What is an Employer of Record?
An Employer of Record is the legal employer of a worker in a given country: it signs the employment contract, runs payroll, withholds taxes and social contributions, and guarantees compliance with local labour law. The client company remains the de facto employer — it selects the candidate, sets the salary, assigns the work and manages performance.
The model exists because employing someone in a country normally requires a registered local entity. An EOR removes that requirement: it already operates entities across many countries and “lends” its employer status to companies that have none in the target market.
How the EOR model works
In practice, an EOR arrangement involves three parties and two contracts: a service agreement between your company and the EOR, and a local employment contract between the EOR and the employee. The typical flow looks like this:
- You recruit and select the candidate — the EOR has no role in who gets hired.
- The EOR issues a compliant local employment contract and registers the employee with the authorities.
- Each month, the EOR runs payroll, pays salary, taxes and social contributions, and invoices you the total plus a service fee (typically a few hundred euros per employee per month, or a percentage of salary).
- You manage the employee day to day, exactly as you would a direct hire.
EOR vs. own entity
Setting up a local subsidiary gives you full control and lower running costs at scale, but takes months, requires local directors, accounting and annual filings — and is expensive to unwind if the market doesn’t work out. An EOR inverts the trade-off: you can employ someone in days rather than months, with no setup or exit costs, at a per-employee premium.
The usual guidance: an EOR wins for the first one to five employees in a new market, or when speed matters more than cost. Once a country team grows beyond that — or a permanent-establishment tax risk emerges from local revenue-generating activity — an own entity usually becomes the better structure.
Why EORs matter for European expansion
For companies expanding across Europe, the EOR is what makes “hire the best person first, set up the structure later” possible. The first market hire — typically a country manager or sales manager — can start selling within weeks, while the entity question is decided on the evidence of real revenue.
We see this constantly in our own mandates: in one search for a machinery client, we placed a Sales Manager for the Nordics who was employed via EOR because the client had no Swedish entity. For technical niches such as machinery and plant engineering, the pattern of “EOR first, entity later” has become the default route into markets like Spain, Poland or the Nordics.
