An employer of record (EOR) is a company that becomes the legal employer of your people, so you can hire in a country where you have no entity.
You still choose who to hire and direct their day-to-day work. The EOR employs them on your behalf. It signs the employment contract, handles payroll, tax and benefits, and carries the employer's legal duties in that country, through its own local entity or a local partner (an entity is a company you have registered there).
EOR also means enhanced oil recovery, engineer of record or end of rotation.
Hired through an EOR? See what it means for you.
- Your company
- You choose the person, set the work and pay one monthly invoice.
- The EOR
- Based in the employee’s country. Signs the employment contract and runs payroll, tax and statutory benefits under local law.
- The employee
- Lives and works in that country, and does the work you set.
What is the purpose of an EOR?
An EOR exists so you can employ someone in a country where you have no company of your own. Four things bring most companies to one: an employee or founder moving abroad, the right person found where there is no entity, a risky contractor set-up, or testing a new market before committing. In each case you need a local employer, and you are not ready to set up your own.
What is an example of an employer of record?
A UK software company finds the engineer it wants in Spain. It has no Spanish company. A Spanish EOR employs the engineer. The UK company sets the work and pays the EOR's invoice. The engineer gets a Spanish contract and Spanish payslips.
How does an employer of record work?
You choose the person; the EOR employs them, in this order:
- Agree pay and a start date with the person.
- You sign a service agreement with the EOR.
- The EOR gives them a local employment contract and registers them for payroll and tax.
- They start, and you set the work.
- Each month the EOR pays them, files the taxes and sends you an invoice.
- When the job ends or changes, the EOR runs the local process.
Some EORs employ through their own company, others through a local partner: ask which, country by country.
Who is the legal employer, you or the EOR?
The EOR is the employer in law; you run the work day to day.
With the EOR:
- the employment contract
- payroll and tax filings
- statutory benefits the law requires
- the process when the job ends
With you:
- the work itself and how it's managed
- conduct at work
- the decision to end the job
- your tax position
This split comes from the contracts, not a statute naming EORs. In Great Britain the business directing the work must not discriminate against a supplied worker, and must protect the health and safety of people who work for it but are not its employees.
How much do EOR services cost?
You pay three things: the salary, the employer costs local law adds, and the provider's fee.
The second part is set by law: UK employer National Insurance can't be deducted from the worker's pay, and employers must enrol eligible staff into a workplace pension.
| Cost line | Who sets it | Monthly | Source |
|---|---|---|---|
| Gross salary | You | £5,000.00 | Example figure |
| Employer National Insurance | UK law | £687.45 | GOV.UK, rates and thresholds for employers 2026 to 2027 |
| Workplace pension, employer share | UK law | set by the pension scheme, not shown here | Pensions Act 2008, section 3 |
The fee is usually flat per employee, with salary, employer taxes and benefits on top of it. See the employer costs for your country.
What does the EOR fee usually not include?
The fee pays for the employer, not the employment. Ask any provider about:
- employer taxes and social contributions
- benefits, and any margin added to them
- a deposit, or payroll paid in advance
- currency conversion
- set-up or onboarding charges
- notice pay, severance and any leaving fee
- extras such as visa help or equipment
- minimum terms
EOR, PEO, umbrella company or your own entity?
Four models get confused. The test is who the legal employer is.
| Route | Who is the legal employer | What it is for | Where it stops working |
|---|---|---|---|
| Employer of record (EOR) | The EOR, in the employee's country | Employing your own team member in a country where you have no company | Large, lasting teams. Countries that limit how long a worker can be supplied to one business. It doesn't by itself remove permanent establishment risk |
| PEO | Typically still you, for US federal tax. PEOs call the set-up co-employment | Handing payroll, benefits and HR admin to a provider for staff in the US | Your company must itself be registered as a US employer |
| Umbrella company (UK) | The umbrella company | Paying UK temporary workers, often for recruitment agencies | It doesn't find the worker a job. It usually sits in an agency supply chain, not a direct long-term hire |
| Your own entity | You | A lasting presence and a growing team in one country | Small or uncertain headcount. You carry registration, payroll, filings and legal upkeep |
What is the difference between a PEO and an EOR?
An EOR is the legal employer. With a PEO, short for professional employer organisation, you typically stay the employer even though it pays wages under its own tax number, because the IRS doesn't recognise the "co-employment" PEOs describe. The IRS identifies a PEO's client by its own Employer Identification Number, so to use one your company must itself be registered as a US employer. A certified PEO is the voluntary exception, treated as the employer for federal taxes on the wages it pays.
What is the difference between an EOR and an umbrella company?
An umbrella company is a UK business recruitment agencies often use to pay temporary workers: it employs the worker and pays them through PAYE without finding them work. An EOR is usually engaged directly as the legal employer where the client has no local entity, and the law doesn't draw this line by name. From 6 April 2026, HMRC can collect unpaid PAYE from the agency or the end client, under a rule based on what a business does, not its name.
For the full comparison, read EOR vs umbrella company in detail.
Should you use an EOR or set up your own entity?
Use an EOR to start. Set up your own entity once the team is lasting and large enough that running costs beat the fees. No single headcount marks the point: it depends on the country, entity costs and plans, so work out the crossover for your country. Cost isn't the only factor: a customer may insist on a local company, the work may be regulated, or you may want an equity plan. The guide to EOR vs your own entity covers each one.
Should you use an EOR or hire a contractor?
If you set the hours, direct the work and the person works only for you, that looks like a job: check whether a role looks like employment. In the UK the off-payroll rules, known as IR35, cover someone supplying services through their own company; in the US the IRS looks at behavioural control, financial control and the type of relationship. A US employee gets a Form W-2, a contractor a Form 1099-NEC, and someone hired through an EOR is a W-2 employee. An agent of record, or AOR, pays genuine contractors without employing anyone. See EOR vs AOR.
Is an EOR legal?
It depends on the country: "employer of record" is a commercial term, not a legal category, and no single global rule sets which duties sit with which party. International labour standards describe the shape, agencies that employ workers and supply them to a business that directs their work. Some countries are strict: Belgium's labour ministry says hiring out workers is prohibited in principle, and Germany's permit rule is covered below.
Is EOR legal in the UK?
No UK statute answers this: "employer of record" doesn't appear in UK legislation. UK law instead regulates the shape as an "employment business", though the Employment Rights Act 2025 widens that to expressly include being the employer of the people supplied, once its new wording is fully in force. Whether a given EOR counts as one is a legal question this page doesn't answer. Only some agencies need a licence in Great Britain, and normal duties apply regardless: PAYE deducted each pay day and a written statement of terms on or before day one. HMRC's own guidance already treats an "Employer of Record" as responsible for the required returns. Visas are a real limit: Home Office guidance says a sponsor can't sponsor someone whose job amounts to being hired out to a third party. More in the guide to hiring in the UK.
Is using an EOR legal in the US?
No federal rule answers this either: "employer of record" is not a defined term in US federal regulations. Who counts as the employer is generally decided under common law rules, and federal withholding law looks at who controls the payment of wages: for a foreign company with no US trade or business that is whoever pays the wages on its behalf. PEOs are regulated state by state, and Florida, for example, requires an employee leasing company to hold a state licence. How this applies to an EOR set-up is a question for US counsel. See the guide to hiring in the US.
What are the risks of using an EOR?
The main risks are the ones the fee does not remove. There are four: company tax, time limits, who owns the work, and the way out.
Permanent establishment
An EOR changes who the legal employer is, but doesn't by itself remove permanent establishment risk, meaning a taxable presence. Under the OECD model tax treaty broadly a fixed place of business through which a company operates in another country, or a person who habitually concludes contracts for it. A 2022 UK government review told businesses the same thing. Read more on permanent establishment and EORs.
Time limits in some countries
Some countries limit how long a worker can be supplied to the same business: Germany's default is 18 months, Poland's is 18 months in any 36. In Germany a business supplying employees under another company's instructions needs a permit under the Temporary Agency Work Act, and EOR hires are commonly run under it. Earlier periods with the same company count in full, even through a different provider, unless the gap is over three months, and a collective agreement can set a different default. More on hiring in Germany.
Who owns the work
By default, an employee's work belongs to their employer, here the EOR: UK copyright law makes the employer first owner, and US copyright law treats it as work made for hire, so contracts need a written, signed chain passing it to you. US patents differ: rights belong to the inventor and move only by written assignment.
The way out
Ask how you leave before you join: people plan for a fast start and forget the exit. Moving people to your own entity, or another provider, means new contracts, notice, and care over length of service. Talk to an Expert at Teamed to work through your situation.
When should you not use an EOR?
Do not use an EOR if you already have a company there. It is also the wrong route for:
- a large, lasting team, where you should run the numbers on your own entity
- a role that may create a permanent establishment anyway
- a country whose time limit is shorter than your plans
- licensed or regulated work needing your own entity
- a person who genuinely runs their own business
Teamed acts as the employer of record in 187+ countries, for a flat £479 per employee per month. See how Teamed's employer of record service works.