Can I use shadow payroll instead of an EOR to hire someone new in a country where I have no entity?

No. Shadow payroll requires an existing home-country employment relationship. It's not a hiring mechanism. To hire someone new in a country where you have no entity, you need an EOR, which employs them through its own entity and issues a local contract.

When does a shadow payroll arrangement stop being the right structure?

After 2 to 3 years in most countries, shadow payroll arrangements should be reviewed. Extended presence often triggers local employment rights the home contract doesn't cover. Re-employment on a local contract via EOR is often the cleaner structure at that point. Shadow payroll also doesn't address PE risk.

Does an EOR eliminate permanent establishment risk?

An EOR reduces PE risk for most standard roles by making the local entity the employer, removing the direct parent-employee link. But it doesn't eliminate PE risk for roles with contracting authority. Shadow payroll doesn't address PE at all. Neither model is a PE clearance; take specific tax advice.

Shadow payroll vs EOR

Shadow payroll vs EOR, the honest guide for international employment

Q: What is a shadow payroll and how does it work?

A shadow payroll is a second payroll run in the host country for an employee who stays on the home-country contract. It calculates and withholds local income tax and social contributions without disturbing the home employment. The employee has one contract, one salary, two payrolls. HMRC sets out the UK rules at EIM42400.

Q: What is the difference between shadow payroll and an EOR?

Shadow payroll handles payroll tax for an existing employee on assignment who keeps their home contract. An EOR creates local employment through its own entity, with a local contract. Shadow payroll doesn't create employment; EOR does. You can't use shadow payroll to hire someone new abroad.

Q: What happens to an employee's pension and benefits when they move from shadow payroll to an EOR?

When moving from shadow payroll to EOR, the home contract ends and home-country pension contributions stop. The employee gains local statutory benefits in the host country. Unvested equity may also be affected. Plan this transition carefully, especially for employees with significant accruals.

Use shadow payroll when an existing employee goes on international assignment and keeps their home contract: a parallel host-country payroll withholds local taxes without ending the home employment. Use an EOR to hire someone new abroad, or to give a relocating employee a full local contract with local benefits. They solve different problems. Most growing companies need both at different stages.

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Assignment or hire
Shadow payroll is an assignment compliance tool for existing employees. An EOR is a hiring mechanism. The question is which situation you are actually in.: 57
Countries where Teamed operates its own legal entities, the backbone of the EOR model, within a 180+ country footprint.: 4.8
Teamed is rated 4.8 on G2 for service. Real HR and legal experts on every plan, no bot wall.

Last reviewed 23 June 2026By Tom Price-Daniel, Co-founder, Teamed

Shadow payroll vs EOR, what is the difference and which model do I need?

At a glance

Shadow payroll

Best for: employees on a fixed-term international assignment who retain their home-country employment contract, pension and benefits, and where meeting host-country payroll tax obligations is all that is needed. Typically suited to arrangements under 2 to 3 years, before local employment rights accrue.

EOR

Best for: hiring a new person in a country where you have no legal entity, or re-employing a relocating worker on a full local contract with host-country statutory protections. Also the right model when an assignment becomes open-ended or permanent, and the home-country contract is no longer the appropriate structure.

Shared by both: Both address host-country income tax and social contribution obligations · Both can operate without you incorporating a local entity · Both require in-country payroll and employment-law expertise

Where it matters	Who leads	Why
Hiring a brand-new person in a country where you have no entity	EOR	Shadow payroll requires an existing employment relationship on the home payroll. It cannot onboard a new hire. An EOR employs them through its own entity from day one.
Retaining an existing employee on a defined short-term posting	Shadow payroll	For a fixed-term assignment under 2 to 3 years, shadow payroll preserves the home contract and benefits continuity without re-employing the person locally.
Who the legal employer is	Draw	Under shadow payroll, the home-country entity stays the legal employer throughout. Under an EOR, the provider is the legal employer in the host country. Neither is inherently better, the question is which suits the situation.
Preserving home-country pension and benefits	Shadow payroll	Shadow payroll keeps the home employment contract intact, so pension accruals, unvested equity and home-country benefits continue unbroken. EOR re-employs locally, which means local statutory benefits replace the home-country package.
Permanent establishment exposure	EOR	Shadow payroll handles payroll tax compliance but does not address the PE question. An EOR, as the local legal employer, removes the direct parent-employee link for most standard employment roles, which is structurally cleaner on PE.
Setup and ongoing admin complexity	EOR	Shadow payroll runs two payrolls simultaneously and typically requires specialist expat tax advisors for hypothetical tax and annual tax equalisation. An EOR is a single provider running the local payroll with no parallel home-payroll adjustments.
Suitable for arrangements expected to become permanent	EOR	Shadow payroll is a temporary arrangement. In most countries, extended assignments trigger local employment rights that the home-country contract does not provide. An EOR is designed for indefinite employment.
Cost and fee clarity	Draw	Both depend on the provider. Shadow payroll costs include dual-payroll admin, tax equalisation and advisory fees. EOR costs are typically a flat per-employee fee. Ask either provider for the all-in cost in writing before you compare.

Shadow payroll on G2

Who Shadow payroll is for

Reach for shadow payroll when you have an existing employee going on a defined international assignment, typically under 2 to 3 years, who wants to keep their home-country contract, pension and benefits continuity. Reach for an EOR when you are hiring someone new in a country where you have no entity, when the arrangement is open-ended, or when a temporary posting has become effectively permanent.

Not the right fit if

You want to hire a new person in a country where you have no entity. Shadow payroll requires an existing home-country employment relationship. For a new hire abroad, an EOR is the model: it employs them through its own entity from day one.
Your assignment has run longer than 2 to 3 years. Extended assignments often trigger local employment rights in the host country. Re-employment on a proper local contract, via an EOR if needed, is usually the cleaner structure at that point.
You also need to resolve permanent establishment risk. Shadow payroll addresses payroll tax compliance, not PE. If the assignee could create a taxable presence for the parent company, a separate analysis is needed. An EOR, as the local legal employer, is structurally simpler on this point for most roles.

Find your pick in 20 seconds

If you are…	Start with	Why
Relocating an existing employee on a fixed assignment under 2 years	Shadow payroll	Keeps the home contract, pension and benefits intact while meeting host-country payroll tax obligations. The right tool for a clearly temporary posting.
Hiring a new person in a country where you have no entity	EOR	Shadow payroll cannot onboard a new hire. An EOR employs them through its own entity and handles the local contract, payroll and compliance from day one.
An assignment that has become open-ended or effectively permanent	EOR	Shadow payroll is a temporary arrangement. Re-employment on a local contract via EOR is the cleaner structure when the posting has no defined end date.
A company with both assignees and new hires across multiple countries	Both, by situation	Shadow payroll for defined assignments where home-country continuity matters. EOR for new hires and permanent international employment. Most growing companies use both.

What is the difference between shadow payroll and an Employer of Record?

A shadow payroll is a parallel payroll run in the host country for an employee who remains on the home-country employment contract. It calculates and withholds local income tax and social contributions without changing the home employment relationship. The employee keeps one contract and one salary. The shadow payroll exists solely for host-country tax compliance, not to create a new local employment.

An Employer of Record is different in kind. An EOR legally employs the worker through its own entity in the host country, issuing a local contract, running local payroll, and carrying local employer obligations while the client directs the work. An EOR does not require the person to already be on a home-country payroll, which is why it is the right model for hiring someone new in a country where you have no entity. Use shadow payroll when home-contract continuity is the goal; use an EOR when local employment is what the situation requires.

The employment question, assignment or new hire

Everything follows from one question: is this person already employed by your home-country entity, or are you hiring them for the first time? Shadow payroll is a compliance overlay for people already on your payroll who go abroad temporarily. It cannot create an employment relationship. An EOR creates one, which is why it is the model you need when the answer is new hire.

Detail	Shadow payroll	EOR
Who can be onboarded	Only existing employees already on the home-country payroll and employment contract. Shadow payroll does not create employment.	Any new or existing hire. The EOR issues a local contract and becomes the legal employer from day one.
Does the home contract continue	Yes. That is the point. Shadow payroll runs alongside the home payroll without disturbing the employment relationship.	Not in its current form. Re-employment via EOR means a new local contract, which typically supersedes or suspends the home-country arrangement.
Need for a local legal entity	Shadow payroll does not require incorporating a host-country entity. You need a payroll registration and a local payroll provider, but not a registered company.	The EOR supplies its own entity. You need none.

The simple test

Is this person on your home payroll today, going abroad temporarily? Shadow payroll. Are you hiring someone new abroad, or was the posting always open-ended? EOR.

Duration and what happens when an assignment runs long

Shadow payroll is designed for temporary arrangements. In most countries, extended presence by a foreign employee in the host country begins to trigger local employment rights, from statutory minimum notice periods to local pension entitlements, that the home-country contract does not cover. The typical guidance is to review any arrangement beyond 2 to 3 years. An EOR is designed for indefinite employment and carries no such time pressure.

Detail	Shadow payroll	EOR
Best fit by duration	Short to medium-term assignments, typically under 2 to 3 years. Review the structure carefully as the arrangement extends beyond that point.	Any duration, including permanent and open-ended arrangements. There is no time limit on local employment through an EOR.
Local employment rights over time	In most jurisdictions, extended presence begins to attract local statutory rights. Shadow payroll does not provide them and does not resolve them.	The employee has local statutory rights from day one under the host-country contract.
Transitioning to a permanent arrangement	Requires ending the home-country employment and issuing a new local contract, which is a material change in the employment relationship for the person.	The EOR arrangement continues as the basis for permanent employment, or migrates to the client own entity when scale justifies it.

Watch this at the 2 to 3 year mark

Many shadow payroll arrangements begin as "a year or two" and quietly extend. At the 2 to 3 year point, review whether the home-country contract is still the right structure and whether local employment rights have accrued that are not being honoured.

Tax complexity, permanent establishment risk and who carries what

Shadow payroll addresses one compliance problem: host-country payroll tax. It does not resolve the permanent establishment question. If the assignee has authority to bind the parent company, or if their activity amounts to a business presence in the host country, the parent company may owe corporate income tax there. An EOR, as the local legal employer, is structurally cleaner on PE for most standard roles because the employee is employed by the local entity rather than the parent. Neither model eliminates PE risk for every type of role, so take specific tax advice.

Detail	Shadow payroll	EOR
Host-country income tax and social contributions	The shadow payroll calculates and withholds local obligations. Meeting host-country payroll tax is its entire purpose.	The EOR runs local payroll and remits all local tax and contributions as the legal employer.
Permanent establishment risk	Shadow payroll does not address PE risk. The assignee is still acting on behalf of the parent company, and the PE analysis turns on the nature of the activity, not the payroll structure.	An EOR, as the local legal employer, removes the direct parent-employee link for most roles, which is structurally cleaner on PE for standard employment.
Tax equalisation and hypothetical tax	Shadow payroll commonly runs alongside a tax equalisation policy to protect the assignee from paying more or less tax than they would at home. This requires specialist advisory calculation each year, which adds cost.	Not applicable. The employee pays local tax as a local employee. No hypothetical tax calculation is needed.

Shadow payroll does not equal PE clearance

Meeting host-country payroll tax obligations and resolving permanent establishment risk are two different things. Get specific advice on PE before assuming shadow payroll covers it, especially for employees with sales, contracting or management authority.

Benefits, pension and what the employee actually receives

For the employee, the most practical difference is what they keep and what they lose. Shadow payroll preserves the home-country employment contract, which means home-country pension contributions, unvested equity, health insurance and other contractual benefits continue uninterrupted. Re-employment via an EOR means local statutory benefits in the host country, which may be better or worse depending on the jurisdiction. For senior hires with complex packages, this is often the deciding factor.

Detail	Shadow payroll	EOR
Pension continuity	Home-country pension contributions continue under the home employment contract.	Local statutory pension applies in the host country. Home-country contributions stop unless separately maintained by a side arrangement.
Share options and long-term incentives	Home-country contract and plan rules apply throughout. Shadow payroll does not affect share plan participation.	Depends on whether the client extends the existing plan to locally-employed workers. Requires review of plan rules and local securities law.
Health and other benefits	Home-country private benefits continue. Host-country statutory healthcare also arises once social contributions are paid.	Host-country statutory benefits apply from day one of the local contract. Supplemental cover is a matter for the EOR contract.

Talk to the employee before you decide

For an existing employee relocating abroad, the model decision is partly a conversation about what they want to keep. Senior people with significant pension accruals or unvested options often prefer to stay on the home contract. New hires have no home package to preserve.

Cost and admin, what you are actually paying for

Shadow payroll is not a simple subscription. It involves running two payrolls, maintaining a local payroll registration, and typically commissioning specialist expat tax advisors for the hypothetical tax position and annual tax equalisation exercise. These costs vary by jurisdiction and package complexity. An EOR is a flat per-employee monthly fee with no parallel home-payroll adjustments needed, though a one-month refundable deposit applies, which is standard for the EOR model. Get the all-in cost for both before you compare.

Detail	Shadow payroll	EOR
Fee structure	Two payrolls, local registration fees, specialist expat advisory and annual tax equalisation calculations. Variable by jurisdiction and package complexity.	A flat per-employee monthly fee from the EOR provider. Teamed charges $599 USD or £479 GBP, with FX absorbed at zero markup shown on every invoice.
Predictability	Harder to predict. Advisory fees depend on package complexity, double-tax treaty position and annual filing obligations in both countries.	Flat fee per employee per month. No parallel payroll adjustment. Ask for deposit terms and any early-exit fee in the contract before you sign.
Internal resource needed	Finance and HR must coordinate two payrolls and manage the specialist advisor relationship. Non-trivial for a small team across multiple countries.	The EOR handles the local employment end to end. Internal resource covers the service relationship and any HRIS integration.

Get the all-in cost, not the headline rate

For shadow payroll, advisory and dual-payroll costs can dwarf the payroll-provider fee. For EOR, ask for the deposit terms and any early-exit condition in the contract before you sign. The honest provider answers both questions plainly.

Why the comparison matters

Behind every line item is a real person, in a real place.

The fee, the FX and the support model are not abstractions. They decide whether the person you hired in Barcelona or Rome is paid right, on time, by someone who knows their employment law. That is the comparison worth running.

What each stakeholder evaluates

Criterion	Legal	Finance	People Ops	Security
Is this an existing employee on assignment or a new hire	This is the gating question. Shadow payroll is a compliance mechanism for existing employees on the home payroll going abroad temporarily. It does not create employment and cannot be used for a new hire. An EOR creates a new employment relationship in the host country through its own entity. Confirm which situation you are in before choosing the model, and get the host-country employment contract reviewed before any hire or assignment starts.	Shadow payroll involves dual-payroll costs, local registration fees and specialist expat advisory, all of which vary by jurisdiction and package complexity. An EOR converts those variable costs into a flat per-employee monthly fee. Ask both providers for the all-in cost, including any deposit, setup or offboarding terms in the contract, before you compare.	For an existing employee, shadow payroll preserves the home contract, pension and benefits continuity, which matters for retention and for employees with significant accrued entitlements. For a new hire or an arrangement the person wants to be permanent, a local contract via EOR is the appropriate structure and gives the employee the statutory protections of the host country from day one.	Under shadow payroll, data processing occurs in both the home and host jurisdictions. Under an EOR, the local entity holds the employment data in the host country. Map data residency and local data protection obligations before you choose, especially where the home and host countries sit in different regulatory regimes.
How long is the arrangement expected to last	Shadow payroll is designed for temporary postings. Most jurisdictions start to confer local employment rights on workers after extended continuous presence, with thresholds that vary but commonly fall in the 2 to 3 year range. If the arrangement is likely to extend or is already open-ended, an EOR or a proper local contract is the cleaner structure. Get specific advice on the host-country threshold before the arrangement starts, not after it has run long.	The longer a shadow payroll arrangement runs, the more annual advisory cycles accrue. At some point the cumulative advisory and dual-payroll cost may exceed what an EOR would have cost for the same period. Model both paths before committing to shadow payroll for a posting of more than one year.	Long-running shadow payroll arrangements create ambiguity for the employee: physically in the host country for years, on a home-country contract that may not reflect their actual working conditions or rights. At the 2 to 3 year mark, a review conversation with the employee is good practice regardless of the legal structure you ultimately keep.	Extended shadow payroll arrangements may trigger local data retention obligations in the host country as local-equivalent payroll records accumulate. Check whether the shadow payroll provider is subject to host-country data regulations and who controls the local payroll records over time.
What does the employee want to keep	If the employee has unvested share options, a defined-benefit pension, or significant contractual entitlements tied to the home employment, ending that contract to re-employ via EOR may have legal and financial consequences. Review the home-country contract and any plan rules before switching models. For employees with straightforward packages, the EOR route is usually the simpler structure.	Home-country pension contributions under a shadow payroll arrangement continue to build the employee accrual. EOR re-employment starts a new local arrangement. Model the long-term pension difference for the employee, especially in defined-benefit schemes or markets with high employer contribution rates.	The model conversation is partly about what the person values. Some employees in high-employer-contribution home markets, or with important accruals, genuinely prefer the shadow payroll route and the continuity it preserves. Others prefer a clean local contract with local rights. Present both options with their costs and trade-offs so the employee's circumstances drive the decision rather than administrative convenience.	Under shadow payroll the home-country employer remains responsible for the employment record. Under an EOR the local entity holds the employment data. Confirm which entity the employee data sits with and whether that aligns with your data governance policy and any cross-border transfer obligations.

How to choose between shadow payroll and an EOR

Four questions get you to the right model. Each one cuts off a branch of the decision tree before you spend time comparing providers.

Step 1
Ask the first question, assignment or new hire
Is this an existing employee going abroad temporarily, or a new hire? If the person is not already on your home payroll, shadow payroll is not available to you. An EOR is the model for a new hire in a country where you have no entity.
Step 2
Check the expected duration
Is this a defined posting of under 2 to 3 years, or is the arrangement open-ended? Shadow payroll is a temporary compliance tool. If the duration is unclear or likely to extend, an EOR or a proper local contract is the cleaner long-term structure.
Step 3
Map the employee interests
Does the employee have pension accruals, unvested equity or contractual benefits tied to the home employment? If yes, shadow payroll preserves them. If the package is straightforward, a local contract via EOR is usually simpler for everyone involved.
Step 4
Get the all-in cost and the PE answer
Compare the full cost of shadow payroll, dual-payroll admin, local registration, advisory and tax equalisation, against the EOR monthly fee. Also get a separate answer on permanent establishment risk: shadow payroll handles payroll tax, but it does not address PE.

MyTutor · UK education technology

Keep the engineer when she moves to Spain, on a proper Spanish contract

Key technical hire retained through an international relocation: 1
Compliance issues since the Spanish hire went live: 0
Dual-payroll or annual tax equalisation overhead: None
Countries where Teamed operates its own entities, including Spain: 57

Challenge

MyTutor, a UK edtech platform, had an engineer who wanted to relocate to Spain permanently. The company faced a familiar crossroads: run a UK shadow payroll alongside Spanish tax obligations to keep her on the existing UK contract, or re-employ her via EOR on a proper Spanish contract. The shadow payroll route would have meant dual-payroll admin, a specialist expat advisor each year, and a UK employment contract that did not reflect her actual employment rights in Spain.

Approach

MyTutor chose to re-employ the engineer via Teamed in Spain, giving her a compliant Spanish employment contract, Spanish payroll and Spanish statutory benefits from the date of her move. Teamed handled the Spanish employment-law side end to end through its own Spanish legal entity: the contract, payroll, social security contributions and onboarding. The engineer had full employment continuity and a contract that matched her situation.

Result

The engineer has worked with MyTutor in Spain on a full local contract ever since. Zero compliance issues. No dual-payroll complexity and no annual tax equalisation exercise. MyTutor retained a key technical hire without taking on the ongoing advisory cost and admin of a UK shadow payroll. The EOR route was the right call because the arrangement was permanent from the start, not a temporary posting.

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Interactive tool

Model the cost of EOR versus shadow payroll administration

Shadow payroll advisory and dual-payroll costs vary by jurisdiction and package complexity. The EOR alternative is a flat monthly fee. Compare the two structures against your actual situation and headcount.

Get a cost breakdown

Decision checklist

Use shadow payroll when you have an existing employee going on a defined assignment under 2 to 3 years who wants to keep their home-country contract, pension and benefits continuity intact.
Use an EOR when you are hiring a new person in a country where you have no entity, or when the arrangement is open-ended and a proper local contract is the right structure.
Review any shadow payroll arrangement at the 2 to 3 year mark. Extended postings often trigger local employment rights that the home-country contract does not cover.
Note that shadow payroll addresses host-country payroll tax compliance but does not resolve permanent establishment risk. Get separate advice on PE before assuming the two are the same question.
If you need an EOR for the international employment side, Teamed shows FX at zero markup on every invoice, provides real HR and legal experts on every plan, and can help you graduate to your own entity when scale justifies it via Global Entity and Employment Operations (GEMO) in 90+ countries.

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Honest take

When shadow payroll is the better choice

Choose shadow payroll when an existing employee is going on a defined, time-limited assignment and genuinely wants to keep their home-country employment contract, pension and benefits intact. Re-employment via an EOR would require ending that contract, and for employees with significant accruals or unvested equity, that is not always the right call.
Choose shadow payroll when the intended duration is clearly under 2 years and the permanent establishment risk has been separately assessed and is not a concern. Shadow payroll is purpose-built for this scenario.
Choose shadow payroll when the employee is a senior executive with a complex package, a tax equalisation policy and a home-country pension where preserving the home employment relationship is a material retention and reward decision, not just a convenience.

Shadow payroll and EOR are not rivals. They serve different situations. Shadow payroll is the right tool when assignment continuity and home-contract preservation are the goal. An EOR is the right tool when the employment is new, permanent, or otherwise better served by a local contract. Neither is universally correct.

Questions to ask any EOR before you sign

1Is this person already employed by us on a home-country contract, or are we hiring them for the first time abroad?
2What is the expected duration, and could it become permanent or open-ended?
3Does the person want to keep their home-country pension, share options or benefits continuity?
4Does the activity in the host country risk creating a permanent establishment for our parent company?
5Who handles the hypothetical tax calculation and annual tax equalisation under shadow payroll, and what does that cost all in?
6Under the EOR route, which statutory benefits does the employee receive in the host country?
7What deposit, setup or offboarding terms are in the contract, and what is the all-in monthly cost per employee?
8If the arrangement changes, from assignment to permanent or from EOR to our own entity, how easy is it to migrate without re-onboarding?

Frequently asked questions

What is a shadow payroll and how does it work?
A shadow payroll is a parallel payroll run in the host country for an employee who remains on the home-country employment contract and payroll. When an employee goes on international assignment, local income tax and social contributions typically arise in the host country. The shadow payroll calculates those obligations and withholds them, while the home payroll continues to pay the employee in the normal way. The employee has one employment contract and one salary; two payrolls run simultaneously. HMRC's Employment Income Manual sets out the UK rules at EIM42400, and similar obligations apply across most OECD member states.
What is the difference between shadow payroll and an EOR?
Shadow payroll is a compliance mechanism: it handles the host-country payroll tax obligations of an employee who keeps their home employment contract. An EOR is an employment mechanism: it employs the worker through its own legal entity in the host country, issuing a local contract, running local payroll, and carrying the local employer obligations. Shadow payroll does not create local employment; an EOR does. You cannot use shadow payroll to hire a new person in a foreign country, only to meet the payroll tax side of an existing employee going on assignment.
Can I use shadow payroll instead of an EOR to hire someone new in a country where I have no entity?
No. Shadow payroll is not a hiring mechanism. It exists to meet the host-country payroll tax obligations of an employee who is already on your home payroll. If you want to hire someone in a country where you have no legal entity, you need either to set up an entity there or to use an EOR. The EOR employs them through its own entity, issues a compliant local contract, and handles all local payroll and compliance from day one. Shadow payroll cannot do any of that.
When does a shadow payroll arrangement stop being the right structure?
Shadow payroll is designed for temporary postings. Most countries begin to confer local employment rights on workers after an extended period of continuous presence, commonly in the 2 to 3 year range across major jurisdictions. At that point, the home-country contract may no longer reflect the employee rights or the employer obligations in the host country, and re-employment on a local contract, via an EOR if needed, is often the cleaner structure. Review any shadow payroll arrangement at the 2 to 3 year mark. Also note that shadow payroll does not address permanent establishment risk, which should be assessed separately from the outset.
Does an EOR eliminate permanent establishment risk?
An EOR reduces PE risk for most standard employment roles by making the local entity the legal employer rather than the parent company. This removes the direct parent-employee link that commonly drives a PE analysis for standard employment. However, no model eliminates PE risk in every situation: if the employee has authority to conclude contracts on behalf of the parent, or if the activity amounts to a business presence in the host country in other ways, PE can arise regardless of the employment structure. Shadow payroll does not address PE at all. Take specific tax advice on the PE question for any significant assignment or hire.
What happens to an employee's pension and benefits when they move from shadow payroll to an EOR?
When an employee moves from a shadow payroll arrangement to re-employment via EOR, the home-country employment contract ends and a new local contract begins. Home-country pension contributions stop unless separately maintained. Unvested share options may be affected depending on the plan rules. The employee gains host-country statutory benefits, which may be more or less generous than the home-country package. For employees with significant pension accruals, unvested equity or complex contractual entitlements, this transition needs careful planning before it starts, not after the shadow payroll has already run for two years.

Common questions

Shadow payroll vs EOR, which one do I need for my international workforce?
It depends on whether you are talking about an existing employee on assignment or a new hire abroad. Shadow payroll is for existing employees who go on a temporary international posting and keep their home-country contract: a parallel payroll in the host country handles local tax and social contributions without ending the home employment. An EOR employs the worker through its own legal entity in the host country, issuing a local contract, which is what you need to hire someone new abroad or to put a permanent arrangement on the right legal footing. The models are not rivals. Most growing companies use shadow payroll for defined short-term assignments where home-contract continuity matters, and EOR for new permanent hires and open-ended arrangements. If the arrangement might become permanent, start with the EOR question first.
Can I use shadow payroll to avoid setting up an entity abroad?
Shadow payroll lets you meet host-country payroll tax obligations without incorporating a local entity, but only for employees already on your home-country payroll going on assignment. It is not a general alternative to entity setup, and it cannot onboard a new hire. If you need to hire someone new in a country where you have no entity, your options are to set one up or to use an EOR. An EOR employs the worker through its own entity at a flat monthly fee, handling the local contract, payroll and compliance end to end. For new international hires, it is the model that avoids entity setup, not shadow payroll.

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