An employer of record (EOR) legally employs people on your behalf in a country where you don’t have your own entity. You choose the person and direct their work. The EOR holds the employment contract and takes on the obligations that come with it: payroll, tax withholding, mandatory benefits and compliance with local employment law.
You get the worker without setting up a company, registering for payroll taxes and learning a new employment system from scratch. But it’s important to be clear about what an EOR takes off your plate, and what it doesn’t.
Is an employer of record the same as a PEO?
No. A professional employer organisation (PEO) usually co-employs staff alongside a business that already has its own local entity. An EOR is the sole legal employer, so you don’t need an entity in that country at all.
| Model | Who is the legal employer? | Do you need a local entity? |
|---|---|---|
| Employer of record (EOR) | The provider | No |
| PEO (co-employment) | Shared between you and the provider (varies by country) | Usually yes |
| Independent contractor | It’s a commercial contract, rather than an employer/employee relationship | No |
What an EOR actually handles
An EOR takes responsibility for the legal side of being an employer. That typically includes:
- Employment contracts that meet local law, including minimum entitlements and notice periods.
- Payroll, including withholding income tax and reporting to the local tax authority.
- Statutory contributions such as pension or social security.
- Leave and entitlements.
- Workers’ compensation and other required insurances.
- Onboarding and offboarding, including lawful termination.
What stays on your plate
You still manage the work: setting goals, reviewing performance and bringing the person into your team. You also carry the cost, which is the employee’s salary and on-costs plus the EOR’s fee, usually charged monthly per employee.
Some obligations can’t be handed over completely. Under Australia’s model work health and safety laws, more than one business can owe the same duty to a worker at the same time, and each must do what it reasonably can to meet it. An EOR arrangement doesn’t switch off your safety responsibilities for someone doing your work.
What an EOR can’t address
Two risks are worth discussing with any provider before you sign.
Permanent establishment. If an overseas employee habitually concludes contracts on your behalf, a tax authority may decide your business has a taxable presence there, whoever employs them. Article 5 of the OECD Model Tax Convention sets out the principle most tax treaties follow. Get tax advice before an overseas hire starts selling.
The risk of misclassification. An EOR is often the alternative to calling someone a contractor when they’re really an employee. In Australia, employee status is assessed on the “real substance, practical reality and true nature” of the relationship, not just the contract’s wording. The Fair Work Ombudsman explains how the difference is worked out.
Hiring overseas through an EOR: what to check
Employment rules vary widely from country to country, so before you sign, confirm the provider can handle these in each country you’re hiring into:
- Income tax withholding and social security contributions
- Mandatory benefits and leave, which can differ sharply from Australia’s
- Contracts that comply with local law, including notice periods and termination rules
- Whether they employ people directly in that country or through a local partner.
How this would work in practice
An Australian software company wants to hire two salespeople in the US or UK, or a developer in Singapore or Hong Kong. Rather than establishing an overseas company before testing the market, it could use an EOR to employ those workers locally. The Australian company would manage their day-to-day work, while the EOR would handle their local employment contracts, payroll and statutory obligations in each country.
When does an EOR make sense?
An EOR is usually the faster, lower-commitment route when you’re hiring a handful of people in a new country, testing a market before investing in it, or need someone started in weeks rather than months. As headcount grows, fees add up and setting up your own entity often becomes the better long-term option. Many businesses start with an EOR and transition later.
How we can help
If your business is the employer, Astute Payroll can support that work through workforce management and payroll software, or managed payroll services. From employee onboarding and timesheet approvals to configurable pay rules and Single Touch Payroll reporting, Astute helps you manage the practical demands of paying your workforce.
If you need a provider to legally employ people overseas, your needs are different. Astute is part of Deel, which offers employer of record services for businesses hiring internationally.
Whether you’re reviewing an existing payroll process or planning for a growing workforce, start with the support your business needs and book a demo today.
