What is an Employer of Record (EOR)?

An Employer of Record (EOR) is a third-party organization that legally employs workers on behalf of another company. While your business directs the employee’s day-to-day tasks, the EOR handles the legal and administrative responsibilities of employment—like payroll, taxes, benefits, and compliance.

For small businesses that want to hire employees in new states, countries, or employment structures without setting up a separate legal entity, an EOR offers a fast, low-risk solution. Platforms like Homebase can help you stay on top of hiring and team management, whether you’re handling it in-house or working with an EOR for extended reach.

What does an EOR do?

An Employer of Record becomes the legal employer for workers while your company remains their functional manager. The EOR handles:

• Payroll and tax withholding
  
• Benefits administration (health insurance, retirement, etc.)
  
• Onboarding and offboarding paperwork
  
• Employee classification and documentation
  
• Compliance with labor laws and regulations
  
• Issuing W-2s or equivalent tax forms
  
• Employment contracts and updates
  

This arrangement allows you to delegate employment-related responsibilities while still managing the team directly on the ground.

When does it make sense to use an Employer of Record?

1. Expanding into new locations

If you're growing your business into a different state or country, hiring an employee there can require registering as an employer, setting up tax accounts, and complying with local labor laws. An EOR handles all of that for you—so you can hire fast without setting up a new entity.

2. Hiring remote employees

For businesses hiring remote workers in multiple jurisdictions, an EOR ensures that payroll, taxes, and legal obligations are handled correctly across state or international borders.

3. Testing new markets

An EOR can be a smart temporary solution when you're exploring a new location or role and aren’t ready to invest in full infrastructure. If the arrangement works out, you can transition to a direct employment model later.

4. Reducing compliance risk

Labor laws are complex and vary widely by location. An EOR has the legal expertise to ensure proper worker classification, wage laws, and leave entitlements—reducing the risk of costly compliance mistakes.

EOR vs. PEO: What’s the difference?

A Professional Employer Organization (PEO) and an EOR are often confused—but they function differently.

• EOR becomes the legal employer of your workers. You don’t need to register your business in the employee’s state or country.
  
• PEO enters a co-employment relationship with your business. You remain the legal employer and must register in each state or country where you have employees.
  

For small businesses without legal infrastructure in multiple locations, an EOR is typically the simpler and more flexible choice.

Pros and cons of using an EOR

Pros:

• Fast hiring in new regions
  
• Simplified payroll and tax filing
  
• Built-in compliance expertise
  
• No need to set up legal entities
  
• Lower HR and legal overhead
  

Cons:

• Higher cost per employee (compared to handling in-house)
  
• Less control over employment contracts and benefits structure
  
• Employee experience is split between your business and the EOR
  
• May not be necessary for domestic or single-location teams

Before committing, evaluate whether an EOR is the right long-term fit—or a short-term bridge to expansion.

What to look for in an EOR provider

If you decide to work with an EOR, choose one that:

• Operates in the regions you’re hiring
  
• Offers transparent pricing
  
• Provides support for onboarding and offboarding
  
• Can integrate with your existing systems
  
• Has experience with small and midsize businesses
  
• Offers localized benefits and HR expertise
  

Clear communication and service-level expectations are key to a successful relationship with any EOR.

How Homebase supports your hiring strategy

Whether you hire directly or through an Employer of Record, Homebase helps small businesses run a more efficient, compliant, and people-first hiring process. With Homebase, you can:

• Post jobs to multiple job boards with one click
  
• Streamline applicant tracking and team communication
  
• Digitally onboard new hires with customized forms and policies
  
• Stay organized with integrated time tracking and scheduling
  
• Keep employee records and performance notes in one place
  

Explore Homebase Hiring and Onboarding to take the guesswork out of growing your team—whether you manage payroll yourself or lean on an Employer of Record for support.