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 small 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, and only worth it above a certain headcount), or (2) engaging the person as a contractor, which is cheaper on paper but exposes you to misclassification risk and typically fails the 'employee' test in most non-U.S. countries.
An EOR is not a PEO and neither is a payroll service. A payroll service calculates and files while you remain the sole legal employer, registered in every state where someone works. A PEO operates through co-employment alongside your own entity: you direct the work, and the PEO files payroll taxes, administers benefits, and supports HR compliance, with a certified PEO also assuming liability for the federal employment taxes it files. An EOR replaces the need for your own registration entirely, which is why it is the tool for a first hire in a new state or a first hire abroad.
Treat an EOR as a bridge rather than a destination. Once several employees sit in the same state, registering for withholding and unemployment yourself is usually cheaper than the per-employee premium. Plan the exit deliberately: mid-year transitions onto your own payroll can restart the Social Security wage base ($184,500 for 2026), and benefits need a replacement plan with no coverage gap.
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
- Confusing an EOR with a PEO when comparing quotes; one replaces your registration in a jurisdiction and the other works alongside it, so the prices are not measuring the same thing
Related service
See payroll servicesHave a Employer of Record (EOR) situation in your business?
Multi-state payroll, contractor 1099s, and payroll tax filings run on schedule, then reconciled straight into your books.