Hiring workers from other countries has never been easier, but it's also become regulated more stricter. Every country has its own set of laws, so getting it right can be a costly and time-consuming issue for companies that don't have a local legal entity.
An Employer of Record (EOR) is a solution to this problem. It lets your business hire workers in a foreign country without having to set up a local company. Instead, a third party becomes the company whose name is on the employment contract, and your business gets to manage the employees’ day-to-day work.
With this guide, we will walk you through how an EOR works and how it differs from contractors and local companies.
What Is an Employer of Record?
An Employer of Record is essentially a third-party company that takes on the role of official employer for your workers for the important legal and administrative parts. Meanwhile, you're still in charge of the everyday tasks that matter most to your team.
In simple words, an EOR lets you bring in full-time employees in countries where you don't have a local entity. This is a model that's really caught on with those startups, remote teams, and businesses building out in new markets who want to expand quickly but don't want to have to spend a small fortune figuring out all the local employment and tax laws in each new country.
What Does an Employer of Record Do?
A modern EOR manages the legal and administrative things related to international employment tasks. That includes:
- preparing locally compliant employment contracts;
- onboarding new employees;
- running payroll in local currencies;
- calculating and remitting payroll taxes;
- administering statutory and optional employee benefits;
- ensuring compliance with local labor laws;
- managing leave, public holidays, and statutory entitlements;
- maintaining employment records and documentation;
- supporting employee offboarding and terminations in accordance with local regulations.
For employees, the whole experience feels the same as working directly for their company. They're still working with the same managers, going to the same meetings, pitching in on the projects, and remaining part of your team.
When Should You Use an Employer of Record?
An Employer of Record isn't created to replace hiring setup. It solves a very specific business issue: legally hiring people in foreign countries where you don't have a presence. If your company is looking to bring in one or two people from abroad, opening up a fully-functioning entity will be too costly and take up too much time. And on the other hand, treating full-time employees as contractors can get your business in compliance trouble.
- Expanding into New Markets
An Employer of Record lets you get new global talents on board in just a few weeks while sorting out the employment contracts and makes sure they're all compliant, payroll and tax registration, statutory benefits, and local labor laws.
- Hiring Talent Worldwide
Remote work has made it possible for any company to recruit from all around the world. For instance: a US software company can easily employ someone in Poland, a product designer from Brazil, or a sales manager from Germany without setting up a whole business in each country.
- Testing New Markets Before You Commit
Lots of startups and scaleups are unsure whether a new market is worth investing in for the long term. An EOR lets you test it out, by letting you build a local team at very little upfront cost before you decide whether it's worth opening up your own local office and setting up a separate business.
- Supporting Rapid Global Growth
Fast-growing companies are often forced to hire staff in different countries at the same time. Having an EOR helps standardize all processes using a single set of rules, which lets HR and finance teams scale up international hiring without having to set up separate local operations in every single market.
Employer of Record vs Contractor of Record vs Staffing Agency
These three models often get mixed up, so it's worth laying out the difference between them clearly:
- Employer of Record — it is a full-time employer: sorting out contracts, dealing with payroll and tax issues, handling benefits, and keeping on top of compliance on a long-term basis.
- Contractor of Record — manages independent contractors on your behalf, making sure that they're set up with compliant contractor agreements, invoices and payments are correct, but they don’t take on extra responsibilities that come with being an employer, like providing benefits or dealing with payroll tax.
- Staffing Agency — they supply workers on temporary or project-based jobs and usually retain the employment relationship itself. The staffing agency's workers are not your employees, so if you switch providers you might lose them.
Which one you're going to need depends on the kind of work you're looking to cover.
How to Choose the Right Employer of Record
Not all Employer of Record providers give you the same level of service. While most can employ workers on your behalf, the quality of the support they offer, the tech they use, local knowledge, and payroll operations vary. So, what do you need to look for before making a decision?
1. Global Coverage and Local Expertise
Check that the provider supports the countries you want to hire in. A good EOR really needs to have deep local knowledge in every market they operate in. This means they should be able to handle things like employment contracts, tax regulations, mandatory employee benefits, termination procedures, and local labor law updates.
Employment regulations change all the time, so your provider needs to monitor legislative updates to keep your workforce compliant.
2. Payroll Accuracy and Compliance
Payroll is one of the main reasons companies choose to have an EOR. So, when speaking to potential providers, ask them about how they handle:
- payroll calculations;
- tax withholding;
- statutory contributions;
- salary payments;
- year-end tax reporting.
Reliable payroll processes should include validation checks in place to ensure everything is in place before every pay cycle of a client’s company.
3. Employee Benefits and Local Experience
A good EOR needs to manage mandatory benefits and help companies put together a competitive package that makes a hiring process more efficient. While varying by the country, it may include health insurance, pension contributions, paid and parental leave, meal vouchers, transport allowances, and private insurance.
The idea is to give employees a complete onboarding experience that feels like they're joining a local employer.
4. Technologies and Integrations
When you work with an international workforce, having every feature in one place makes a difference. So, look for providers that can integrate everything:
- Employee onboarding;
- Payroll management;
- Document storage;
- Expense tracking;
- Approval workflows;
- Reporting dashboard;
- Integrations with HRIS, accounting, and payroll software.
- Pricing Transparency
EOR pricing can vary greatly. Some providers will get you a fixed monthly fee per employee, others will offer a percentage of your payroll, or add extra charges for hiring, and so on. Before you sign the contract, ask about onboarding costs, minimum contract terms, cancellation policies, currency conversion fees, and additional compliance charges. Pricing and its conditions have to be out in the open.
6. Security and Data Protection
Employer of Records works with sensitive information like salaries, tax returns, ID documents, and bank account details. Reliable providers offer:
- encrypted data storage;
- role-based access controls;
- multi-factor authentication;
- detailed audit logs;
- compliance with regulations such as GDPR and other applicable privacy laws.
7. Transition and Exit Terms
Ask what happens if you want to switch providers or bring the team onto your own entity later: how continuity of employment is guaranteed, and how much notice or lock-in is required.
Why Companies Choose Garna as Their Employer of Record
Garna acts as your legal EOR, handling employment contracts, onboarding new people, running the payroll, dealing with tax returns, paying out statutory benefits, and following local labor laws and regulations. All this functions on a daily basis across 150+ countries and has the ability to send out multiple currency salaries to staff without the need to set up a local entity.
Unlike some other EOR agencies that focus on the basics of employment, Garna goes the extra mile by offering a complete global workforce platform. For distributed finance, HR and operations teams, it cuts down administrative burdens and takes away the need to coordinate multiple vendors.
The platform comes with some useful features, including:
- Single Sign-On (SSO) for getting the team securely logged in;
- role-based permissions is needed for HR, finance and operational teams only to get access to the information relevant to do their responsibilities;
- approval workflows and payment limits to make sure payroll approvals are correct and prevent unauthorized or excessive payments.
These controls make managing a global workforce both safe and capable of handling organizations of any size.
Getting Started with an Employer of Record: Step-by-Step
Getting an Employer of Record operating for you is usually so much easier than setting up your own legal presence, but launching it still takes some coordination between HR, finance, lawyers, and the hiring managers.
Following a straightforward rollout process helps you avoid delays and get to work as quickly as possible.
Step 1: Determine Where You Need to Hire
You need to figure out what countries you're hiring in, how many people are coming on board, and whether this is a temporary or long-term setup.
Step 2: Pick an EOR
Now it's time to start looking for an EOR that fits your vision and meets the expectations: look for things like country coverage, payroll capabilities, technical requirements, security, and so on.
Step 3: Gather The Employee Info
Also, you need to collect all the information you'll need to create proper and compliant employment contracts. That includes employee ID documents, job title and responsibilities, salary and compensation package, location, proposed start date, and any benefit requirements.
Step 4: Check Employment Law Requirements
Just before signing the contract, double-check that employment conditions and compensation are aligned with local regulations.
Step 5: Onboarding
Once contracts are signed, new employees can get started while the EOR handles all the administrative side of employing people.
Benefits and Limitations of Using an Employer of Record
Just like any other hiring model, an EOR has its pros and cons. Understanding both sides of it helps the companies make an informed decision about which setup is best for them at their particular stage of growth.
Benefits:
- Hire employees without opening a local entity;
- Expand into new markets faster;
- Minimized risks regarding compliance and laws;
- Local payroll, taxes, and benefits managed for you;
- HR and finance are not overburdened with management;
- Opportunity to easily expand into different countries.
Limitations
- Monthly service fees per employee;
- Less direct control over employment;
- May not always be the cheapest option for big teams in one country;
- Service quality depends on the provider;
- Some highly customized employment arrangements may require additional review;
- Daily performance of the staff is still managed by companies themselves.
For many startups and growing businesses, the operational savings and reduced risks is worth the service costs. However, as headcount increases in a particular country, companies often have to re-evaluate whether setting up their own local business makes financial sense.
Conclusion
You don't have to set up a business in every country where you want to build a team. An Employer of Record lets businesses employ people quickly while keeping on top of local employment laws and regulations.
For companies with a global expansion in mind, Garna combines EOR services with payroll, contractor management, international payments and workforce management in one platform, making it easier to hire, pay, and support employees across a wide range of countries.
Ready to hire internationally without opening local offices? If you are, let's book a demo so you can see how Garna can help you build a compliant global team.