What is an Employer of Record? A Guide to U.S. Businesses

Introduction

Navigating the world of international workforce expansion can feel overwhelming, especially with all the rules, paperwork, and compliance risks that come with expanding beyond borders. Over the years, we’ve guided countless global employers through these challenges, and we’ve seen how Employer of Record (EOR) services can make global expansion not just possible, but seamless. In this guide, we break down what an EOR is, how EOR services work, and why they’re a smart solution for hiring and managing talent worldwide. You’ll get practical insights on EOR models, key benefits, compliance tips, and how to choose the right EOR partner—everything you need to confidently grow your team, wherever your business takes you.

What is an Employer of Record (EOR)?[toc-hide]

An Employer of Record is a third-party organization that legally employs workers on behalf of a client company, taking on the responsibilities of formal employment while the client company maintains day-to-day operations of the employees. Based on our experience guiding US businesses, through international hiring, we’ve seen how this comprehensive global employer solution acts as a critical bridge for companies eager to expand internationally—without the hassle of setting up their own entities in new markets. It handles crucial  employer responsibilities such as: payroll processing, tax compliance, administrative tasks etc. This arrangement allows companies to quickly expand into global markets, mitigate legal risks, and streamline the global talent hiring process for both full-time employees and contractors.

By partnering with an Employer of Record, global businesses can stay focused on their core operations while the EOR expertly manages the complexities of global employment—everything from employment contracts and regulatory compliance to legal or tax advice and workers’ compensation claims. Our experience as an employer of record has shown just how much smoother and more efficient global team building can be when you have the right partner handling the details.

What are the services provided by an Employer of Record?[toc=EOR Services]

As an Employer of Record (EOR) working closely with international companies—especially US businesses—we know how important it is to have reliable support when managing a global workforce. Over the years, we’ve helped many organizations simplify their international workforce expansion, and we can confidently say that EOR services cover all the crucial employer duties needed for smooth and compliant business operations.

Here’s what you can expect from a comprehensive EOR service:

1. Payroll processing and global payroll management, including tax withholding, social security contributions, and compliance.
2. Benefits administration, such as health insurance, retirement plans, and other country-specific employee benefits.
3. HR and administrative support, including employee onboarding, employment contract management, and handling of employment-related documentation.
4. Regulatory compliance and risk mitigation and managing workers' compensation claims.
5. Immigration support, including work visa processing and assistance with necessary documentation.
6. Equipment management and logistics for remote workers.
7. Background checks and pre-employment screening in accordance with local regulations.
8. Time and attendance tracking to ensure accurate payroll.
9. Termination and offboarding support, including managing severance payments and exit procedures in compliance with local regulations.
10. Ongoing HR support and guidance on employment practices and cultural considerations.

We’ve seen firsthand how these services can transform the way companies approach global expansion. By letting us handle the complexities, you get peace of mind knowing your cross-border recruitment, payroll, and compliance risk are all managed by experts who truly understand the landscape

How does an Employer of Record work?[toc=How an EOR works]

If you’re wondering how an Employer of Record (EOR) actually fits into your global hiring strategy, let’s break it down in a way that’s easy to follow. As an EOR ourselves, working with international companies—especially US businesses, we’ve seen just how much this model streamlines the expansion process and takes the compliance risk off your plate.

Here’s how it all comes together:

1. Partnership and Hiring: The company partners with an EOR and selects candidates for international positions.
2. Legal Employment: The EOR becomes the employer, handling employment contracts and ensuring compliance.
3. Payroll and Benefits Management: The EOR manages global payroll processing, tax withholdings, and benefits management in accordance with local regulations—so you don’t have to worry about missing a detail.
4. Ongoing Compliance and Support: The EOR service continuously monitors changes in local laws, provides HR support, and handles employee-related matters.
5. Work Management: While the EOR service handles legal and administrative aspects, the clients manages day-to-day operations and employee performance.

Relationship Between Employer of Record, Client Company, and Employees

We’ve found that clarity about these relationships is key to a smooth experience:

Employer of Record and Client Company:

• Contractual relationship where the client pays for EOR
• EOR provides compliance, payroll, and HR support
• Client retains decision-making power over hiring, firing, and daily management

Employer of Record and Employee:

• EOR is the comprehensive employer, handling formal employment aspects
• Manages contracts, payroll, benefits, and tax compliance
• Employees direct employment-related questions to the EOR

Client and Employee:

• Client manages daily work activities and sets job responsibilities
• Employees report to and take direction from the clients for work duties

This setup lets you focus on building and leading your team, while employer of record handles the behind-the-scenes complexities of international employment and compliance. It’s a win-win that keeps your global hiring efficient, compliant, and stress-free.

What are the types of EOR?[toc=Types of EOR]

When it comes to Employer of Record services, not all providers work the same way. Over the years, we’ve observed that EORs generally operate under two main models: partner-dependent and owned-entity.

Partner-dependent EORs:

These type of EORs leverage local entities or third-party providers in the countries they operate. They don't own legal entities but rely on partnerships to handle administrative tasks,  payroll processing, and HR tasks. This model allows for quick expansion into global markets and can be cost-effective. However, it may lead to potential risks in compliance, as well as inconsistencies in service quality across different countries.

Owned-entity EORs:

These EORs establish their own legal entities in the countries where they provide services. They have direct control over compliance, payroll management, and HR functions. From our experience working with international clients, we’ve found that owned-entity EOR services often deliver more stability, better data protection, and a unified approach to managing remote teams. They can provide faster response times and enhanced customization to meet specific corporate policies. While potentially more expensive to set up initially, they may offer long-term cost savings and greater reliability for businesses expanding globally.

Both EOR models make it possible to hire employees overseas without setting up your own local entity, but they differ in how they approach legal compliance and the consistency of service delivery. Choosing the right model depends on your company’s global strategy, risk tolerance, and the level of control you want over your international workforce.

When should you use an Employer of Record?[toc=When to use an EOR]

From our experience helping businesses expand globally, we’ve noticed there are a few standout scenarios where partnering with an Employer of Record (EOR) just makes sense. Here’s when we recommend considering an EOR:

• When you want to hire in a new country without setting up a local entity.
• When you need to onboard remote talent quickly and compliantly.
• When you’d rather focus on your core business than get bogged down by payroll, benefits, and HR admin.
• When you’re concerned about compliance risks in countries with complex or frequently changing regulations.

If you find yourself in any of these situations, our experience shows that working with an Employer of Record can make your global expansion smooth, compliant, and hassle-free.

What are the options for hiring international talent?[toc=Hiring Options]

When businesses look to hire international talent, we’ve found there are really two main paths: setting up a foreign entity or partnering with an Employer of Record (EOR). Each option comes with its own set of challenges, costs, and compliance risks, and our experience supporting US companies through global expansion has shown us just how important it is to choose the right fit for your goals.

Setting up a Foreign Entity

This route means establishing your own legal presence in the target country. It starts with registering your business locally, opening bank accounts, and securing all the necessary licenses and permits. You’ll also need to set up local payroll and usually bring in legal and tax experts to navigate the maze of regulatory compliance. While this gives you full control, it’s a time-consuming and costly process—often taking six months or more to get up and running.

Using an Employer of Record

Here’s where things get a lot simpler. By partnering with an EOR, you can hire international employees quickly and compliantly, without having to set up your own entity. The EOR acts as the legal employer, handling payroll, benefits, and compliance risk, while you stay focused on managing your team’s day-to-day work. We’ve seen clients ramp up global hiring in just a few weeks using this approach.

Here’s a quick comparison to help you see the differences at a glance:

For a more detailed understanding of the differences between setting up a legal entity and using an Employer of Record (EOR), refer to our article "Remote Hiring in India: Detailed Comparison of Entity Establishment vs. EOR".

Types of International Hires

When it comes to hiring internationally, companies usually choose between full-time employees and contractors. Full-time employees, whether hired directly or through an EOR, get a regular salary, benefits, and are managed closely by your team. Contractors, on the other hand, are self-employed and brought in for specific projects; they have more independence but typically don’t receive the same benefits or protections.

For a more detailed understanding of the differences between full-time employees and contractor, don’t miss our article "Know the difference between Contractors vs. Employees in 2025"

What are the alternatives to Employer of Record?[toc=EOR Alternatives]

While an Employer of Record (EOR) is often the go-to solution for global businesses looking to hire internationally without setting up their own entity, there are a couple of other options worth considering: Professional Employer Organizations (PEOs) and staffing agencies. Each alternative comes with its own unique services, benefits, and limitations, so it’s important to understand how they stack up against EORs—especially when it comes to compliance risk and the scope of international employment.

Professional Employer Organization (PEO)

A PEO operates under a co-employment model, meaning both the PEO and your company share employment responsibilities. The PEO handles HR tasks like payroll processing and benefits management, while you retain control over daily operations and employee management. One key thing we’ve observed is that a Professional Employment Organization (PEO) does not act as the legal employer—your business must already have a registered entity in the country where you want to hire.

For a more in-depth comparison and to help you decide on the right strategy for your organization, check out our article, "PEO vs. EOR: What is the correct strategy for your organization?".

Staffing Agency

Staffing agencies are another alternative, mainly used for sourcing and hiring temporary or contingent workers. They act as the employer for these workers, but their services are usually limited to short-term or project-based roles, rather than long-term or full-time employment. Staffing agencies don’t typically handle the comprehensive compliance risk and HR support that EORs provide.

For a detailed breakdown of the differences, check out our article, "Differences: Employer of Record and Staffing Agency."

From our experience, both PEOs and staffing agencies are solid alternatives to an Employer of Record, depending on what you need. If you already have a local entity and just want help with HR, a PEO can be a great fit. If you’re only looking to fill temporary roles, a staffing agency might be the way to go. But if you want to build a global team quickly, compliantly, and without the hassle of setting up in every country, an EOR is still the most flexible and comprehensive solution out there.

Which countries are EORs present in?[toc=EOR Global Presence]

EORs have a truly global footprint, supporting businesses in hiring across all major continents. From our experience as an Employer of Record, we’ve seen that EOR services are especially valuable in countries with complex labor laws, strict compliance requirements, or unique cultural nuances—places where it can be tough for foreign companies to manage international hiring and compliance risk on their own.

Today, EORs operate in over 150 countries, including key markets like the USA, UK, Canada, India Germany, France, Spain, and the UAE, as well as emerging economies throughout Asia, Africa, and South America. This widespread presence allows businesses to expand quickly and compliantly, no matter where their growth takes them.

To make things easier, we offer detailed hiring guides for several countries, such as

• Employer of Record Spain
• Employer of Record UAE
• Employer of Record Germany
• Employer of Record India
• Employer of Record France
• Employer of Record UK
• Employer of Record USA
• Employer of Record Canada

These country-specific guides are packed with insights on local labor laws, tax regulations, and best practices for hiring, helping you confidently navigate the complexities of global expansion. We’ve observed that having access to this kind of targeted information makes a world of difference for businesses entering new markets and managing compliance risk effectively.

What are the benefits of using an Employer of Record?[toc=Benefits]

From our experience supporting global companies in their international hiring journeys, we’ve seen how partnering with an Employer of Record (EOR) can be a real game-changer.

Here are some of the standout benefits we’ve observed:

Simplifying global expansion:

An Employer of Record streamlines the process of entering new markets. With an EOR, you can quickly establish a presence in foreign countries—no need to set up your own entity. This makes it easy to test new markets, hire local talent, and scale your operations efficiently, saving both time and resources.

Ensuring compliance with local employment laws:

Staying compliant in different countries can be a headache, especially with ever-changing regulations. EORs bring deep expertise in local labor laws and handle everything from employment contracts to terminations, ensuring your business stays on the right side of the law. We’ve found this is especially valuable in complex regulatory environments, helping companies avoid costly legal issues and penalties.

Reducing administrative burden:

Managing payroll, HR, and benefits across borders can quickly become overwhelming. By outsourcing these tasks to an EOR, your team can focus on what matters most—growing your business. EORs handle time-consuming details like tax withholding, social security contributions, and country-specific requirements, freeing you up from the day-to-day admin grind.

Mitigating employment risks:

Employment in foreign countries comes with its fair share of risks, from workers’ compensation claims to unemployment issues. EORs take on many of these legal responsibilities, helping you navigate employment-related liabilities and protect your business from potential disputes or compliance failures.

Facilitating international hiring:

EOR services make it easy to hire quickly and compliantly, whether you’re bringing on full-time employees or contractors. This flexibility is a huge plus when building a global team. Many EORs even offer recruiting support to help you find and onboard top talent in new markets.

Based on what we’ve seen in the field, these benefits make Employer of Record services a smart, strategic choice for companies looking to expand internationally without the usual headaches of compliance risk and administrative overload

How to choose an EOR Partner?[toc=Choosing an EOR]

Choosing the right Employer of Record (EOR) partner is a big decision—one that can make or break your global expansion plans. Here’s what we recommend you look for when selecting an EOR partner:

Global Coverage and Local Expertise

Make sure your EOR has a strong presence in the countries you want to expand into. Their experience with local employment laws, tax regulations, and cultural nuances is crucial for smooth, compliant operations. We’ve found that country-specific expertise can make all the difference when navigating complex markets.

Comprehensive Service Scope and Flexibility

Look for an EOR that offers a full suite of services—payroll processing, benefits administration, HR support, takes on legal responsibilities and more. Flexibility is key: your EOR should be able to tailor solutions to your business’s unique needs as you grow and evolve.

Technology and Data Security

A user-friendly, robust technology platform can make managing your global workforce a breeze. Prioritize EORs that invest in secure, modern systems for payroll, onboarding, and data protection to keep your sensitive information safe and your operations efficient.

Transparent Cost Structure

Evaluate the EOR’s pricing model carefully. Transparency is essential—make sure you understand all fees and that the costs align with your budget and the value provided. We’ve observed that clear communication about pricing helps avoid surprises down the road.

Client Support and Responsiveness

Dedicated, responsive support is non-negotiable. Choose an EOR with a proven track record of client satisfaction, quick response times, and proactive issue resolution. Reliable support ensures your global operations run smoothly, even when challenges arise..

Reputation and References

Check for client testimonials, case studies, and industry recognition. A reputable EOR will be happy to share their success stories and demonstrate their commitment to client satisfaction.

What compliance issues should you consider when expanding internationally with an Employer of Record?[toc=Compliance Considerations]

Expanding your business into new markets is exciting, but it comes with a unique set of compliance challenges—even when you’re working with an Employer of Record (EOR). Over the years, we’ve helped American companies navigate these complexities, and we know that staying on top of international compliance is key to a smooth and successful expansion.

Here are some of the most important compliance considerations to keep in mind:

• Export Control Regulations: When sharing technology or sensitive information across borders, you must comply with export control laws relevant to your home country and the countries where you operate. These regulations are designed to protect national security and control the flow of certain data and technology.
• Data Privacy Laws: Handling employee data internationally means you’ll need to follow strict data protection rules, such as the EU’s GDPR or other local privacy laws. Ensuring robust data privacy practices is essential to avoid fines and protect your company’s reputation.
• Intellectual Property Protection: Working with global teams can expose your intellectual property to new risks. Establishing strong IP protection measures and clear agreements is crucial to safeguard your business assets.
• Anti-Corruption Laws: International operations must adhere to anti-corruption regulations like the Foreign Corrupt Practices Act (FCPA) and similar laws in other jurisdictions. These laws prohibit bribery and unethical business practices, so it’s important to have clear policies and training in place.
• Employment Contract Review: While your EOR partner will handle local compliance, it’s still wise to review employment contracts to ensure they align with your company’s internal policies and risk management standards.

These global compliance considerations aren’t just about avoiding penalties—they help protect your business, employees, and reputation as you grow internationally. Our experience shows that proactive compliance planning, regular contract reviews, and ongoing collaboration with your EOR partner are the best ways to manage compliance and set your business up for long-term success.

What are the tax implications for companies using an Employer of Record?[toc=Tax Implications]

If your business is expanding internationally and working with an Employer of Record (EOR), understanding the tax implications is crucial to ensure compliance and avoid costly penalties. Based on our experience supporting global companies, here’s what you need to keep in mind:

• Permanent Establishment Risk: While using an EOR typically doesn’t create a permanent establishment (PE), it’s important to monitor your activities carefully. Unintended PE status can lead to significant tax liabilities in the host country, so structuring your operations properly is key.
• Transfer Pricing Considerations: If your company engages in cross-border transactions with the EOR or your international workforce, you must ensure these transactions comply with transfer pricing regulations. Proper documentation and arm’s-length pricing are essential to avoid disputes with tax authorities.
• Foreign Tax Credits: Many global companies can benefit from foreign tax credits for taxes paid in other countries through the EOR arrangement. This helps prevent double taxation and can optimize your overall tax position.
• Withholding Tax Obligations: It’s important to understand your withholding tax responsibilities for payments made to foreign entities or individuals. This includes taxes on cross-border payments, contractor fees, and employee wages, which vary depending on the country’s tax laws.

EOR Services: What global companies should expect?[toc= What to Expect from EORs]

When you partner with an Employer of Record (EOR), especially as a US company expanding globally, you can expect a full suite of services designed to make your international growth smooth, compliant, and efficient. Drawing from our experience supporting American and other global businesses, here’s what you should look forward to with EOR services:

1. Compliant Recruitment Process: EOR handles all aspects of compliant hiring, from drafting employment contracts to managing onboarding procedures.
2. Global Payroll Management: EOR services ensure accurate and timely payroll processing across multiple countries, adhering to local tax and social security requirements.
3. Benefits Management: EOR designs and manages competitive benefits packages that comply with local regulations and attract top talent.
4. HR Support: American companies receive ongoing HR support for their international employees, including performance management and conflict resolution through an Employer of Record.
5. Termination and Offboarding: EOR manages compliant termination processes, ensuring adherence to local labor laws and minimizing legal risks.‍

Wisemonk: Your Trusted EOR Partner for Global Expansion[toc=Why Choose Wisemonk]

‍Wisemonk is the go-to Employer of Record (EOR) solution for global businesses seeking a reliable partner to manage their international workforce. While we specialize in providing tailored EOR services for businesses expanding into India, we also support clients with their global needs in countries like Spain, Germany, the United Kingdom, the United States and beyond.

Our end-to-end Employer of Record (EOR) services include:

• Recruitment services, from resume screening and conducting interviews to submitting the best candidates to clients ensuring you hire top talent.
• Payroll management for both full-time employees and contractors
• Benefits management tailored to meet the standards of local market
• Seamless employee onboarding and offboarding
• Assistance in setting up local offices and building offshore teams

With Wisemonk, you can navigate the complexities of labor laws, tax regulations, and cultural nuances in India and other key markets. Our deep local expertise ensures your global expansion is smooth, compliant, and cost-effective, whether you’re entering India or exploring opportunities in Spain, UAE, Germany, United States or elsewhere.

Contact Wisemonk today to expand your operations and tap into our expertise in international employment solutions. Let us help you hire, pay, and manage employees efficiently and compliantly, no matter where your business takes you.

FAQs

How much does an EOR typically cost?

EOR costs vary based on services provided, number of employees, and location. Pricing models include flat fees or percentage-based structures. While costs can be significant, they're often lower than establishing and maintaining a local entity.

Why should your organization consider an Employer of Record?

An Employer of Record (EOR) simplifies global expansion by handling employment responsibilities, ensuring compliance, and reducing administrative burdens. It allows companies to hire talent quickly without establishing legal entities in foreign countries, mitigating risks and costs associated with global employment.

Can you hire independent contractors through an Employer of Record?

Typically, EORs focus on employing full-time workers. While some EORs like Wisemonk may offer contractor management and payment services.

Can you employ international workers without an EOR?

Yes, but it's complex and risky. Options include setting up an entity, using a PEO, or hiring contractors. However, these methods can lead to compliance issues An EOR simplifies the process and ensures compliance.

Is it easier to open an entity in another country or use an Employer of Record (EOR)?

Using an EOR is generally easier and faster than opening an entity. EORs provide immediate market entry, handle compliance, and reduce administrative burdens. However, for long-term, large-scale operations, establishing an entity might be more cost-effective.

What is an EOR in payroll?

In payroll, an EOR acts as the employer, handling all aspects of payroll processing for international employees. This includes calculating and distributing salaries, managing tax withholdings, social security contributions, and other statutory deductions, as well as ensuring compliance with local payroll regulations.

How does an EOR differ from a PEO?

An EOR becomes the employer of workers, while a PEO works with co-employment model with the client company. EORs are typically used for international hiring without a local entity, while PEOs require the client to have a local presence.

What are the Pros and Cons of using an EOR?

Pros include quick market entry, reduced compliance risks, and simplified global hiring. Cons may include less control over some HR processes, and potential cultural disconnects.

Is an EOR the same as a PEO?

No, an EOR is not the same as a PEO. While both provide HR-related services, an EOR becomes the employer for international hires, whereas a PEO co-employs workers with the client company. EORs are used for international hiring without a local entity, while PEOs typically require the client to have a local presence.

What should I include in an Employer of Record agreement?

An EOR agreement should clearly define roles and responsibilities, including scope of services, pricing structure, and termination clauses. Include details on compliance management, data protection, IP rights, and dispute resolution. Specify communication protocols, reporting requirements, and any industry-specific needs.

What is an example of an EOR?

An EOR based in Spain, for example, can hire candidates locally on behalf of a company based in the United States. The employees would work locally in Spain for the company in the United States, with the legal responsibilities of employment lying with the EOR in Spain.

Is using an employer of record (EOR) legal?

Yes, using an EOR is legal in most countries. EORs comply with local employment laws and regulations. However, some countries have restrictions on EOR arrangements, so it's important to verify legality in specific locations.

What are the responsibilities of an employer of record (EOR)?

EOR responsibilities include legal employment, payroll processing, tax withholding and reporting, benefits administration, ensuring compliance with local labor laws, managing employment contracts, and handling HR-related tasks.

How does an employer of record ensure compliance with local  labor laws?

EORs maintain up-to-date knowledge of different employment laws, tax regulations, and labor practices. They handle all compliance-related tasks, including proper classification of workers, adherence to local labor standards, and accurate tax reporting.

Can an EOR help manage employment contracts for a company's remote workers?

Yes, EORs can manage employment contracts for remote workers, ensuring compliance with local laws in each worker's location. They handle contract creation, updates, and terminations in accordance with local regulations.

Does EOR have a platform and what features does it include?

Many EORs offer digital platforms for managing global workforces. Features often include employee onboarding tools, time and attendance tracking, payroll management, benefits administration, and reporting capabilities.