If you want to employ someone in a country where you have no legal entity, an Employer of Record is often the fastest compliant route. It is a genuinely useful model, and for one or two hires in a new market it is usually the right one. It is not designed to build a team. Understanding that distinction before you commit saves a great deal of money and rework later.
Employer of record: definition
An employer of record (EOR) is a third-party company that legally employs a worker on behalf of another business. The EOR holds the employment contract and handles payroll, tax withholding, statutory benefits and compliance in the worker's country, while the business that engaged it directs the day-to-day work. The EOR is the legal employer; you direct the day-to-day work.
An EOR is the right answer for one or two hires in a country where you have no entity, and a weaker fit for a function that has to hold together over years. The difference is not price. It is what happens after the contract is signed, and the sections below set out what an EOR does, how it is priced, and where its structure runs out of road, so you can choose between an EOR, an embedded offshore team and your own local entity on the facts.
In short: An Employer of Record is a company that legally employs someone on your behalf in a country where you have no entity, handling payroll, tax, benefits and statutory compliance while you direct the work. It is excellent for one or two remote hires in a new market. It is a poor fit for building a department, because fees are usually charged per head, workplace support depends on the contract, and the recruiting, managing and retention usually stay with you.
What is an Employer of Record?
An Employer of Record, usually shortened to EOR, is a company that formally employs workers on behalf of its clients, through its own local entity or a partner's in each country. It is worth asking which entity will be your worker's legal employer. The EOR, or its local partner, becomes the legal employer, while you keep operational control of the work, the priorities and the performance management. It exists so you can hire someone in a country where you have no subsidiary or branch, without going through the cost and delay of setting one up.
In practice this creates a triangular relationship. The EOR registers the employee with the local authorities, issues the employment contract from the local employing entity, its own or a partner's, and takes responsibility for payroll, tax withholding, social security, statutory benefits and employment filings. You direct the day-to-day work. The employee sits between the two, working wherever the contract sets out, but operating inside your systems and your team.
How does an employer of record work?
Where local law permits the structure, an EOR arrangement usually follows these six steps. The employing entity, registrations and split of responsibilities vary by country.
- You find the person and engage the EOR. You choose the hire, agree salary and start date, and sign a service agreement with an EOR that can employ in the worker's country, through its own entity or a partner's. Recruitment is not part of a standard employment-only package, so check whether it is offered.
- The EOR employs them under a local contract. It issues the contract from the local employing entity, its own or a partner's, registers the worker with the tax and social security authorities, completes right to work checks and applies statutory terms on hours, leave and notice.
- You direct the day-to-day work. The person works in your systems, on your priorities, reporting to your managers. Performance management is yours.
- The EOR runs payroll, tax, benefits and compliance. Each pay cycle it withholds income tax and employee contributions, pays employer contributions, administers pension and statutory benefits, and files the required returns.
- You pay the EOR a single invoice. It covers salary, employer on-costs and the EOR's fee, usually monthly in advance. You never pay the employee directly.
- Changes, IP and offboarding go through the EOR. You propose pay rises, role changes or termination; the EOR, as legal employer, assesses them against local law and carries out a lawful process. The agreement should assign intellectual property to you and cover any later transfer to your own entity or another provider.
Notice what is absent from the core service: recruiting, managing, developing and retaining the person. That is the boundary between an EOR and The Embedded Offshore Team Model described below.
One point of confusion worth clearing up: an EOR is not the same as a US-style Professional Employer Organisation. A PEO operates a co-employment structure under American law, sharing employer responsibilities with you. Under its contract, an EOR is the sole legal employer, though labour-supply rules in some countries can treat the client as sharing employer responsibilities, so check the position in each country. The terms are sometimes used loosely, and in a global context you may also see "Global Employment Organisation", but the distinction matters when you are reading contracts.
What does an EOR do, and what does it not do?
Most disappointment with the EOR model comes from expecting it to cover things it was never designed to cover. The split is clear once you see it laid out.
| An EOR does | An EOR does not |
|---|---|
| Act as the legal employer in-country | Recruit or source candidates, unless bought as an add-on |
| Run payroll, tax withholding and social security | Manage the person day to day, or set their work |
| Provide compliant employment contracts | Provide supervision on site (some providers arrange equipment or a desk for a fee) |
| Administer statutory and mandatory benefits | Organise people into a team, or create career paths and progression, as core service |
| Handle statutory filings and termination process | Own culture, engagement or retention |
| Give you speed and compliance without an entity | Reduce your management load as you scale headcount |
Read that right-hand column carefully if your actual problem is capacity. Unless you buy it as an add-on, everything in it stays on your desk.
How much does an Employer of Record cost?
EOR pricing is typically charged per employee per month. Published rates vary by provider, country, headcount and billing terms, and headline figures are often conditional on annual billing, so treat a published rate as a starting point rather than a quote. Some providers instead charge a percentage of salary. On top of the recurring fee you may encounter setup charges, security deposits and currency conversion costs, and these are worth pinning down in advance because they are where quoted comparisons tend to diverge from invoices.
The shape of the cost matters more than the headline number. EOR fees are usually charged per head, so they grow with the team, though larger clients can often negotiate volume terms. For two people the fee is a small part of the total. For fifteen it is a significant annual line item, and the core service still does not include management, an office or relief from recruitment and day-to-day management. The fee is priced for access to a country rather than for building a team.
Speed and regulatory assurance are real and worth paying for. They do not make the model the right answer to every staffing problem.
When is an EOR genuinely the right choice?
There are several situations where an EOR is clearly the right choice, and it would be dishonest to suggest otherwise.
Use an EOR when
You need one or two people in a country where you have no entity. You are testing a market before committing to it. You are hiring for a short or fixed-term engagement. You have found a specific individual you want to keep and they happen to live somewhere you do not operate. You need someone employed compliantly without waiting months to set up an entity. Or you want to avoid the cost, time and ongoing administration of establishing and later unwinding a local entity.
In all of those cases the EOR is solving the problem it was built for: legal access to a labour market, quickly, without a subsidiary. Judged on that, it does the job well.
Where does the EOR model run out of road?
The limits appear when you stop hiring individuals and start building capacity. Four in particular are worth understanding before you scale.
The cost curve. Per-head fees that are small at two people become material at ten or fifteen, and they continue for as long as each person is employed, alongside the ongoing payroll and compliance work they pay for.
Individuals, not teams. An EOR employs people one at a time. You can organise them into a department yourself, but team structure, shared knowledge, cover for leave and local leadership are yours to provide. Ten people hired through an EOR start as ten separate employment relationships.
Where they work. Workplace arrangements depend on the provider and contract, so check whether a shared office or on-site supervision is available. Home working is fine for a senior individual contributor and considerably harder for roles that benefit from supervision, collaboration, on-site security controls or the simple ability to learn by sitting near someone more experienced.
The work stays with you. In its core service the EOR does not recruit, manage, develop or retain your people; some providers sell recruitment as an add-on. As headcount grows, so does the load on your managers, and it is precisely the load that is hardest to absorb when you are already short of capacity.
How does an embedded offshore team differ?
An embedded offshore team model answers a different question. Rather than providing a legal employment wrapper around an individual you found, a partner recruits, employs and houses a dedicated team for you in an offshore hub, with local management, an embedded HR business partner, an office and structured career paths. You direct the work through your own systems and standards, and you own performance, technical direction and delivery. The partner runs recruitment, employment, the office, local HR and retention.
The commercial shape is different too. You pay the salary and employer costs plus a monthly service charge covering recruitment, the office, local management, HR and retention. Per head that charge is typically higher than an EOR's standard fee, because it covers more, so compare total cost against what each includes. Against hiring at home, the savings in our hubs are substantial. In our experience, labour cost savings typically run at 30 to 50 per cent against the UK in Cape Town and Johannesburg and 40 to 50 per cent against Western European rates in Iași. In São Paulo, operating costs for equivalent roles typically run 30 to 50 per cent below the UK, and in Bengaluru salaries often run 40 to 70 per cent below the UK, especially for mid-to-senior roles. More importantly, the things outside an EOR's core service, recruitment, local supervision, HR, the workplace and retention support, are included, and you keep direction of the work, performance and delivery. That combination is what turns a group of individuals into capacity you can rely on.
| Dimension | Employer of Record | Embedded offshore team |
|---|---|---|
| Best for | One or two hires, new market, short engagements | Sustained capacity, whole functions, ongoing delivery |
| Cost shape | Salary and employer costs, plus a fee per employee per month or a percentage of salary; volume terms vary | Salary and employer costs, plus a monthly service charge covering office, management, HR and recruitment |
| Recruitment | Yours, unless bought as an add-on | Handled by the partner, you make final decisions |
| Working environment | Depends on provider and contract | Office-based with local management |
| Retention and culture | Usually yours to own | Shared, with HR support and career paths |
| Speed to first hire | Depends on country and provider for a candidate you have already found; ask for a confirmed timetable | Longer to build, then scales cleanly |
Building a team rather than making a hire?
If you need one person in a new country, an EOR is probably your answer. If you need a function, see how we build embedded offshore teams across five hubs in four countries.
Explore Our SolutionsWhich model should you choose?
Treat the headcounts below as a rule of thumb. Planned headcount, how much the people depend on each other and how long the function will last decide it.
If neither model fits because you would rather hand over the process itself than employ the people, the comparison you want is BPO versus an embedded offshore team.
| Your situation | Best model | Why |
|---|---|---|
| 1 to 3 people who will stay a small, independent group, country with no entity, speed matters | EOR | Compliant employment without setting up an entity; confirm the timetable for the country with the provider |
| Testing a market before committing | EOR | Reversible, no entity to unwind afterwards |
| Building a function of four or more, ongoing | Embedded offshore team | Team structure, management and retention included |
| Roles needing supervision, security controls or an office | Embedded offshore team | Office-based with local leadership on site |
| Large, permanent presence, long-term commitment to a country | Your own entity | Lowest marginal cost once scale justifies the overhead |
Employer of record in the UK: what is different
"Employer of record in the UK" means one of two things: an overseas business using an EOR to employ someone based in the UK because it has no UK entity, or a UK business using an EOR to employ someone abroad, the focus of most of this guide. In the first case, PAYE has a territorial limit: HMRC can only require an employer with a sufficient UK presence to operate it. A foreign company with no UK entity can register to operate PAYE voluntarily, but many use an EOR with its own UK PAYE scheme instead, because the EOR also takes on the employment contract and compliance. The points below apply to UK-based employment, the first case. For someone employed abroad, the employment, payroll and social security rules of their own country apply instead, and any continuing UK obligations need checking separately.
In a UK context, the EOR operates as the PAYE employer. It handles income tax and National Insurance, and ensures compliance with UK employment law including the statutory minimum of 5.6 weeks paid annual leave, working time rules and pension auto-enrolment. There is no EOR-specific licence in the UK, but depending on how it operates a provider may fall under the Conduct of Employment Agencies and Employment Businesses Regulations 2003 or sector-specific rules, so ask how any provider is structured and take advice if the answer is unclear.
Employer National Insurance. Since 6 April 2025 employer Class 1 National Insurance has been 15 per cent on earnings above a secondary threshold of £5,000 a year (£96 a week), down from £9,100, unchanged for 2026 to 2027. It is the largest on-cost on a UK salary and passes straight through to the EOR's invoice; ask for quotes that show it separately.
Pension auto-enrolment. The employer must enrol any worker aged 22 to State Pension age who earns at least £10,000 a year and ordinarily works in the UK, contributing at least 3 per cent of qualifying earnings (£6,240 to £50,270 in 2026 to 2027) towards a minimum total of 8 per cent. The EOR runs this through its own scheme.
Right to work checks. Right to work must be checked before employment starts. The civil penalty is up to £45,000 per worker for a first breach and £60,000 for a repeat breach within three years. The EOR performs the check, but if you source the candidate, do not treat it as a formality.
Statutory rights are mid-change, and not every change is UK-wide. From 6 April 2026, statutory sick pay is payable from the first day of sickness absence, across the UK including Northern Ireland. In Great Britain, meaning England, Scotland and Wales, the Employment Rights Act 2025 also cuts the qualifying period for ordinary unfair dismissal from two years to six months from 1 January 2027. Employment law is devolved in Northern Ireland, where that qualifying period remains one year, so check the position separately for a Belfast hire. Ask any EOR how it keeps contracts current.
The employer of record agreement and tax implications
The arrangement rests on two contracts. The first is a service agreement between you and the EOR, covering onboarding, payroll, statutory filings, insurance, benefits administration, termination support, liabilities and indemnities, data protection and what happens if you later set up your own entity or change provider. The second is the employment contract between the EOR and the worker, which must satisfy local employment law on notice, working hours, holiday, sick leave, benefits and grounds for termination.
The agreement itself, often called a master services or client agreement, should answer five questions.
| Clause | What to look for |
|---|---|
| Employment terms | Salary, benefits, probation, and who decides changes. You set them; the EOR implements them within local law. |
| Fees and pass-through costs | Fee basis, deposits, currency conversion, and whether VAT applies to the fee or the whole invoice. |
| Liability and indemnities | Who carries employment claims and penalties, any cap on EOR liability, and what you indemnify in return. |
| Intellectual property | Assignment from employee to EOR, and from EOR to you. |
| Termination, exit and transfer | Notice on both sides, who bears severance costs, and how the person moves to your own entity or another provider. |
The tax structure is simple to describe and worth having your adviser confirm. For UK-based employment, the EOR is the employer for PAYE and National Insurance, operating the payroll scheme, filing returns and paying employer contributions. For someone employed abroad, it runs the equivalent local payroll and social security instead. You pay a service fee to a company, not wages to an individual.
Two points deserve attention. First, permanent establishment. A non-UK company has one if it carries on business through a fixed place of business here, or through a dependent agent. That agent test was widened for chargeable periods beginning on or after 1 January 2026: it now also catches someone who habitually plays the principal role leading to contracts that the company then routinely concludes without material modification. Withholding formal signing authority does not by itself remove the risk. Using an EOR does not by itself decide whether there is a permanent establishment; what matters is what the person actually does, and any double tax treaty between the UK and the company's home state may modify the position. This one is worth confirming with your tax adviser against your specific arrangement. Second, umbrella company rules. From 6 April 2026, where a worker is supplied through an umbrella company, the agency that contracts with the end client is usually jointly and severally liable with the umbrella for PAYE, and the end client can be liable instead where there is no agency, or where the agency is overseas or connected to the umbrella. Check the actual contractual chain. A UK EOR is structurally similar, so ask any provider whether these rules apply to its arrangement. This is a description of the structure, not tax advice.
What UK compliance issues should you check?
Whichever model you choose, four areas deserve attention, and none of them are reasons to avoid international hiring. They are simply things to design properly rather than discover later.
Permanent establishment. Employing people in a country can, in some circumstances, create a taxable presence there. The risk depends on what those people do, particularly whether they conclude contracts or generate revenue locally. The UK has been reforming its rules on transfer pricing, permanent establishment and Diverted Profits Tax, so this is worth a conversation with your tax adviser rather than an assumption.
Misclassification and off-payroll rules. Engaging someone as a contractor when the working relationship looks like employment creates exposure, and there are two separate questions behind it. Employment status decides whether someone you engage directly is in law self-employed, a worker or an employee, with the rights and payroll consequences that follow. The off-payroll working rules, commonly called IR35, apply to something narrower: services supplied through the worker's own intermediary, typically a personal service company. Equivalent tests exist in most jurisdictions. Genuine employment by an EOR, or by us, ordinarily takes the off-payroll rules out of the picture, because there is no intermediary. Employment status and the employer's liabilities still depend on the facts, so check the arrangement in each country.
Data protection. If your offshore team handles personal data subject to UK GDPR, and the team is employed by a separate legal entity outside the UK, as it is under both an EOR and our model, giving it access is a restricted transfer and the international transfer rules need to be satisfied. Note also that the Data (Use and Access) Act 2025 requires controllers, employers included, to have a process for handling data protection complaints from 19 June 2026 and to tell people about that right, including in privacy notices.
Intellectual property. Do not assume IP created by someone employed through a third party automatically vests in you. It depends on the assignment clauses in both the service agreement and the employment contract. Check the chain explicitly, particularly for engineering, design and data work.
Where we fit
Local employment included, not sold on its own
We do not sell a standalone Employer of Record service, and we are not a recruiter or a platform. Local legal employment is one component of what we provide: we design, build and run embedded offshore teams across five hubs in four countries: South Africa, Romania, India and Brazil, with offices, local management, an embedded HR business partner and structured onboarding. Our founders scaled an energy procurement business to more than 300 employees, around 60 per cent of them offshore, before its acquisition by Accenture in 2015. If you need one compliant hire in a new country, an EOR will serve you better and we will say so. If you need a function built and run, that is what we do. You can read more about our story, or compare the other routes in our guide to recruitment agencies, staffing firms and embedded offshore teams.
Frequently asked questions
What is an Employer of Record in simple terms?
An Employer of Record is a company that legally employs someone on your behalf in a country where you have no legal entity. It handles the employment contract, payroll, tax, social security and statutory benefits, while you direct the person's work day to day. It exists so you can hire internationally without setting up a subsidiary.
What does employer of record mean?
Employer of record means the organisation legally recorded as a worker's employer with the tax and employment authorities, carrying the employer's legal obligations, even though the worker does their day-to-day job for another business. In international hiring it has come to mean a service: a provider with local entities or partners that employs people on your behalf where you have none and runs their payroll and compliance for a fee.
How much does an Employer of Record cost?
Most providers charge a fee per employee per month, and some charge a percentage of salary instead. Published rates vary by provider, country, headcount and billing terms, and headline figures are often conditional on annual billing, so get a written quote. Check for setup fees, deposits and currency conversion charges as well. The key point is that the fee is usually per head and recurring, so it grows as you add people unless you negotiate volume terms.
What is the difference between an EOR and a PEO?
Under its contract, an EOR becomes the sole legal employer of the worker, subject to local labour-supply rules that in some countries share responsibilities with the client. A US-style PEO operates a co-employment model under American law, sharing employer responsibilities with your business. The terms are often used loosely in global contexts, so it is worth confirming which structure a provider is actually offering before you sign.
How does an employer of record work in the UK?
A UK EOR employs the worker through a UK employing entity and becomes the PAYE employer: it runs payroll, deducts income tax and employee National Insurance, pays employer National Insurance at 15 per cent above the £5,000 secondary threshold, enrols eligible staff in a workplace pension with an employer contribution of at least 3 per cent of qualifying earnings, and completes right to work checks. You direct the work and pay one monthly invoice covering salary, employer costs and the fee.
What is the difference between an EOR and an embedded offshore team?
An EOR is an employment solution; an embedded offshore team is a capacity solution. The EOR takes on the legal employment of a person you have already found, and its core service stops there: you usually still recruit, manage, motivate and retain them. An embedded offshore team is built for you by a partner who recruits the people, employs them, houses them in an office with local management and HR, and supports their careers, while you direct the work through your own systems and standards. Put simply, an EOR gives you a compliant way to employ one individual in a new country, whereas an embedded team gives you a functioning department. The cost structures differ too. Both pass through salary and employer costs; on top, an EOR usually charges a fee per employee per month, while an embedded team adds a monthly service charge that covers the office, management, HR and recruitment.
Does an Employer of Record recruit staff for me?
Not as part of a standard employment-only package, which begins once you have found the person. Some providers offer recruitment as a paid add-on, so compare actual packages; without it, sourcing, interviewing and selection are yours, as is managing the person once they start. If you need candidates found as well as employed, check exactly what is included.
Is an EOR cost-effective for a larger team?
It depends on the quotes and on what the team needs. Because the fee is usually charged per employee per month and does not normally include recruitment, management, offices or retention, a team of ten or more carries a substantial recurring fee while leaving the operational workload with you. At that scale it is worth pricing an embedded offshore team or your own entity against it, on total cost and on what each includes.
Do I keep the intellectual property created by an EOR employee?
Only if the contracts are structured to deliver it. IP assignment needs to run through both the employment contract between the EOR and the worker, and the service agreement between the EOR and you. Do not assume it is automatic. Ask to see the assignment clauses, especially for technical, creative or data work.
Paying per head and still doing the managing?
If per-head fees are mounting and you still carry all the recruiting and managing, it may be time for a different structure. Talk to us about building an embedded offshore team with the control of an in-house function.
Book a Discovery CallSources: HMRC, employer NIC thresholds 2026 to 2027; GOV.UK, workplace pensions; DWP, auto-enrolment thresholds 2026 to 2027; GOV.UK, illegal working penalties; GOV.UK, Employment Rights Act reforms 2026; GOV.UK, unfair dismissal changes; HMRC, globally mobile employees and PAYE; Corporation Tax Act 2010, s.1141; HMRC, umbrella company PAYE rules 2026; HM Government, reform of transfer pricing, permanent establishment and Diverted Profits Tax; Data (Use and Access) Act 2025, employer obligations; IR35 and off-payroll working guide; Custom Market Insights, global EOR market 2026-2035; Multiplier, Employer of Record pricing.
