What Is The Employer of Record (EOR) Process & How It Works?

‍

Understanding the Employer of Record (EOR) Process

An Employer of Record (EOR) acts as the official employer for a company's workforce, managing payroll, taxes, compliance, and HR functions while the client company retains control over daily operations. EOR services simplify the hiring process, especially for businesses expanding into new regions or managing remote teams.

‍

Below is a step-by-step breakdown of how an EOR operates:

‍

1. Client Engagement & Agreement

Before an EOR can provide services, a formal agreement must be established between the client company and the EOR. This agreement outlines key responsibilities, compliance requirements, and financial terms.

• The client company signs a service agreement with the EOR, defining roles, pricing, and payment terms.
• The client provides job role descriptions, salary details, and employee benefits information.

‍

2. Employee Onboarding & Hiring

Once the agreement is in place, the EOR begins the hiring and onboarding process. Acting as the official employer, the EOR ensures that all employment contracts and legal requirements are met.

• The EOR hires employees in the required country or state under its legal entity.
• Employees sign contracts directly with the EOR, making it their official employer.

‍

The EOR also handles:

• Employment contracts compliant with local labor laws
• Background checks and required legal documentation
• Benefits enrollment (health insurance, retirement plans, etc.)
• Tax and work permit compliance (for international hires)

‍

3. Payroll & Tax Compliance

Managing payroll in multiple jurisdictions requires precision and compliance with local labor laws. The EOR ensures that employees are paid correctly and on time while meeting tax obligations.

• The EOR runs payroll, ensuring accuracy and compliance with regulations.
• Social security contributions, taxes, and other withholdings are deducted accordingly.
• Salaries are processed in the local currency and disbursed on time.
• Clients typically fund payroll in advance unless the EOR extends credit terms.

‍

4. Benefits Administration

Employee benefits are a critical part of workforce management. The EOR ensures that benefits are correctly administered and compliant with local regulations.

The EOR manages benefits such as:

• Health insurance and retirement plans
• Paid leave (vacation, sick days, maternity/paternity leave)
• Compliance with mandatory local benefits requirements

‍

5. Compliance & Risk Management

Staying informed about labor laws and tax regulations is essential to avoiding legal and financial risks. The EOR takes on this responsibility, reducing the client company's liability.

• The EOR ensures compliance with tax regulations, labor laws, and visa requirements.
• It manages termination policies and assumes liability for employment-related risks, such as wrongful termination claims.

‍

6. Ongoing HR Support & Employee Management

Beyond hiring and payroll, an EOR provides ongoing HR support to ensure smooth workforce management. While the EOR handles administrative duties, the client maintains control over daily operations.

The EOR assists with:

• Contract renewals and modifications
• Employee dispute resolution
• Adapting to changing labor laws

The client company still oversees employee performance, work assignments, and operational responsibilities.

‍

7. Employee Termination & Offboarding

If an employee leaves the company, whether voluntarily or involuntarily, the EOR ensures that the offboarding process complies with legal requirements.

• The EOR manages terminations according to local labor laws.
• It processes final payroll, benefits payouts, and required exit documentation.
• Government reporting and compliance filings are handled as needed.

‍

8. Key Services Offered by an EOR

An EOR provides a range of services that simplify workforce management while ensuring compliance with employment laws.

• ‍Official Employer Status – Serves as the legal employer, managing tax and regulatory obligations.‍
• Payroll Processing – Handles salary payments, tax deductions, and reporting
• Tax & Compliance Management – Ensures adherence to local labor laws and tax regulations.‍
• Benefits Administration – Manages health insurance, retirement plans, and leave policies.‍
• HR & Risk Management – Covers contracts, terminations, and legal compliance.‍
• International Hiring Solutions – Allows companies to expand without establishing foreign legal entities.

‍

9. Who Benefits from Using an EOR?

EOR services are ideal for companies looking to simplify hiring and payroll processes while mitigating compliance risks.

• Companies expanding into new markets without a legal entity
• Startups and small businesses needing payroll and HR support
• Businesses hiring remote employees across multiple jurisdictions
• Companies ensuring compliance when converting contractors to employees

‍

By partnering with an EOR, businesses can improve workforce management, reduce compliance risks, and focus on growth—without the complexities of navigating international employment laws. To further support EOR companies, 1st Commercial Credit expands receivables-based financing, providing flexible funding solutions to improve cash flow and scalability.