Employer of Record explained

What Is an Employer of Record (EOR)? The Complete Guide

If you have been looking into hiring employees in another country, you have probably come across the term "Employer of Record." It is one of those phrases that gets used a lot in the world of global hiring, but it is not always explained clearly.

An Employer of Record, or EOR, is a third-party organisation that becomes the legal employer of your workers in a country where you do not have your own entity. The EOR handles payroll, tax, benefits, and compliance with local employment law. Your company retains control over the employee's day-to-day work, their projects, and their performance.

It is a model that has been around since the 1960s, originally used in the United States to help companies employ people across state lines without setting up entities in every state. Today, it is used by businesses of all sizes to hire talent anywhere in the world.

This guide explains how an EOR works, when you might need one, and how it compares to other options like setting up a legal entity or engaging contractors.

What is an Employer of Record?

An Employer of Record is a company that legally employs workers on your behalf. It is listed as the employer on paper, which means it takes on the legal responsibilities of employment: issuing contracts, running payroll, deducting tax, enrolling employees in pension schemes, and ensuring compliance with local labour laws.

Your company, meanwhile, manages the employee's work. You decide what they do, how their performance is measured, and what projects they work on. The EOR does not get involved in the day-to-day management of the employee's role.

Think of it this way: the EOR is the legal employer, and your company is the managing employer. The employee works for you, but the EOR is the one that HMRC (or the equivalent tax authority in another country) sees as the employer.

How does an Employer of Record work?

The EOR model works through a three-party relationship.

The EOR is the legal employer. It issues the employment contract, operates payroll, deducts tax and National Insurance, enrolls the employee in a pension scheme, and ensures compliance with local employment law.

Your company is the managing employer. You recruit the employee, agree on their role and salary, manage their day-to-day work, and handle their performance reviews.

The employee works for your company in practice, but their legal employer is the EOR. They receive their payslip from the EOR, their pension contributions are made by the EOR, and their employment contract is with the EOR.

The process of hiring through an EOR typically follows four steps:

1. You find the candidate. You source, interview, and select the person you want to hire.
2. The EOR issues the contract. The EOR creates a locally compliant employment contract that meets all the requirements of the relevant employment legislation.
3. The EOR handles onboarding. This includes right-to-work checks, payroll registration, pension enrolment, and any other local requirements.
4. The employee starts working for you. You manage their work, and the EOR handles the administrative and compliance side.

What does an Employer of Record do?

The specific services vary by provider, but a good EOR will handle the following:

Employment contracts: The EOR creates contracts that comply with local employment law. In the UK, this means meeting the requirements of the Employment Rights Act 1996, including the principal statement that must be provided on or before the first day of work.

Payroll and tax: The EOR operates PAYE, deducts income tax and National Insurance from the employee's wages, and pays employer National Insurance contributions. It submits all required returns to HMRC through the Real Time Information (RTI) system.

Statutory benefits: The EOR ensures the employee receives all statutory entitlements, including annual leave (5.6 weeks per year), statutory sick pay, statutory maternity/paternity pay, and pension auto-enrolment.

Compliance and legal: The EOR stays up to date with changes in employment law and ensures the employment relationship remains compliant. This includes right-to-work checks, health and safety obligations, and data protection requirements.

Onboarding and offboarding: The EOR manages the administrative side of starting and ending employment, including issuing offer letters, conducting inductions, and handling notice periods and redundancy where applicable.

EOR vs PEO: what is the difference?

The terms EOR and PEO (Professional Employer Organisation) are sometimes used interchangeably, but they are not the same thing.

An Employer of Record is the sole legal employer of the worker. It takes on full responsibility for compliance, tax filings, and benefits. You do not need a local entity to use an EOR.

A PEO enters into a co-employment arrangement with your company. Both the PEO and your company are considered employers, and responsibilities are shared. In most cases, you need a local entity to use a PEO.

The practical differences are significant:

For companies hiring internationally without a local entity, an EOR is almost always the right choice. A PEO makes sense when you already have a local entity and want to outsource HR and payroll functions.

There is also a third option worth mentioning: an Agent of Record (AOR). An AOR manages contractors on your behalf, handling invoicing, payments, and compliance. Unlike an EOR, an AOR does not employ the workers. They remain self-employed. An AOR is useful if you are engaging contractors rather than employees, but it does not provide the same level of compliance protection as an EOR.

EOR vs setting up a legal entity

Setting up a legal entity in the UK means registering a company with Companies House, opening a UK bank account, registering for PAYE and National Insurance with HMRC, and taking on all the obligations of a UK employer.

The process takes four to eight weeks and costs between £1,000 and £5,000 in legal and registration fees. Once set up, you have ongoing obligations including annual accounts, corporation tax returns, payroll, and compliance with UK employment law.

An EOR, by contrast, can have someone employed within days. There are no upfront setup costs, and the ongoing cost is a predictable monthly fee per employee.

The decision comes down to scale. If you are hiring 15 or more employees in the UK and need a permanent presence, setting up an entity may be more cost-effective in the long run. For smaller teams, or for companies testing the UK market before committing, an EOR is usually the better option.

EOR vs independent contractors

Engaging a contractor in the UK means you are not employing them at all. They are self-employed, invoice you for their work, and handle their own tax and National Insurance.

This sounds simpler, but it carries significant risk. The UK has strict rules about employment status, and if HMRC determines that your contractor is actually working as an employee, you could face backdated tax, National Insurance contributions, interest, and penalties.

The IR35 rules are particularly relevant. Since April 2021, medium and large businesses have been responsible for determining the employment status of their contractors. If the contractor is deemed to be inside IR35, the business must deduct PAYE and National Insurance as if they were an employee.

An EOR eliminates this risk by employing the person as a full UK employee from day one. There is no ambiguity about employment status, and no risk of a HMRC investigation.

When should you use an EOR?

An EOR makes sense in several scenarios:

Hiring in a country where you have no entity. This is the most common use case. If you want to employ someone in the UK but do not have a UK company, an EOR is the fastest and simplest way to do it.

Testing a new market. If you are not sure whether the UK market is right for your business, an EOR lets you hire a small team without the commitment and cost of setting up a subsidiary.

Hiring a small team. For teams of one to 15 employees, the setup and ongoing costs of a legal entity are usually disproportionate. An EOR provides a more cost-effective solution.

Avoiding permanent establishment risk. If your UK activities could trigger a permanent establishment for tax purposes, employing through an EOR can help manage that risk.

Converting contractors to employees. If you have been using contractors in the UK and want to move them onto proper employment contracts (to comply with IR35, for example), an EOR can handle the transition. The EOR issues a new employment contract, sets up payroll, and ensures the employee receives all statutory entitlements from day one.

Hiring specialised talent. Sometimes the best person for a role lives in a different country. An EOR lets you hire them without asking them to relocate or set up their own company. This is particularly useful for technical roles where the talent pool is global.

How much does an EOR cost?

EOR pricing varies by provider, but the most common models are:

Per-employee monthly fee: A fixed fee per employee per month, typically ranging from £300 to £700 in the UK. This usually covers payroll, tax, benefits, and compliance.

Percentage of salary: Some providers charge a percentage of the employee's gross salary, typically between 5% and 15%. This model can be more expensive for higher-paid employees.

What is usually included: Employment contract, PAYE and National Insurance, pension auto-enrolment, statutory benefits, payroll reporting, and basic compliance support.

What may cost extra: Benefits administration (private health insurance, life insurance), visa sponsorship, relocation support, and dedicated account management.

When comparing EOR providers, it is worth looking beyond the headline fee. Some providers advertise low prices but charge extra for services that others include as standard.

Risks of using an EOR

An EOR is not the right solution for every situation, and there are some risks to be aware of.

Loss of direct control. Because the EOR is the legal employer, there are some aspects of the employment relationship that you cannot control directly. The EOR issues the contract, and any changes to the terms must go through them.

Dependency on a third party. Your employees' payroll, tax, and compliance are in the hands of the EOR. If the EOR makes a mistake, it can affect your employees and your business.

Hidden fees. Some EOR providers advertise low base fees but charge extra for services that you might expect to be included, such as benefits administration or compliance updates.

Data security. The EOR will have access to sensitive employee data, including salary information, bank details, and personal identifiers. It is important to understand how that data is stored and protected.

The best way to mitigate these risks is to choose an EOR provider with a strong track record, transparent pricing, and a dedicated account manager who understands your business.

It is also worth considering what happens if you want to stop using the EOR. If you decide to set up your own entity and transfer employees, the process is governed by TUPE (Transfer of Undertakings Protection of Employment) regulations in the UK. These regulations protect the employees' terms and conditions during the transfer, so you cannot use the transition as an opportunity to reduce pay or benefits. A good EOR provider will support you through this process and ensure a smooth handover.

How to choose an EOR provider

When evaluating EOR providers, consider the following:

UK expertise. Does the provider have a UK entity, or does it partner with a third party? A provider with its own UK entity has more control over the employment relationship and can respond more quickly to issues.

Compliance knowledge. Does the provider have CIPD-qualified staff who understand UK employment law? The UK regulatory landscape is complex, and it changes frequently (the Employment Rights Act 2025 is a good example).

Pricing transparency. Are all costs clearly stated upfront, or are there hidden fees for services like benefits administration, payroll changes, or compliance updates?

Support model. Will you have a dedicated account manager, or will you be dealing with a different person every time you call? A dedicated manager who understands your business can resolve issues more quickly.

Technology. Does the provider have a platform that lets you manage employee information, view payslips, and track onboarding progress? Or is everything handled through email and phone calls? A good platform gives you visibility over your UK employment operation without requiring you to become a UK payroll expert.

Country coverage. If you plan to hire in multiple countries, it is worth choosing an EOR provider that covers all the markets you are interested in. Switching providers mid-expansion is disruptive and time-consuming.

Contract flexibility. Some EOR providers lock you into long-term contracts with early termination fees. Others offer month-to-month arrangements. If you are testing the UK market, flexibility matters.