Do You Need an Employer of Record? Probably Not. Here's Why.
Employer of Record, or EOR, is one of the most useful services in modern HR — and one of the most over-bought. A great many businesses pay for EOR when a simpler, cheaper arrangement would serve them better. This article explains what EOR is actually for, and how to tell whether you genuinely need it.
What an Employer of Record does
An EOR is a company that becomes the legal employer of your staff in a country where you have no legal entity. On paper, the person works for the EOR. In practice, they work for you. The EOR handles the local employment contract, payroll, tax, and statutory compliance, and you reimburse them plus a fee.
This solves a real and difficult problem: hiring someone in a country where setting up your own company would be slow, expensive, and disproportionate for one or two employees.
EOR exists for one situation: you want to employ someone in a country where you have no entity and do not want to create one.
When you genuinely need EOR
You need EOR if you want to hire a small number of people in a country where you have no legal presence; if you are testing a new market before committing to an entity; or if you need someone employed quickly in a jurisdiction where company formation would take months.
In those cases EOR is excellent value, even at $599 per employee per month, because the alternative — forming and maintaining a foreign entity for one person — costs far more.
When you do not need EOR
Here is the part that saves money. You do not need EOR if you already have a legal entity in the country. If you have a UK company, you can employ people in the UK directly. The same is true in Ireland, the US, the UAE, India, Australia, and anywhere else you are properly established.
Employing people directly through your own entity means you are not paying anyone to carry legal employer risk — you are carrying it yourself, as you already do for the rest of your workforce. What you need then is not EOR. It is payroll and HR software.
Businesses end up over-buying EOR in a few common ways: putting new hires on EOR by habit even in countries where they have an entity; keeping employees on EOR long after the entity that would have replaced it was set up; or choosing an EOR-led platform and then running their domestic workforce through it because it is already there.
The cost of getting this wrong
EOR for an employee who could be paid directly is one of the most expensive mistakes in HR procurement. At roughly $599 per employee per month, a team of ten that should be on direct payroll is around $6,000 a month — for a service they do not need.
What to do instead
For every country where you have an entity, use HR and payroll software, not EOR. Mellow runs native HR and payroll in six countries — the UK, Ireland, the US, the UAE, India, and Australia — from £4 per employee per month.
Reserve EOR for the genuine cases: the new market, the single hire in a country you will not formally enter. For those, use a dedicated EOR provider. For everything else, you almost certainly do not need one.