An employer of record is a company that legally employs someone on your behalf. You choose the person, set their work and manage them day to day. The EOR holds the employment contract, runs the payroll and carries the legal responsibility for getting it right.
- The EOR is the legal employer, you are the manager - it holds the contract and the liability, you direct the work
- It exists so you can hire without a local company - no UK entity, no incorporation, no months of setup
- Hiring takes days rather than months - providers quote onboarding in 24 to 48 hours once paperwork is agreed
- You still pay every employment cost - salary, 15% employer National Insurance and pension contributions from 3% are all yours
- It is not the same as a PEO or an umbrella company - only an EOR becomes the legal employer in a country where you have no entity
What does an employer of record actually do?
An employer of record takes on the legal and administrative side of employing someone in a country where you have no registered company. It signs a locally compliant employment contract with the worker, puts them on its payroll, deducts and remits income tax and National Insurance, enrols them in a workplace pension, administers benefits and handles statutory obligations like sick pay and holiday entitlement. If the employment relationship ends, it manages notice and any severance under local law.
What it does not do is manage the person. You decide what they work on, who they report to, how their performance is judged and whether they are promoted. That split is the whole point: the EOR absorbs the regulatory burden, you keep the working relationship.
How the arrangement works in practice
The mechanics are more straightforward than the legal structure suggests. You find and select your candidate exactly as you normally would. The EOR then issues that person a compliant local employment contract and onboards them, usually within a few days. Each month you fund an invoice covering their salary, the statutory employer costs and the provider’s platform fee. The EOR pays the employee, files the necessary returns and keeps the records.
For a UK hire specifically, that means the EOR is the entity registered with HMRC, submitting real-time information returns on every payday and operating PAYE. Your company never touches the UK tax system directly.
Who is responsible for what
Most confusion about EORs comes from an unclear picture of where the line falls. In practice the split is consistent across providers.
| Responsibility | Employer of record | Your company |
|---|---|---|
| Employment contract | Issues and holds it | Approves the terms |
| Payroll and tax filing | Runs and submits | Funds it |
| Statutory benefits and pension | Administers and enrols | Pays the employer share |
| Day-to-day management | Not involved | Yours entirely |
| Performance and promotion | Not involved | Yours entirely |
| Compliance liability | Carries it | Shares it if you direct unlawfully |
| Termination and severance | Executes under local law | Decides, and pays the cost |
The last row is the one worth reading twice. An EOR carries the compliance liability for employing the person correctly, but it cannot protect you from instructions you give. If you direct a dismissal that breaches UK employment law, the cost and the consequences come back to you.
EOR, PEO and umbrella companies are not the same thing
These three get used interchangeably and they should not be. The distinction matters because only one of them solves the problem of having no local entity.
| Model | Who is the legal employer | Do you need a local entity? | Typical use |
|---|---|---|---|
| Employer of record | The EOR | No | Hiring employees in a country where you have no company |
| PEO | You, jointly with the PEO | Yes | Outsourcing HR and payroll admin where you already operate |
| Umbrella company | The umbrella | No | Paying UK contractors, usually via a recruitment agency |
A PEO operates a co-employment model, which requires you to already have a legal presence in that country. Deel, for example, sells its PEO product specifically for US teams while offering EOR for hiring abroad. An umbrella company is a UK-specific structure for contractors rather than permanent staff, and it sits in a different regulatory conversation entirely. Global payroll services are a fourth model again: they run payroll for staff you already employ, rather than employing anyone on your behalf.
When an employer of record is the right choice
The clearest case is testing a market. If you want one or two people in Britain and you are not yet sure the market justifies a company, an EOR gives you a compliant hire without a commitment you would have to unwind. The same logic applies to hiring a specific person who happens to live somewhere you do not operate, which is increasingly how good candidates are found.
It also works well as a bridge. Plenty of companies hire their first few people through an EOR, prove the market, incorporate properly, then transfer those employees onto their own payroll. Providers expect this and will support the transition.
The economics turn as you scale. A per-employee monthly fee that is trivial for two people becomes a significant standing cost for ten, while a company’s fixed overheads stay fixed. Our EOR cost breakdown walks through where the crossover sits and how to model it on your own numbers.
The compliance problem it solves
The reason EORs exist is that getting employment wrong is expensive and the mistakes are easy to make from a distance. The most common is misclassification: engaging someone as a self-employed contractor when the reality of the relationship makes them an employee. If you control their hours, direct their work and they have no other clients, a tribunal or HMRC may well take the view that they were an employee all along, with back-dated tax, National Insurance and entitlements attached.
In the UK this sits alongside the IR35 off-payroll working rules, which put the determination burden on the engaging business in most cases. An EOR sidesteps the question by employing the person properly from day one. That is a genuine transfer of risk rather than a paperwork exercise, and it is the main thing you are buying.
What to watch out for
- The fee is not the cost. Salary, employer National Insurance at 15% and minimum 3% pension contributions are yours regardless of provider.
- Pricing is usually in dollars. Deel, Multiplier and Pebl all publish in USD, so a UK hire carries currency exposure on the fee.
- Not every provider publishes a price. Pebl, formerly Velocity Global, quotes privately, which makes benchmarking harder.
- Check who actually employs the worker. Some providers use local third parties rather than their own entity in a given country. Ask directly.
- Termination is still your cost. UK notice periods and severance flow back to you, so ask how they are calculated before you sign.
How to choose between providers
Once you have decided an EOR is right, the providers look more alike than they are. Three things separate them in practice.
The first is whether they own an entity in your target country or subcontract to a local partner. Owning the entity generally means faster answers and clearer accountability when something goes wrong; a subcontracted arrangement adds a party between you and the problem. Providers will tell you which model they use in a given country if you ask directly, and the answer often varies country by country within the same provider.
The second is pricing transparency. Deel and Multiplier publish per-employee rates you can check before you talk to anyone. Pebl does not, which is not necessarily worse but does mean you cannot benchmark the quote you eventually receive. If you are running a comparison, ask every provider to quote on an identical brief and to separate the platform fee from the statutory costs, or you will end up comparing numbers that are not measuring the same thing.
The third is what happens at the edges. Onboarding a straightforward salaried employee is something every provider handles competently. The differences show up with equity, complex benefits, visa sponsorship, or an employee who resigns in their first month. Those are the scenarios worth asking about directly in a sales conversation, because they are precisely the ones you will not have thought to plan for in advance.
Is an employer of record worth using?
For a company hiring its first people in a new country, it usually is. You are buying speed and the removal of a compliance risk you are not equipped to carry, and you are paying a premium for both. That trade is a good one at small headcount and a worse one at scale, which is why the sensible way to think about an EOR is as a stage rather than a permanent arrangement.
If you are weighing it against simply buying software and employing people directly, start with our guide to the best HR software for UK businesses, which covers what you would need in place to run employment yourself. If you have already decided on the EOR route, our comparison of Deel and Remote covers the two providers most UK buyers shortlist first.
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