors instead of employees abroad
Misclassification penalties abroad can be severe. An EOR avoids the risk.
Ignoring local termination rules
Ending employment abroad usually requires notice and severance.
Comparing only the monthly fee
Include employer social costs, benefits, and currency fees.
Staying on an EOR too long
With enough employees in one country, your own entity may be cheaper.
Employer of record: questions people also ask
What does an employer of record do?
What is the difference between an EOR and a PEO?
How much does an EOR cost?
Can I use an EOR in the US?
Is an EOR the same as a staffing agency?
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HRTally glossary entries are written by people who have run US payroll, benefits, and HR operations, then checked line by line against primary sources such as the IRS, Department of Labor, EEOC, and Bureau of Labor Statistics. Dollar limits and rates are for 2026 unless stated. We review every entry at least twice a year and whenever a rule changes. This page explains general rules and isn't legal or tax advice; state law can differ. Read our editorial standards.
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<blockquote>An employer of record, or EOR, is a company that legally employs workers on behalf of another business, handling local contracts, payroll, taxes, benefits, and compliance. It lets a company hire full-time employees in countries or states where it has no legal entity, while the company directs their daily work.</blockquote><p>Source: <a href="https://www.hrtally.com/hr-glossary/employer-of-record/">HRTally HR Glossary, Employer of record</a></p>
Written by the HRTally Research Team
Our guides are written and reviewed by people with hands-on US HR, payroll, and HR technology experience. Legal and tax facts are checked against primary sources, such as the Department of Labor, IRS, EEOC, and USCIS, and linked at the end of each guide. Vendors never review or pay for our editorial content.