A business can hire someone in another country without having an office there, but that does not mean it can employ them without following local rules. Someone still has to handle the contract, payroll, taxes, statutory benefits and employment requirements that come with putting a person on the company’s payroll.
An Employer of Record (EOR) is the company that takes on that legal employment role. It officially employs the worker in their country while the client business directs their everyday work, from their responsibilities to their working hours and performance.
The arrangement has become useful as companies build international teams without establishing a legal entity in every country where they hire. This article breaks down how EORs work, why businesses use them, what they handle, what they cost and where the model may not be the right fit. It also explains how EOR hiring compares with using contractors or setting up a local entity.
What does an Employer of Record do?
An Employer of Record is the legal employer of a worker, even though another company is responsible for the person's actual job. Think of a software company hiring a developer who lives in another country. The developer works for the software company, but the EOR officially employs them in that country.
This means the EOR takes responsibility for the employment obligations that the hiring company would normally have to manage itself. Depending on the country and arrangement, this can include:
- Preparing and signing the employment contract
- Running payroll and withholding required taxes
- Providing statutory benefits
- Managing employment records
- Following local employment and labour regulations
The hiring company still controls the important parts of the job. It decides what the employee works on, manages performance and remains involved in the working relationship.
The core idea is therefore simple: the EOR provides the legal employment structure, while the client company provides the work. This allows international hiring without requiring the client to become the worker's direct legal employer.
Also read: Receiving foreign income as a solo founder
What does an EOR do?
The easiest way to understand an EOR is to look at everything that has to happen after an international hire accepts a job. The employee needs a valid contract, regular pay, the right tax deductions and whatever benefits local law requires.
Payroll: The EOR calculates the employee’s salary, deductions and other required payments, then makes sure they are paid correctly and on time.
- Tax: It handles applicable payroll taxes and statutory deductions, helping the business meet its obligations in the employee’s country.
- Benefits: Where required, the EOR can arrange statutory benefits such as social security, pension contributions, leave and other employee entitlements.
- Contracts: The EOR prepares an employment agreement that reflects the relevant country’s employment rules, rather than simply using a contract designed for another market.
- Local compliance: Employment laws can cover everything from working hours and leave to termination procedures and required records. The EOR helps ensure the employment arrangement follows these local requirements.
The business still manages the employee’s everyday work. The EOR handles the legal and administrative side that sits behind the employment relationship.
Also read: Can non-residents open a US bank account online in 2026?
EOR or your own entity: what changes for your business?
An EOR and your own foreign company can both help you hire internationally, but the experience is very different. One gives you an existing employment structure; the other means building and maintaining your own.
EOR: faster, simpler setup
An EOR already has the local employment structure in place. That means a business can hire an overseas employee without first incorporating a company in that country.
- Speed: Faster because the local employment infrastructure already exists.
- Cost: You pay the EOR for its service rather than absorbing the full cost of establishing and running an entity.
- Risk: The EOR handles much of the local employment administration and compliance.
- Control: Less control over the legal employment structure because the EOR is the formal employer.
Your own entity: more control, more responsibility
Creating a foreign entity gives the business its own legal presence in the country. It can make sense when international operations are expected to become a permanent part of the business.
- Speed: Slower because incorporation, registration and local setup come first.
- Cost: Higher upfront and ongoing costs for accounting, payroll, tax and administration.
- Risk: More responsibility sits directly with the business.
- Control: Greater control over employees, operations and the local business structure.
For a single hire or an early international expansion, an EOR can remove a lot of unnecessary setup. A company planning a substantial, long-term operation may eventually find its own entity more practical.
How much does an EOR cost?
The price of using an Employer of Record can vary widely, so the monthly fee is only one part of the calculation. Most providers use one of two pricing models: a fixed fee for each employee or a percentage of their salary.
A flat monthly fee
Some EOR providers charge a set amount for each employee they employ on your behalf. A typical range is around $200 to $1,000 per employee each month. This can make budgeting easier because the EOR fee stays relatively predictable, regardless of the employee’s salary.
A percentage of salary
Other providers calculate their fee based on the employee’s gross salary. Rates commonly fall between 3% and 10%. For example, an employee earning $5,000 a month could generate an EOR service fee of $150 to $500, depending on the provider's rate.
What affects the final price?
The headline fee does not always tell the whole story. Location, employee benefits, payroll requirements and the complexity of the employment arrangement can all affect what a business ultimately pays.
Before choosing an EOR, check whether the quoted price includes payroll, benefits administration, compliance support and other required services. A lower monthly fee is not necessarily cheaper once additional charges are included.
When does an EOR make sense for your business?
An EOR is not automatically the best answer every time a business wants to hire abroad. The right option depends on how long the person will work with the company, where they are based and how much of a local presence the business wants to build.
An EOR can be a good fit when:
- You want to hire an employee in a country where your business does not have a legal entity.
- You need someone to start quickly without waiting for your company to be incorporated locally.
- You are entering a new market and want to test it before committing to a permanent local operation.
- You want the employee to receive local payroll, benefits and employment protections while the EOR handles the formal employment requirements.
A contractor may make more sense when:
The person is genuinely self-employed, works independently and is responsible for their own taxes and business obligations. Contractors can offer more flexibility, but incorrectly classifying an employee as a contractor can create legal and tax problems.
A PEO may be worth considering when:
The business already has a legal entity in the country but wants help managing HR, payroll and employee administration. Unlike an EOR, a PEO arrangement does not normally become the legal employer.
How do you pay an international team with an EOR?
Hiring through an EOR solves the employment side of working across borders, but the business still needs a reliable way to fund payroll. The EOR usually calculates salaries, taxes and other deductions in the employee’s local currency, then pays the employee according to local requirements.
That means the business first sends the money needed for payroll to the EOR. If the company operates in the US but its employees are spread across Africa, Europe or Asia, this can involve moving money across currencies and banking systems before salaries reach employees.
Grey can help with the payment side by providing supported currency accounts for sending international funds. A business can use these accounts to organise money before sending it where it is needed, rather than relying entirely on traditional international transfers
Frequently asked questions
What does EOR stand for?
EOR stands for Employer of Record. It is a company that legally employs a worker for another business in a particular country. The EOR handles employment responsibilities such as payroll, taxes, benefits and local compliance, while the client business manages the employee’s actual work and responsibilities.
What is the difference between an EOR and a PEO?
The main difference is who legally employs the worker. With an EOR, the EOR becomes the legal employer while your business manages the employee’s day-to-day work. A PEO usually works alongside your existing company, meaning your business remains the legal employer. PEOs, therefore, generally require a local entity.
How much does an EOR cost?
EOR pricing varies by provider and country. Many charge a fixed monthly amount per employee, while others take a percentage of the employee’s gross salary. A typical range is around $200 to $1,000 per employee monthly, or roughly 3% to 10% of salary, before additional costs.
Is an EOR the same as a staffing agency?
No. A staffing agency typically helps find and place workers, while an EOR provides the legal employment structure after someone has been hired. The distinction matters because an EOR does not usually recruit the employee or decide what work they perform; it manages formal employment obligations.
When should I use an EOR?
An EOR can make sense when a business wants to hire an employee abroad but does not have a legal entity in that country. It is particularly useful for testing a new market, making a first international hire or building a small overseas team without setting up a company.
How do I pay international contractors?
Contractors are usually paid directly rather than through an EOR, but international transfers can involve currency conversion, bank fees and delays. Grey can help eligible businesses manage supported currencies and send money to supported destinations, making it easier to pay overseas contractors from a central account.
.svg){kind=small}
