According to Atlas, 61% of US and 71% of UK companies see international hiring as a key driver of growth — yet only 40% are confident they can comply with the legal requirements. Mistakes when hiring foreign employees can be costly, from tax penalties to a complete ban on operations in a particular country.
One solution for businesses is to use an employer of record (EOR). In this guide, we’ll describe how an EOR works, its advantages and disadvantages, and alternatives like CORs, PEOs, and AORs. Ready to dive into the alphabet soup.
An EOR is an intermediary that officially hires employees on behalf of a client company. It performs legal and administrative tasks such as:
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The EOR market is projected to grow from $5.8 billion in 2024 to $12 billion by 2030. Companies often obtain services through EOR software (specialized platforms or services) — a segment worth $5.23 billion in 2024 and projected to reach $9.17 billion by 2033.
GitLab has over 2,300 employees in more than 60 countries. In many of them, it uses EORs to avoid the hassle of registering legal entities around the world.
If a business fails to consider local laws and market specifics, it can lead to significant losses. This happened to Uber Eats, Glovo, Just Eat, and Deliveroo. In Italy, they were fined €733 million (£628 million) for misclassifying 60,000 couriers.
Companies can choose between three basic EOR models: direct, indirect, and hybrid.
How it works
The EOR establishes a local legal entity in each country of operation and employs employees through it directly.
Pros
Cons
Who can benefit from this model
Large companies that plan to hire many employees in a new country and want full control over work processes.
How it works
In this model, rather than being registered in the country of operation, the EOR works through local partners. Those become the official employers, drawing up contracts, paying taxes and salaries, and providing services on behalf of the EOR. The EOR just coordinates the process and passes information to the client.
Pros:
Cons:
Who can benefit from this model
Companies for which speed is of the essence, especially if budgets are limited and operations need to be launched in multiple countries.
How it works
This model uses the direct model in key countries and the affiliate model in others.
Pros:
Cons:
Who can benefit from this model
Companies with varying needs in different markets and the administrative capacity to handle complexity.
There are three main types of contract involved in working with an EOR. Each governs a different aspect of the relationship linking the employee, the EOR, and the client company.
This is between the EOR and the employee and is governed by local labor laws. It defines the key terms of employment:
The client company is not a party to this agreement, but it defines the employee’s tasks and requirements.
This regulates the relationship between the EOR and the client company. It specifies:
Sometimes additional agreements are concluded to protect the client company's interests.
While using an employer of record has many advantages, it’s not always the best choice. Let's take a look at some alternatives.
A contractor of record helps companies with the legal aspects of working with freelancers and independent contractors. It doesn’t employ anyone on behalf of the client but protects the latter from the risks involved in hiring abroad, such as misclassifying workers. CORs cost less than EORs and provide more flexibility.
Employer of Record vs. Contractor of Record
Who can benefit from a COR
Example
A US company wants to hire developers from Germany on a contract basis. Germany has strict employee classification rules, and if contractors work for only one client, they can be reclassified as full-time employees. A contractor of record helps the company register workers as independent professionals and reduces legal risks.
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A professional employer organization provides HR and administrative support to companies within the same country.
PEO vs. EOR
Who can benefit from a PEO
Example
A French retail company has opened a branch in Brazil but doesn't want to deal with local taxes and labor laws on its own. It hires a PEO to take care of payroll and paperwork.
An agent of record (AOR) helps companies manage contract compliance. It isn’t the official employer and doesn’t administer employees.
AOR vs. EOR
Who can benefit from an AOR
Example
A US marketing startup hires contractors in Spain, South Korea, and Canada for temporary projects. It uses an AORs to make sure contracts are handled correctly.
A company’s choice of EOR, PEO, COR, or AOR depends on its business objectives, hiring structure, and budget. An EOR is the best option if you need to hire a foreign full-time employee quickly, a PEO is appropriate for companies with existing branches, and a COR gives you the flexibility to work with freelancers, while an AOR provides minimal legal support for contracts.
If your company works with freelancers and independent contractors, explore the COR and contractor management platform Mellow.
“Mellow's most significant advantages are fast onboarding, quality support at all stages, and a user-friendly interface. Cryptocurrency is set to continue rising in popularity as a preferred payment method, and here are five reasons why”.
Who’s considered the employee’s official employer?
An employee works for a client company but is technically employed by the EOR. This means their employment contract is with the EOR, and all payments go through it. If legal issues arise (e.g. dismissal), the EOR is responsible.
It’s easy to manage freelancers and contractors with the world’s premier COR service, Mellow. Sign just one contract and start hiring professionals in 100+ countries. Mellow will handle legal issues, international compliance, and payments for a minimal fee so you can focus on the work at hand.