Employer of Record glossary

The EOR model

What an EOR is and what it takes on.

• Employer of Record (EOR)An Employer of Record (EOR) is a third-party organisation that becomes the legal employer of your workers in a given country, handling payroll, tax, benefits and compliance whilst you direct their day-to-day work.
• Legal EmployerA legal employer is the entity that a country's tax and labour authorities recognise as a worker's employer, responsible for withholding and remitting payroll taxes, filing statutory returns, and meeting employment-law obligations, regardless of who directs the person's day-to-day work.
• Employer of Record AgreementAn Employer of Record Agreement is the governing contract between a company and its EOR provider, setting out which employer responsibilities the EOR assumes, how compliance liability is shared, how employee data is protected, and how fees, currency conversion and termination are handled.
• Entity-Free HiringEntity-free hiring is employing people in a foreign country without setting up your own legal entity there, achieved by engaging an Employer of Record that already holds the local registration and becomes the legal employer while you direct the work.
• EOR Compliance ScopeEOR compliance scope is the defined set of legal obligations, payroll tax filings, benefit registrations, labour law adherence and regulatory reporting, that an employer of record takes on in a given country, marking the boundary between what the provider handles and what stays with the client.
• Global Employment ModelThe global employment model is the practice of hiring and retaining workers in countries outside a company's home base, meeting each market's labour law, payroll tax, statutory benefits and termination rules, usually through an employer of record, a PEO or an owned foreign entity.

Entity or EOR

The build-your-own alternative and the risk it carries.

• Legal entityA legal entity is a company or organisation formally registered under the laws of a country, giving it the right to employ people, sign contracts, and pay taxes in that jurisdiction.
• Entity establishmentEntity establishment is the process of registering a wholly owned legal subsidiary in a foreign country so you can employ staff directly, pay taxes locally, and operate as a resident employer.
• SubsidiaryA subsidiary is a separate company owned or controlled by a parent company and registered in its own jurisdiction, giving the parent a legal entity through which it can employ people, sign contracts and trade directly in that country.
• Direct EmploymentDirect employment is a hiring model in which a company sets up its own legal entity in a country and employs staff there itself, taking on full responsibility for payroll, tax, benefits and compliance rather than using a third-party employer of record.
• In-House HR ModelThe in-house HR model is the approach in which a company builds and runs its own HR, payroll and compliance functions internally, rather than using a PEO or employer of record, which means employing staff through its own registered entity in each country.
• Permanent Establishment RiskPermanent establishment (PE) risk is the exposure a company creates when its activities in a country, such as employing staff or letting someone conclude contracts locally, are judged extensive enough to form a taxable business presence, triggering corporate tax obligations in that jurisdiction.

Fees and total cost

What you pay for and how it adds up.

• EOR Service FeeAn EOR service fee is the recurring charge an employer of record bills for acting as the legal employer of a worker, usually quoted per employee per month, and separate from the actual salary, taxes, and statutory costs of employing that person.
• Setup FeeA setup fee, also called an implementation fee, is a one-off charge a global payroll or EOR provider makes to onboard your workforce data, configure country payroll rules and connect the platform to your systems, and it sits outside the recurring per-employee monthly price.
• Cost of employmentThe total amount an employer pays to employ one person: gross salary plus statutory contributions, mandatory and voluntary benefits, and any associated admin costs.
• Total Cost of PayrollTotal cost of payroll is the complete cost of employing a worker through a provider, adding together the per-employee fee, employer taxes and statutory contributions, benefits, any exchange-rate margin and setup or exit charges, giving the full figure needed to compare providers fairly.
• Switching Costs (Payroll Provider)Switching costs, in global payroll and EOR, are the total financial, operational and compliance burdens of moving from one provider to another, from data migration and parallel pay runs to re-onboarding staff and the risk window where employer responsibility could lapse.

Onboarding and delivery

How the arrangement runs once it is live.

• Employee onboardingEmployee onboarding is the process of legally and operationally setting up a new hire, covering employment contracts, payroll enrolment, statutory benefits, and right-to-work verification.
• In-Country PartnerAn in-country partner is a locally registered company that an employer of record contracts with to employ workers in a market where the EOR holds no entity of its own, so the client's employment relationship runs through that third party.
• Owned-Entity ModelThe owned-entity model is an approach in which an Employer of Record employs workers through its own locally registered legal entities in each country it operates in, rather than routing employment through third-party in-country partners it does not control.
• Service-Level AgreementA service-level agreement (SLA) is the part of an EOR contract that sets out measurable commitments, such as payroll processing deadlines, onboarding timelines, filing accuracy and how quickly issues are resolved, so the client can hold the provider to a defined standard of service.

How these terms relate

Hiring in a new country starts with one decision: run employment through your own legal entity, or through a provider that already holds one. Set up an entity and you own the subsidiary, the registrations and the in-house HR model, along with permanent establishment risk. Use entity-free hiring and an EOR becomes the legal employer instead, carrying the compliance scope you would otherwise build yourself. The service fee, setup fee and wider cost of employment are the price of that shortcut, and switching costs measure how hard it is to change later. Onboarding, in-country partners and service-level agreements then decide how the arrangement runs day to day. Teamed treats these as stages in a growth path rather than a single product, so the right structure shifts as headcount and countries grow.

Related glossaries

• Global payroll glossary
• Global HR compliance glossary
• EOR, PEO and co-employment glossary