Imagine this: you’ve found the ideal candidate, but they’re based in Portugal and your company doesn’t have a legal entity there. Your legal team is stumped, payroll is in shambles, and your top candidate is still waiting for their contract.
If this situation sounds familiar, or like it could happen soon, you’re not alone. More companies are expanding globally, and faster than ever. But international hiring brings hidden challenges: local labour laws, tax requirements, social benefits, banking hurdles, and the constant worry of getting it wrong.
This is where an Employer of Record (EOR) comes in, a behind-the-scenes solution powering many of today’s fastest-growing global teams.
But, is your team ready for an EOR solution?
Let’s break it down, honestly, clearly, and without the marketing spin.
What Is an Employer of Record?
An Employer of Record (EOR) is a third-party organization that becomes the legal employer of a worker on behalf of another company. The EOR handles employment responsibilities such as payroll processing, tax withholdings, benefits administration, and compliance with local labour laws.
The original company still directs the employee's day-to-day work, but the EOR takes on the legal and administrative duties of employment. This structure allows companies to hire in countries where they do not have a legal entity.
Without an EOR, companies hiring internationally typically choose between two options:
Setting up a local subsidiary: This requires registering a business entity in each country, which can be time-consuming and expensive
Using contractor arrangements: This may create misclassification risks if the worker functions like an employee
Modern EORs use technology to manage employment responsibilities efficiently. Some platforms now include automation tools and real-time compliance monitoring to reduce manual work and improve accuracy.
6 Signs Your Team Might Be Ready for an EOR
Companies often wonder when the right time is to consider an Employer of Record. Here are six common indicators:
Hiring in countries without legal entities
When a company wants to employ someone in a country where it doesn't have a registered business presence, an EOR can serve as the legal employer. This prevents potential tax penalties and compliance issues that come with improper hiring practices.Outgrowing contractor arrangements
Many companies start international expansion by hiring contractors. As teams grow, managing multiple contractors across different countries through various payment platforms becomes complex. An EOR provides a consistent employment structure with proper local benefits and protections.Dealing with pre-funding requirements
Some payroll providers require companies to deposit funds weeks in advance of payroll processing. This ties up capital and creates cash flow challenges. Modern EORs can process payroll without pre-funding requirements.Expanding into new markets quickly
Setting up a legal entity in a new country typically takes 3-6 months and costs $15,000-$50,000 per location. An EOR allows companies to hire employees in new countries in days rather than months.Managing evolving labour laws
Labour regulations vary significantly by country and change frequently. An EOR stays current with these changes and applies them to employment processes automatically, reducing compliance risks.Creating consistent employee experiences
Employees in different countries expect locally appropriate benefits, timely pay, and smooth onboarding. An EOR provides standardized processes while adapting to local requirements.
What an EOR Does (and Doesn't) Do
Understanding the responsibilities of an Employer of Record helps companies determine if this solution meets their needs.
What an EOR Does:
Handles employment contracts: Creates and manages legally compliant employment agreements
Processes payroll: Calculates wages, deductions, and taxes according to local requirements
Administers benefits: Provides and manages mandatory and competitive benefits packages
Files taxes: Submits employer tax filings and ensures proper withholding
Manages terminations: Follows local requirements for ending employment relationships
What an EOR Doesn't Do:
Manage daily work: The original company maintains control over assignments, performance reviews, and work schedules
Set compensation strategy: While EORs advise on local standards, companies decide their own compensation approaches
Replace HR teams: EORs complement internal HR functions rather than replacing them
Legacy EORs often rely on manual processes and require upfront deposits or pre-funded payroll. These systems can delay onboarding and create cash flow constraints. Newer platforms use automation to streamline employment tasks, reduce manual input, and support real-time compliance updates.
Evaluating If an EOR Is Right for You
An Employer of Record solution works best in specific situations. Companies can use this checklist to determine if an EOR aligns with their needs:
Multiple countries: Are you hiring in two or more countries where you don't have legal entities?
Speed requirements: Do you need to hire quickly without waiting to establish local business entities?
Current challenges: Are you experiencing problems with your existing international employment approach?
Team structure: Do you want to build a distributed team without creating legal infrastructure in each location?
Companies typically consider an EOR in these common scenarios:
Market testing: When exploring a new country before committing to a permanent presence
Small team sizes: When employing just a few people in multiple countries
Compliance complexity: When entering countries with particularly complex labour laws
Limited HR resources: When internal teams lack expertise in global employment
An EOR provides particular value when companies want to focus on their core business rather than managing international employment administration.
Making the Switch to an EOR
The process of transitioning to an Employer of Record involves several straightforward steps:
Information gathering: Providing basic details about employees and countries of employment
Documentation preparation: The EOR creates compliant employment contracts
Compliance verification: Local requirements are checked and confirmed
Payroll and benefits setup: Systems are configured for the specific employee and location
Ongoing management: The EOR handles regular payroll processing and compliance updates
The timeline for this process varies by provider. Some legacy EORs take weeks or months to complete onboarding, while modern platforms can complete the process in as little as 7 days.
Companies that switch to an efficient EOR often experience:
Faster payroll processing: Payments processed in days rather than weeks
Cost reductions: Lower administrative overhead and elimination of entity setup costs
Higher satisfaction: Both HR teams and employees report better experiences
The transition typically requires minimal changes to how employees are managed day to day. The EOR handles legal and administrative responsibilities, while the company continues to oversee the employee's work and performance.
Global Hiring Without Barriers
Using an Employer of Record simplifies international hiring by removing administrative barriers that slow down expansion. Companies can employ people legally in other countries while the EOR manages payroll, taxes, benefits, and compliance with local labour laws.
This approach offers several key advantages:
Faster market entry: Hire in new countries in days instead of months
Reduced compliance risk: Local experts ensure adherence to changing regulations
Administrative simplification: One platform manages employment across multiple countries
Cost efficiency: Eliminate the expense of setting up and maintaining legal entities
For companies expanding globally, an EOR provides a balance between proper employment compliance and operational flexibility. It allows businesses to focus on finding and developing talent rather than navigating complex international employment requirements.
As remote work continues to normalize, more companies are using EORs to build truly global teams without geographic limitations. This approach turns international hiring from a complex challenge into a strategic advantage.
Frequently Asked Questions About Employer of Record
What is the difference between an employer of record and a professional employer organization?
An employer of record (EOR) becomes the legal employer for workers in countries where a company doesn't have an entity, handling all employment responsibilities. A professional employer organization (PEO) creates a co-employment relationship and requires the company to have its own legal entity in each country.
How does an employer of record handle international benefits administration?
An employer of record provides benefits that comply with local requirements and match market expectations in each country, including both mandatory benefits (like social security) and competitive supplementary benefits (like health insurance and retirement plans).
What types of companies typically benefit most from employer of record services?
Companies of all sizes use EOR services, including startups expanding internationally for the first time, mid-sized businesses entering new markets, and enterprises seeking to simplify their global employment structure and reduce administrative complexity.
How much does an employer of record service typically cost?
EOR services generally cost between 5-15% of employee salaries, with the exact amount varying by country and service level. Some providers offer transparent flat-rate pricing based on employee count rather than percentage-based fees.
Can an employer of record help with converting contractors to employees?
An employer of record specializes in converting contractors to properly classified employees by handling the legal transition process, implementing compliant employment contracts, and establishing proper tax withholding while maintaining business continuity.
