Employer Of Record Explained: A Practical Guide for Global Teams

Multi-state and international hiring isn’t as simple as updating an address. From payroll tax registration to labor law compliance, the risks are real—and expensive. A single misclassification or paperwork error could result in fines, legal disputes, or the loss of hard-earned talent.

Distributed teams can offer a competitive edge, opening doors to incredible talent, better diversity, and faster scaling, which is probably why there’s been a 5.7% increase in remote roles for small companies in the US. But these roles also introduce a tangle of HR, legal, and compliance challenges. If you’re running a team without a full HR department, staying compliant in every jurisdiction is a big lift.

That’s where an employer of record (EOR) can help. In this guide, we’ll explain what an EOR is, what it does, how it compares to other options like professional employer organizations (PEOs) or staffing agencies, and when it makes sense for a business to use one. Whether you're hiring across state lines or going global, this guide will be your starting point.

What is an employer of record (EOR)?

An employer of record is a third-party organization that legally employs workers on your behalf—whether those workers live in a different state or halfway around the world. Your company still manages their day-to-day work, but the EOR takes care of everything on the backend: payroll, taxes, benefits, and compliance.

Basically, an EOR allows you to hire where you want, while the EOR handles the paperwork.

An EOR is the remote employee’s official legal employer. That means the EOR is responsible for meeting all the local employment laws, filing taxes properly, offering the correct benefits, and making sure your business stays compliant. That way, your company can hire the right talent remotely (even in Rhode Island) without requiring you to either open a branch in their state or have someone on your team who's an expert across multiple jurisdictions.

This model has grown quickly thanks to global hiring and remote work trends. Companies of all sizes are turning to EOR services to hire faster, access talent in new markets, and reduce the legal risks of expanding into unfamiliar territory.

What does an EOR actually do?

An employer of record takes on the legal and administrative responsibilities of employing someone—so you don’t have to. That includes everything from onboarding paperwork to tax filings and benefits enrollment.

Here’s what an EOR typically handles:

• Payroll processing and deductions
• Compliance with local employment laws (like PTO rules, breaks, termination processes, and mandatory benefits)
• Benefits administration (including health insurance, retirement contributions, and more)
• Employment contracts and onboarding
• Work permits and visa support (especially for international hires)

Let’s say you want to hire a marketing lead in Germany, but your company is based in Arizona. Instead of registering your business in Germany and hiring local legal experts, you can work with an international employer of record. They become the legal employer for your hire, handle payroll in local currency, and ensure full compliance with German labor laws.

Or consider a domestic scenario: Your company is based in Texas, but you’ve found the perfect candidate in California—a state with significantly different labor laws. Rather than registering your business there and navigating California-specific compliance, an EOR can step in to take care of those requirements.

To your employee, the EOR may feel like an outsourced HR department—they’ll get onboarding materials, tax forms, and benefits information from the EOR. But culturally and operationally, they’re still part of your team (like any other remote or hybrid employee). You’re still in charge of their duties, goals, performance feedback, and growth.

And if local laws change, a good EOR keeps you in the loop and adjusts accordingly, so your business stays protected without needing to monitor every regulation yourself.

How does an employer of record work?

Adding someone to your team in another state or country doesn’t have to mean adding complexity to your day.

While an EOR takes on the legal and administrative responsibility, your experience stays simple: you focus on the person and business culture, not the paperwork. Here’s how the process unfolds, step by step.

1. You find the talent

You source and select the candidate you want to hire. You conduct the interviews, negotiate compensation, and make the final offer; just as you would with any employee. It’s important to ensure your offer is competitive in the candidate’s local market, especially when hiring internationally.

2. The EOR onboards the employee

Once you’ve selected a new hire, the employer of record steps in to handle the employment logistics:

• Drafting a compliant employment contract
• Collecting tax and identification documents
• Providing localized onboarding support that reflects both local labor law and your company’s expectations

If you’re using a global EOR, this step may also include country-specific benefits and statutory notices, which can vary widely.

3. The EOR becomes the legal employer

The EOR becomes the official employer in the employee’s location. They run payroll, withhold taxes, administer benefits, and ensure all labor law requirements are met.

4. The EOR handles ongoing HR administration

The EOR continues to handle time off tracking, benefits updates, expense reimbursements, and regulatory changes. They also maintain records for audits, provide documentation for legal compliance, and issue end-of-year tax forms.

By taking on the backend complexity, an EOR turns what could be a legal and administrative headache into a streamlined, low-lift process. You focus on scaling your team and running your business—while the EOR handles the employment side with precision and care.

Key differences between employment options

Hiring across borders? Testing a new market? Need someone for a one-off project?

Each of these situations calls for a different kind of support—whether that’s an EOR, a PEO, a staffing partner, or a contractor. Understanding how each model works (and when to use them) can save your team time, money, and legal trouble.

Employment models come with rules, responsibilities, and limits. So let’s break down what each model does best and how to decide which one fits your hiring needs.

EOR vs. PEO

An EOR becomes the legal employer of your worker, taking full responsibility for payroll, taxes, and compliance. You don’t need to set up a business entity in the employee’s location.

A professional employer organization (PEO), on the other hand, operates on a co-employment model. This means you and the PEO share employer responsibilities. The PEO handles payroll and benefits administration, but you must have a registered entity in the worker’s location to use a PEO.

When to choose an EOR: You're expanding into a new state or country and don’t want to register a local entity or establish a global HR team.

When to choose a PEO: You’re operating domestically, already registered in the state, and want help managing HR compliance, payroll, and benefits.

EOR vs. staffing agency

An EOR doesn’t find candidates for you—you bring your own talent. The EOR takes care of employment paperwork and compliance. You manage the employee's workload and performance directly.

A staffing agency recruits candidates for you and may employ them directly as well, especially in short-term or project-based scenarios. They often specialize in temp work and are less involved in long-term employee integration.

When to choose an EOR: You’ve identified the right candidate and need help creating a compliant employment setup.

When to choose a staffing agency: You need quick access to vetted temporary workers and aren’t ready to commit to full-time hiring.

EOR vs. independent contractors

An EOR enables you to hire workers as full employees—with benefits, protections, and structured responsibilities. The EOR ensures you comply with employment laws and treats the worker as a traditional employee.

Independent contractors and contingent workers are self-employed. They invoice you for services, manage their own taxes, and typically work on flexible terms. However, misclassifying an employee as a contractor can lead to hefty penalties.

When to choose an EOR: You want the worker to be part of your team, follow a consistent schedule, and be eligible for benefits.

When to choose a contractor: The work is short-term or project-based, and you don’t need control over how the work gets done.

The potential drawbacks of using an EOR

EORs solve a lot of problems—but they’re not a silver bullet. Before you sign on, it’s worth understanding where the limitations lie and where they make expansion easier but come with trade-offs.

Here’s what to consider before committing to an EOR model:

• Less control over contracts: The EOR owns the legal employment relationship, which means you may have less flexibility in customizing employment terms. That said, many EORs allow some contract personalization within legal limits.
• Service fees: Monthly or per-employee pricing can add up over time. However, those costs can be offset by the savings in legal, accounting, and administrative work.
• Transition challenges: Moving employees from an EOR to your own legal entity later on may involve transferring contracts, adjusting tax structures, and re-onboarding employees. Planning for this in advance can make the process smoother.
• Limited customization: Benefit packages may be standardized across regions. If tailored perks or high-end packages are important to your team, ask providers what flexibility they offer.
• Vetting EORs: EORs have been around for a while, but you’ll need to do your homework to find the right fit for your organization.

The key is to weigh these considerations against your goals. Many businesses use EORs as a stepping stone to more permanent global infrastructure while avoiding early compliance missteps.

When should you use an employer of record?

Like any business tool, the value of an EOR depends on how (and when) you use it. They’re not a cure-all for every hiring challenge, but they offer a unique advantage in those situations where compliance, speed, or administrative burden could slow your momentum.

If you’re trying to scale responsibly while overcoming common HR challenges, we’ve got some hypothetical situations that can help illustrate the times where an EOR is worth considering.

Hiring internationally without establishing a foreign entity

A US-based startup wants to hire a developer in the UK. But UK labor laws vary based on how much work the employee is doing within the UK. Some employees may be subject to Pay as You Earn (PAYE) laws. Some laws require companies to set up a local entity.

It can get complex quickly. So, rather than setting up a local company, your business can use an EOR to handle employment legally and quickly. Here are some practical examples:

Onboarding remote employees in states where you're not registered

A marketing agency based in Florida hires a new project manager in Oregon. In Oregon, employers are legally required to provide paid sick leave—up to 40 hours per year. In Florida, there’s no statewide requirement. Your EOR partner will handle payroll, state tax registration, and compliance with Oregon labor laws like sick leave.

Scaling quickly without growing your HR team

A small company lands a big contract and needs to hire five new employees in three different states, fast. An EOR takes over the registration, payroll, and compliance processes in each location, so your one- or two-person HR team doesn’t get overwhelmed.

Testing a new market before investing heavily

A US-based tech firm wants to explore the Canadian market by hiring a local business development rep in the region. But in Canada, employers must contribute to programs like the Canada Pension Plan (CPP), Employment Insurance (EI), and, in certain provinces, additional plans like the Québec Pension Plan.

These contributions are mandatory and vary by province. For a US company only needing to think about taxes and Social Security, these requirements can be complex, especially when a company isn’t even sure the Canadian market is going to work for their business. Hiring with an EOR allows them to evaluate the region before committing to expansion.

Meeting compliance needs for grant-funded or temporary hires

A nonprofit receives funding to support a two-year role in another state. The EOR takes care of state-specific compliance, payroll, and employment contracts—making it easy to hire temporarily without opening a new state entity.

Benefits of using an employer of record

By now, you’ve seen how complex hiring across states or borders can get—and where an EOR fits into solving that challenge. But beyond just solving compliance issues, the right EOR can unlock new momentum for your business. Whether you’re expanding into new markets or just trying to stay agile, EORs help you grow smarter and faster.

At its best, an EOR gives your team breathing room. It doesn’t replace your values or culture, but it does give you a way to hire with confidence and support your people properly.

Here are a few of the benefits:

• Hire without borders: Skip the months-long process of entity setup and bring on talent in days, not weeks.
• Pivot faster: Need to scale a team up—or down—based on funding, client demand, or market conditions? EORs make it easy to adapt without legal delays.
• Stay legally covered: From worker classification to tax withholdings, EORs handle the tricky stuff so you don't have to sweat surprise audits or penalties.
• Built-in legal know-how: Employment law shifts fast. EORs stay on top of it—locally, nationally, and globally—so you’re always compliant.
• No surprise overhead: Skip the costs of hiring international legal teams or building out internal HR infrastructure.
• Do more with less: EORs give small HR teams the muscle to hire anywhere, without adding headcount or burning out your one HR manager.
• Deliver a polished experience: From fast onboarding to locally compliant benefits, EORs help you offer a professional, employee-first experience—without the learning curve.

When compliance, speed, or simplicity matter, it’s an option that can make your job a little easier.

Is an EOR right for you?

Choosing to work with an employer of record isn’t a one-size-fits-all decision, but it can be a smart, strategic move in the right context. If your team is trying to navigate multi-state or international hiring without the internal infrastructure to support it, an EOR can help you stay compliant, reduce risk, and move faster.

EORs are especially helpful for small businesses with limited HR resources that need to stay lean while still supporting a growing team. An EOR can provide the structure and support to help you grow responsibly, whether you’re entering new markets, hiring across borders, or just trying to get a handle on employment compliance.

Ultimately, the decision comes down to your goals, your team’s capacity, your needs to scale your business, and your appetite for complexity. An EOR doesn’t replace your HR team, but in many specific hiring situations, it can extend it in all the right ways.