# 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.

An Employer of Record (EOR) is a company that employs workers on your behalf in countries where you have no legal entity. You find and manage the person; the EOR signs the employment contract, runs payroll in local currency, withholds and remits the correct taxes, and keeps you on the right side of local labour law.

The arrangement works because most countries tie employment obligations, such as social contributions, statutory leave and termination rules, to the entity that appears on the contract. An EOR already holds that position in each market it covers, so you can start someone working in weeks rather than waiting months to register a foreign company.

EOR is one stage in a company's growth. Many businesses start hiring in a new market through an EOR to test demand, then move their team onto a locally owned entity once the market is proven. Some prefer to stay on the EOR model indefinitely; others graduate earlier. The right choice depends on headcount, tenure, and how strategic the market is for you.

## How does an EOR actually work?

You hire and manage the person. The EOR signs the employment contract in the local country, pays the employee, handles tax filings and statutory benefits, and takes legal responsibility for compliance. The employee works for you in practice, but is employed by the EOR in law.

Day to day, the employee reports to you and does the work you set. The EOR stays in the background, processing payroll each cycle, filing returns with local authorities, and updating contracts whenever the law changes.

## What is the difference between an EOR and a PEO?

A Professional Employer Organisation (PEO) co-employs workers alongside you and requires you to have your own legal entity in the country first. An EOR becomes the sole legal employer, so no local entity is needed. PEOs are common for domestic HR admin; EORs are the model for cross-border hiring.

With a PEO, compliance liability is shared between you and the provider. With an EOR, the provider holds that liability, which matters most when you are entering a market with unfamiliar labour law.

## When should you move from an EOR to your own entity?

There is no single rule, but most companies review the decision once they have a sustained team of five or more people in one country, or when the EOR fee exceeds the cost of running a local entity. A crossover calculator can show you the break-even point for your situation.

Other factors include strategic importance, local contract requirements from enterprise clients, and whether you need a local bank account or registered address for commercial reasons.

## Key facts

- **IRS definition of 'employer':** IRC section 3401(d)(1) defines the employer as the person who controls payment of wages, which is why an EOR, not the client company, holds payroll and tax obligations in the US. (Source: Internal Revenue Service, verified 2026-06-24)

## EOR vs PEO at a glance

|  | EOR | PEO |
| --- | --- | --- |
| Legal employer | EOR is sole legal employer | Client and PEO share employer status |
| Own entity required? | No | Yes |
| Best for | Hiring across borders | Domestic or single-market HR admin |
| Compliance liability | Sits with the EOR | Shared between client and PEO |
| Payroll funding | EOR funds and processes payments | Client funds payroll; PEO processes it |

## Frequently asked questions

### Does using an EOR mean I lose control of my employee?

No. You set the work, the targets and the day-to-day direction. The EOR holds the legal employment relationship, which covers payroll, tax and compliance. Think of it as a division of labour: you run the work, the EOR runs the employment.

### How long does it take to hire someone through an EOR?

Most hires can be contracted and active within one to three weeks, depending on the country. That compares with three to six months to register a new legal entity, pass local corporate filings and open a payroll account from scratch.

### Is an EOR the same as a staffing agency?

No. A staffing agency recruits workers and places them with clients, often on short-term assignments. An EOR does not find your workers for you. You recruit the person yourself; the EOR simply becomes their legal employer in the country where they are based.

### Can you switch from an EOR to your own entity later?

Yes. Many companies start with an EOR to test a market quickly, then move the team onto a locally owned entity once they are committed to that market. The two models are stages in a journey, not competing choices you are locked into permanently.

## Sources

- [Employer of Record](https://en.wikipedia.org/wiki/Employer_of_Record), Wikipedia
- [PEO vs. EOR: Key Differences Explained for Employers](https://www.uschamber.com/co/run/human-resources/peo-vs-eor), US Chamber of Commerce
- [Third party payer arrangements: Professional Employer Organisations](https://www.irs.gov/government-entities/third-party-payer-arrangements-professional-employer-organizations), Internal Revenue Service
- [Statutory employees](https://www.irs.gov/businesses/small-businesses-self-employed/statutory-employees), Internal Revenue Service

_Last updated 2026-06-24. Reviewed by Teamed's in-house employment-law team. Source: https://www.teamed.global/glossary/employer-of-record_