Employer of Record vs. HR Outsourcing: What’s the difference and which do you need?
Employer of Record vs. HR Outsourcing: What’s the difference and which do you need?
Overview
What an Employer of Record does
An Employer of Record (EOR) employs workers on behalf of another company. In the standard EOR model, the EOR is the legal employer for local employment purposes. It processes payroll, manages employment contracts in compliance with local law, handles statutory benefits, and assumes the employer obligations that come with the employment relationship. The company using the EOR service directs the employee’s work, but the exact legal effect of the arrangement depends on local law, and the company directing the work can still retain certain obligations or risks under labour, tax, or worker-leasing rules. Using an EOR also does not automatically remove permanent establishment or tax risk.
EOR arrangements are primarily used when a company wants to hire in a country where it does not have a local entity and does not want to go through the time and cost of establishing one. For a Dutch company hiring its first employee in Lithuania before setting up a Lithuanian subsidiary, an EOR can provide a convenient legal structure for that hire without the entity incorporation process.
What HR outsourcing does
The practical distinction
The simplest way to distinguish the two is to ask: who signs the employment contract? With an EOR, the EOR signs. The company directing the work has a commercial agreement with the EOR rather than a direct employment agreement with the individual. With HR outsourcing, the company itself remains the employer. The outsourced provider supports the employment relationship but does not replace it.
Which situation calls for which solution
The cost comparison
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