The short answer
An employer of record (EOR) is a service provider that employs a worker on behalf of a client business. The provider typically handles local employment administration, while the client directs the person’s daily work. The exact division of payroll, benefits, employment obligations and decision-making depends on the country and agreement. Start by confirming which legal entity will employ the worker.
How does an EOR work?
The client identifies the role and selects the person. The EOR checks whether it can support that employment arrangement in the worker’s location, prepares the employment documentation and explains the funding process. Once employment begins, the client manages priorities and performance while the provider administers the agreed employment services.
A useful way to assess the arrangement is to follow one employee from offer to exit. Ask who signs the contract, approves pay changes, receives leave requests, manages payroll corrections and handles employment questions. A global coverage map alone cannot answer those operational questions.
EOR responsibilities versus client responsibilities
| Workstream | Common EOR role | Client decision to settle |
|---|---|---|
| Employment documentation | Arrange the local employment contract | Confirm the employer entity and role requirements |
| Payroll administration | Run the agreed local payroll process | Provide approved inputs and fund payroll on time |
| Benefits and leave | Administer the services in scope | Confirm benefit choices and approval handoffs |
| Everyday work | Support agreed employment administration | Set goals, manage work and give feedback |
| Changes and exits | Explain and administer the agreed process | Escalate the proposed change before making a commitment |
These are buying questions, not a universal allocation of legal responsibility. Ask the provider to put the country-specific responsibilities and exclusions in writing.
EOR, PEO, payroll provider or your own entity?
Choose between these arrangements by identifying the problem you need to solve. An EOR is commonly considered when a business wants to employ someone in a location where it does not have its own employing entity. A payroll provider generally processes payroll for an existing employer. A professional employer organization (PEO) can involve a different allocation of employment services, particularly in the US. Operating your own entity gives you a different set of administration and governance responsibilities.
Do not treat EOR and PEO as interchangeable labels. In the US, the IRS distinguishes third-party payroll arrangements and their employment-tax responsibilities. Ask for the actual arrangement, authorizations and contract, then have the relevant local advisers assess them.
What goes into EOR pricing?
Separate the provider’s service fee from the employee’s compensation and other employment costs. A quote may involve salary, employer contributions, benefits, a deposit, currency conversion and charges for changes or additional services. Compare the same employee location, compensation, benefits and billing currency in every proposal.
- Ask whether the quoted fee changes with headcount or contract length.
- Confirm how the deposit is calculated and returned.
- Request a worked first-month invoice and a normal monthly invoice.
- Check who pays for corrections caused by late or inaccurate inputs.
- Record the process and charges for transferring the employee to your own entity.
A practical EOR buying scenario
A software business wants to hire its first customer-success employee in a new country. Its first question should be whether an EOR can support that exact role and location. The buying team then checks the proposed employer, employee benefits, payroll calendar, customer-data access and the process for approving an offer.
Before signing, the team runs one change scenario: the employee requests a compensation adjustment and a different working pattern. If nobody can describe the approval path or revised cost, the team still has an unresolved buying requirement. This scenario is an illustration of a buying process, not a claim about a particular provider.
Questions to ask before choosing an EOR
- Which entity will employ the person in this country?
- Which services are delivered directly and which involve partners?
- Who owns payroll questions and what response times apply?
- How will employment data be accessed, transferred and deleted?
- What happens if the role, location or employment arrangement changes?
- What approvals and notice are required before an employee exits?
Use the answers to build a country-specific brief. Shortlist providers only after they confirm they can support the employment arrangement you need.
Common questions
Does an EOR manage the employee’s day-to-day work?
The client usually directs the employee’s work, priorities and performance. The EOR handles the employment services agreed in the contract. Put approvals and escalation responsibilities in writing so the employee knows where to go.
Is an EOR the same as a recruitment agency?
No. Recruitment concerns finding and selecting a person. An EOR concerns the employment arrangement and administration after a person is selected. Some providers offer both services, so separate those scopes in a proposal.
Does using an EOR remove every compliance risk?
No. The arrangement does not replace a review of the role, working location, data handling or the client’s own responsibilities. Confirm the relevant country requirements and contract with qualified local advisers.