Payroll
Employer of Record (EOR)
A third-party company that legally employs your workers in a state or country where you have no entity, handling payroll, taxes, and compliance while the worker reports to you day-to-day.
When you want to hire a full-time employee in a state where you have no payroll registration — or a country where you have no legal entity — an Employer of Record becomes the worker's legal employer. The EOR runs payroll under its own tax IDs, files the local returns, offers compliant benefits, and passes through employment risk. You keep the working relationship and direct the worker's day-to-day.
For owner-led businesses, EORs solve a real problem: hiring the right person before it is worth registering as a foreign employer in that state or setting up a foreign subsidiary abroad. Providers like Gusto (Contractor Only for international), Deel, Rippling EOR, Justworks, and Papaya price at roughly $500 to $1,000 per employee per month on top of the worker's wages and required contributions.
The alternative is (1) registering your own entity in that jurisdiction — expensive, slow, only worth it above a certain headcount, or (2) engaging the person as a contractor — cheaper on paper but exposes you to misclassification risk and typically fails the 'employee' test in most non-U.S. countries.
Common pitfalls
- Using an EOR indefinitely for a headcount that has grown large enough to justify your own registration — the per-employee premium eventually outweighs the setup cost
- Treating a contractor as an employee to save on EOR fees — misclassification back-tax and penalties in most countries dwarf the EOR bill
- Ignoring permanent-establishment risk — even with an EOR, having sales or executive activity in a foreign country can create a taxable presence for your U.S. business
- Skipping the review of the EOR's local employment contract — statutory notice, severance, and benefits obligations vary enormously by country
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