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Talk to an expertGlobal business expansion requires global workforce solutions. When businesses hire people from other countries, they have to deal with complicated issues related to international payroll , compliance, and employment law. And getting it wrong could cost you a lot.
Employer of Record (EOR) services and global payroll providers are two main ways that businesses can manage workers from other countries. Both let employers pay workers in other countries, and both handle taxes and other legal requirements. But that's about where the similarities end.
The most important difference is who is legally responsible. In each country, an EOR is the legal employer of your workers. A global payroll service handles payments, but your company is still the legal employer. This difference impacts everything from liability and risk to how much power you have over hiring decisions.
The right model for your business depends on how you plan to grow, how much risk you're willing to take, and how well you can run your business.
What is an employer of record (EOR)?
An Employer of Record is a third party that legally hires your workers in another country. Your team members do what you say and follow your company's culture and goals. But the EOR is their official employer on paper.
The EOR takes on a lot of responsibility with this setup. They make sure that employment contracts follow local labor laws. They handle payroll and make sure the right taxes are taken out. They manage things like health insurance, pension contributions, and paid time off in a way that aligns with each country’s labor laws.
Compliance risk is another area that an EOR takes care of. They correctly put workers into the categories of employees and contractors. They keep up with changes in labor law. When it's time to let an employee go, they follow local rules for firing and calculating severance pay.
This model is best for hiring people from other countries when you don't have a legal business in that country. It lets you quickly put together a globally distributed team without having to set up offices in other countries. You get speed and compliance without having to deal with the costs of setting up local operations.
What is a global payroll provider?
A global payroll provider handles payroll for employees you've already hired through your own legal entities in other countries. You can think of them as a service that combines payroll for many countries into one system.
Their main job is to make sure that people get paid on time and correctly. They figure out gross-to-net pay based on the tax laws in each country. They take out taxes on income and social security. They make pay stubs and change money when necessary. They send the required tax reports to the local government.
But what they don't do is become legal employers. Your business is still the legal employer. You are responsible for the job and the risk of not following the rules that come with it. The payroll provider does what you tell them to do and gives you advice, but you are still responsible for the final outcome.
This model works if you've already set up businesses in other countries. You might have branches or subsidiaries in a number of countries. You need someone to make payroll work better in all of those places. A global payroll partner makes things easier and more consistent without changing who is legally responsible for your employees.
EOR vs. global payroll provider: Key differences
When deciding between an EOR and a global payroll provider, the key differentiator is who is legally responsible for your employees. These models work at different stages of the employment cycle and meet different business needs.
| Feature | Employer of Record (EOR) | Global Payroll Provider |
| Legal Employer | EOR becomes the legal employer on record | Your company remains the legal employer |
| Local Entity Required | No entity needed in the target country | Requires an existing legal entity in each country |
| Compliance Responsibility | EOR assumes full legal liability for labor law compliance | Your company retains compliance responsibility and risk |
| Employment Contracts | EOR drafts and owns contracts aligned with local law | Your company creates contracts through a local entity |
| Employee Classification | EOR determines and manages worker classification | Your company manages classification decisions |
| Payroll Processing | Included as part of a full-service offering | Core service offering |
| Tax Withholding & Filing | EOR handles all tax obligations as the employer | Provider calculates and files based on your instructions |
| Benefits Administration | EOR provides statutory and supplemental benefits | Your company manages benefits enrollment |
| Onboarding & Offboarding | Fully managed by EOR, including termination procedures | Managed by your company |
| Speed to Hire | Hire within days without entity setup | Requires entity establishment first (weeks to months) |
| Cost Structure | Per-employee monthly fee | Per-payslip or percentage-based fee |
| Best For | Fast global hiring, testing new markets, and avoiding entity costs | Streamlining payroll across multiple established entities |
When to use an EOR
Use an employer of record when your company:
- Doesn't have a legal business in the target country and wants to avoid the time and money it would take to set one up
- Needs to hire people quickly, without having to wait months for entity registration to go through
- Wants to give a specialized partner the responsibility for compliance and legal issues
- Is trying out a new market by hiring one or two people before fully expanding
- Doesn't have enough knowledge in-house about local labor laws and rules for hiring people
- Needs a full solution that includes HR management, payroll, benefits, and compliance
- Intends to hire employees, versus just contractors, and needs help with classification
When to use a global payroll provider
Use a global payroll provider when your company:
- Already runs registered businesses in several other countries
- Has set up teams in other countries and needs to be able to process payroll quickly in all of them.
- Wants to be able to see all of their payroll reports and analytics in one place.
- Keeps internal HR and legal teams that can handle local compliance
- Wants to be in charge of all employment relationships and policies
- Needs to manage currency and coordinate payments across multiple countries
- Has the resources to handle benefits administration and employment contracts on its own
How to choose between an EOR and a payroll provider
The right choice depends on your company's current infrastructure and expansion goals. Ask yourself these questions before committing to either model.
Entity status and setup timeline
Do you already have businesses set up in the countries you want to operate in? If so, a global payroll provider can make things run more smoothly in all of those places. If not, it takes months and a lot of legal and administrative work to set up entities. You can skip that step with an EOR.
Risk and compliance needs
Think about who should be responsible for employment liability. An EOR is legally responsible for following local labor laws. A payroll service will follow your instructions, but you’re still responsible for making sure they are correct. Companies that don't have their own international legal teams often choose to pass that risk on to an EOR.
Speed to hire
How fast do you need someone to get on board? An EOR can have workers on the job in a matter of days. Setting up an entity and then onboarding a payroll provider takes a lot longer. The EOR route is best for hiring people quickly or in a competitive job market.
Workforce composition
Are you turning contractors into full-time workers? This change needs the correct classification of jobs and management of benefits. An EOR takes care of this complicated task. If you run businesses with stable employee populations, a payroll service can help you out.
Growth strategy
Think about what you want to do in the future. Hiring a few people to test a new market? An EOR gives you freedom without making you commit. Building big teams in markets that are already there? When you use a payroll service for a lot of people, it costs less.
Many businesses use a mix of both. In new or small markets, they use EORs, but in core areas, they run payroll providers through their own businesses. This combination balances speed, cost, and control based on each market’s strategic value.
FAQs: EOR vs. global payroll provider
These questions come up frequently when companies evaluate international workforce solutions. Here are straightforward answers to help clarify the distinctions.
Is an EOR the same as a payroll provider?
No. An EOR is the legal employer of your workers and is fully responsible for following the law. A payroll service handles tax filings and payments for employees you have already hired through your own legal entities. The main difference is who is responsible for the job and the legal risks that come with it.
Can I switch from an EOR to a payroll provider later?
Yes. A lot of businesses use this progression in a smart way. They use an EOR to test a new market and hire people quickly. After they set up a local business and hire more people, they switch those workers to their own payroll using a global payroll service.
What if I need both EOR and payroll services?
Some providers let you use both models on the same platform. You can use an EOR in new markets and run payroll through your businesses in established regions at the same time with this unified approach. You get one system for tracking compliance, reporting, and managing your workforce at all of your locations.
Do I need an EOR to pay international contractors?
No. Contractors work on their own and send you a bill for their work. An EOR makes sure that contractors are properly classified and that they get the right training when they start working for you full-time. This keeps you safe from the risks of being misclassified, which can lead to fines and back taxes.
Choose the right global hiring model
The best choice for you will depend on the size of your business, how much of a priority compliance is, and how quickly you want to grow. Use an EOR when you need to hire people quickly in new markets but don't want to set up legal businesses or take on the risk of hiring someone.
If you already have subsidiaries in other countries and need to manage payroll more easily across those countries, use a global payroll provider. There is no obvious advantage to either approach. They help with different stages of international growth.
At Pebl, we provide many growing businesses with both. We give you the tools you need to grow your business anywhere, anytime, whether you need to hire people legally in new markets or run payroll efficiently in established ones. Your business shouldn't be limited by borders or the difficulty of running it. We'll help you get past those problems so you can focus on building great teams in any place where talent lives. Get in touch to learn more.
Disclaimer: This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided “as is,” and no representations are made that the content is error-free.
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Topic:
Employer of Record
