An employer of record (EOR) is a company which hires employees on behalf of other companies. The employment contract is between the EOR and the employee, with the actual employer having a contract with the EOR. The EOR bills the employer for the gross salaries of employees, plus a fee for its services.
EORs are primarily used to handle employment of employees who reside in a different legal jurisdiction to their employer. Companies looking to hire employees abroad can make use of a local EOR to avoid the expensive process of opening subsidiaries in each country in which employees reside.
For example, a foreign company seeking to hire workers in Switzerland may enlist the services of a third-party Swiss EOR. The EOR becomes the legal employer of the employees in that country, and handles withholding tax deductions, social security contributions, occupational pension fund contributions, accident insurance and paid vacation and sick leave entitlements for those employees. As the registered Swiss employer of the employees, the EOR is also responsible for legal and tax compliance in Switzerland.
The actual employer, on the other hand, is responsible for actual business operations but does not handle employment-related administration.
An employer of record may also be used by companies looking send a team to a foreign country. In this case, the company could contract a local EOR in that country to act as employer to the team. In this case, the EOR would take care of obtaining work permits for the team in addition to other EOR services.
See also:
General employment organization (GEO)
Professional employer organization (PEO)
