On this page (11 sections)
The short definition
An Employer of Record (EOR) is a company that becomes the legal employer of a worker on behalf of another business. The client business chooses the person, sets their work and manages their performance. The EOR signs the employment contract, pays the wages, withholds tax, makes retirement or social security contributions and takes on the legal obligations of an employer in that country.
The result is that a business can have a fully compliant employee in a country where it has no registered company, no local bank account and no payroll set-up. Instead, it signs one service agreement with the EOR and receives a monthly invoice covering salary, statutory on-costs and the EOR's fee.
EORs are used in both directions. An American software company might use an EOR to hire its first salesperson in Sydney. An Australian manufacturer might use one to employ an engineer in Singapore or a customer support team in the Philippines.
How the three-party model works
Every EOR arrangement involves three relationships:
- You and the EOR sign a service agreement. It sets out the fee, the services, who is responsible for what, how intellectual property flows to you and what happens if the arrangement ends.
- The EOR and the employee sign a local employment contract. The EOR becomes responsible for paying the employee correctly and meeting every statutory employment obligation.
- You and the employee work together day to day. You assign tasks, set goals, run meetings and give feedback. In practice the employee is part of your team; legally, their employer is the EOR.
This split is what makes the model work, and also what makes it different from simply hiring someone. Because the EOR carries the legal employer role, it will insist on approving anything with legal consequences, such as changes to pay, contract variations, disciplinary action and termination.
What the EOR handles
A good EOR takes on the administrative and legal work of employing someone locally. In Australia that typically includes:
- The employment contract. A contract that complies with the Fair Work Act 2009, the National Employment Standards (NES) and any modern award that covers the role.
- Onboarding documents. Giving the employee the Fair Work Information Statement, collecting a tax file number declaration and a superannuation fund choice.
- Payroll and tax. Paying wages, withholding income tax under the PAYG system and reporting through Single Touch Payroll.
- Superannuation. Paying the 12% Superannuation Guarantee. Since 1 July 2026 this must be paid with each pay cycle under Payday Super, rather than quarterly.
- Leave and entitlements. Tracking annual leave, personal leave and public holidays, and paying award entitlements such as overtime and penalty rates where they apply.
- Insurance and registrations. Holding workers' compensation insurance and registering for payroll tax in the relevant state once wages pass the threshold.
- Ending employment lawfully. Making sure notice, final pay, accrued leave and any redundancy pay are handled correctly.
Outside Australia, the details change but the principle is the same. The EOR applies that country's rules on contracts, payroll, social security, leave and termination.
What your company keeps
An EOR does not take over the job of managing people. You remain responsible for:
- Choosing who to hire and agreeing their salary within legal minimums.
- Day-to-day direction: tasks, priorities, tools and ways of working.
- Performance management and feedback, in line with the EOR's processes.
- Culture, team inclusion and practical wellbeing.
- Your commercial activity, including sales, customer contracts and pricing.
When an EOR makes sense
The EOR model is strongest when speed and simplicity matter more than control and long-term cost. Common situations include:
- Testing a new market. You want one to five people on the ground to prove demand before committing to a local entity.
- Hiring a specific person. You have found an excellent candidate in a country where you have no presence.
- Converting contractors. A long-term contractor really works like an employee, and you want to remove the misclassification risk.
- Supporting a relocation. An existing team member is moving overseas and you want to keep them on staff. Remember they still need the right to work in the new country.
- Bridging to an entity. You plan to set up a company but need to hire before registration, banking and payroll are ready.
When an EOR usually doesn't fit
The model has real limits:
- Large or permanent teams. Per-employee fees add up. Once a team grows, running your own entity is often cheaper.
- Local trading. An EOR employs people; it does not sign customer contracts, hold licences or invoice your clients for you.
- Genuinely independent work. If someone is truly running their own business and delivering a defined project, a contractor agreement may be more appropriate.
- Visa sponsorship. Many EORs cannot act as a visa sponsor. If your hire needs a sponsored work visa, confirm sponsorship is possible before you choose a route.
The risks people overlook
Permanent establishment
Using an EOR does not automatically stop your company from having a taxable presence in the country. If your employee habitually concludes contracts on your behalf, or works from what is effectively your fixed place of business, tax authorities may treat your company as having a permanent establishment. This is a corporate tax question, not an employment one, so get advice from a tax adviser in that country if your hire will sell.
Intellectual property
Because the EOR is the legal employer, it is the first owner of IP the employee creates in many countries. Check that the employment contract assigns IP to the EOR and that your service agreement assigns it on to you, along with confidentiality obligations.
Labour hire and co-employment rules
Some jurisdictions regulate arrangements where one business supplies workers to another. In Australia, several states run labour hire licensing schemes. Ask the provider how its model complies in each place you hire.
Quality varies
EORs differ in how well they understand local law. Some own entities in every country they serve; others subcontract to local partners. Ask who the actual employing entity is, where it is registered and who handles payroll.
How to choose an approach
Start with three questions:
- How many people will you hire in the next two years? One to ten points towards an EOR; a larger, permanent team points towards your own entity.
- Will they sell, sign contracts or need licences? If yes, look closely at entity set-up and permanent establishment risk.
- Is the work really employment? If you direct how, when and where the work is done, treat the person as an employee rather than a contractor.
From there, compare the options in our guides to EOR vs setting up an Australian entity, EOR vs PEO and employee vs contractor in Australia. If you are budgeting, read EOR costs and pricing models explained.
The bottom line
An Employer of Record is a practical way to employ people compliantly in a country where you have no entity. It works best for small teams, new markets and specific hires, and it shifts most of the employment admin and legal risk to a local specialist. It does not replace good management, it does not let you trade locally and it does not remove every tax risk. Used with clear eyes, it can save months of set-up time.
Frequently asked questions
Is an Employer of Record the same as a recruitment agency?
No. A recruitment agency finds candidates and usually steps away once the person is hired. An EOR does not normally find candidates; it employs the person you have already chosen and stays responsible for their employment for as long as the arrangement lasts.
Is an EOR the same as labour hire?
The models overlap. Both involve a provider employing people who work in a client's business. In Australia, some states regulate labour hire through licensing schemes, and whether an EOR arrangement is caught depends on the state and how the arrangement is set up. Ask any provider how it complies with labour hire laws in the states where your staff will work.
Does the employee know they are employed by an EOR?
Yes. The employee signs an employment contract with the EOR and receives payslips from it, so they need to understand the arrangement. Most EORs let you present the role as part of your team, but you should be upfront in the offer about who the legal employer is.
Can an EOR employ contractors?
An EOR employs employees. Many providers also offer a separate contractor management service, which pays independent contractors on your behalf but does not make them employees. If the worker is really an employee, using a contractor service does not fix the misclassification risk.
What happens if I want to stop using the EOR?
You can end the service agreement in line with its notice terms. The employee's job then needs a lawful outcome. They might transfer to your new entity, move to another provider or have their employment ended with the notice and entitlements the law requires. Check the transfer and exit terms before you sign.
Who is liable if something goes wrong?
The EOR is liable as employer for its employment obligations, but your service agreement will allocate risk between you. Most agreements make the client responsible for things it controls, such as day-to-day direction, workplace behaviour and the information it supplies. Read the indemnities carefully.
Sources
Last reviewed:
Figures on this page were checked against these official sources on 8 October 2026. Rates and thresholds change, often on 1 January, 1 April or 1 July, so confirm current figures before relying on them.