AOR Vs. EOR: Key Differences Global Employers Should Know in 2025

If you’re hiring talent across borders, you’re likely weighing options that avoid the time, cost, and complexity of setting up a foreign legal entity. 

There are several options, but if you want to hire internationally without setting up a legal entity, the two convenient options are engaging an Employer of Record (EOR) and an Agent of Record (AOR). While both help with back-office support, only one can legally employ international talent. 

In this guide, we break down how EOR and AOR differ in the context of international hiring, when to use each, and what’s at stake if you pick the wrong model. 

Let’s decode the acronyms first. 

What is an Agent of Record (AOR)?

An Agent of Record (AOR) is typically used to manage insurance and benefits for contractors or direct hires. They do not take on employment risk or handle legal hiring across borders. 

How does an AOR work?

AORs typically take care of worker classification, contract management, payroll processing, and compliance. 

• Worker classification: ensuring that all employees are correctly classified as contractors or full-time employees to avoid misclassification risks.
• Contract management: Drafting, executing and managing the contract complete with work scope, payment terms, and other obligations, etc. with employees and independent contractors
• Payroll processing: promptly paying all employees and contractors according to agreed pay scale and contractual terms. Their scope also includes managing payments to international employees and navigating international payment systems.. 
• Compliance management: AORs are responsible for ensuring that contractor engagements and employee classifications are all in tandem with required local employment regulations, labor laws, etc.

What is an Employer of Record (EOR)?

An Employer of Record means a service provider that legally employs workers on your behalf in countries where you don’t have a legal entity. They cover everything from handling payroll, taxes, benefits, and labor law compliance.

How does an EOR work?

An EOR is primarily responsible for taking care of several additional duties than an EOR that go beyond worker classification and contract management.

An employer of record provides several key benefits to employers wanting to expand globally like:

Streamlined payroll and tax compliance

The EOR handles all payroll tasks with precision, calculating and withholding taxes, then remitting them to local authorities. This ensures seamless compliance with each country’s tax regulations, saving you from navigating complex global tax systems.

Comprehensive benefits management

From mandatory benefits like social security and health insurance to tailored perks such as retirement plans or wellness programs, the EOR delivers competitive, locally compliant benefits packages that help you attract and retain top global talent.

Compliant employment contracts

The EOR crafts and manages employment agreements that adhere to local labor laws, detailing critical terms like salary, work hours, and termination policies. This ensures every contract is legally sound and customized to regional standards.

Proactive labor law compliance

Staying ahead of ever-changing employment regulations, the EOR ensures hiring, onboarding, and terminations meet local legal standards. This minimizes risks like employee misclassification or permanent establishment issues, giving you peace of mind.

Seamless employee lifecycle management

From onboarding new talent with efficiency to managing terminations in full compliance with local laws, the EOR oversees the entire employee journey, letting you focus on driving business growth.

While both models support contractor or workforce operations, they serve very different purposes. If you are hiring international talent, you are likely looking for an EOR. If you need help managing insurance or benefits for independent contractors or existing employees, an AOR is the right fit.

When to Use an AOR or an EOR?

There are specific instances when using an EOR or an AOR will give a strategic advantage. 

When to use an EOR?

Here are four specific instances when using an EOR will be beneficial:

1. You’re hiring in countries where you have no legal presence

Establishing a local entity can take months and requires legal, tax, and HR expertise that most companies do not have in-house. 

An EOR already has that infrastructure in place, so you can legally employ workers in days instead of months. This means EOR takes on full responsibility for:

• Drafting compliant employment contracts
• Running local payroll
• Withholding and remitting taxes 
• Managing statutory benefits and social security
• Terminating employees in accordance with local labor laws

Example: A US-based tech startup wants to hire a software engineer in Brazil but doesn’t want to register a Brazilian subsidiary. An EOR can employ the engineer locally and manage all compliance, payroll, and benefits on the company’s behalf.

Learn how global teams hire faster without local entities. 

2. You need full compliance without setting up an entity

Every country has its own employment laws, and non-compliance or employer misclassification could attract as much as $1,000 per misclassification along with reputational damage. 

With EOR, everything from employee misclassification to tax exposure to permanent establishment risk, everything is taken care of. 

They assume legal liability, stay up to date on changing local laws, and ensure every hire is fully compliant. This reduces your risk and increases peace of mind.

3. You want to offer localized benefits to stay competitive

Top talent expects competitive and compliant benefits, even when hired across borders. An EOR can provide health insurance, paid leave, social contributions, and statutory protections, customized to local standards, without putting the onus on your internal HR team.

4. You’re a startup or growth-stage company scaling across borders

EORs are a powerful growth lever for companies looking to:

• Scale international teams rapidly
• Enter new regions without long-term commitments
• Hire contractors as full-time employees compliantly
• Avoid misclassification or permanent establishment risks

See how remote-first teams unlock growth with compliant global hiring.

When to use an AOR

While an AOR can’t help you hire international employees, it’s still useful in specific scenarios related to benefits and insurance for independent contractors you work with:

1. You’re managing benefits for existing contractors

If you’ve directly hired contractors and want to offer them optional benefits: like health plans, supplementary insurance, an AOR can act as the intermediary between your business and the carrier.

Example: A company has a team of contractors across multiple states and wants to offer them optional health benefits. An AOR can help source and administer those plans without changing the employment structure.

2. You operate across multiple states or regions

As your workforce becomes more distributed, managing benefits across different regions gets complicated. An AOR centralizes that complexity—helping you stay compliant with carrier requirements, employee disclosures, and plan administration without juggling multiple brokers.

3. You need a broker of record for insurance plans

In many countries, especially the U.S., insurance providers require a licensed AOR to handle plan negotiations, claims, and compliance on your behalf.

Note: This has nothing to do with employment law, it’s about insurance policy administration.

Between the two, EORs offer the broader solution for global growth. If your goal is to legally employ international talent and stay fully compliant, an Employer of Record gives you the infrastructure, speed, and peace of mind to scale without borders.

Tarmack, the Best Employer of Record​ for Global Hiring

Wondering where to start shortlisting your EOR options. Start with Tarmack. As a strategic, scalable, and fully compliant Employer of Record (EOR), Tarmack helps you go global without the complexity, cost, or risk of setting up foreign entities.

Tarmack is built for modern global teams

Unlike EORs or legacy HR service providers, Tarmack is purpose-built for businesses that need to move fast and scale smartly. Whether you’re a high-growth startup, a distributed-first company, or entering new markets for the first time, Tarmack gives you the infrastructure to:

• Legally employ talent in 160+ countries
• Hire international employees in days, not months
• Run fully compliant local payroll and taxes
• Offer competitive, region-specific benefits packages
• Handle terminations, renewals, and labor law changes seamlessly
  

With Tarmack, you gain a partner who aligns with your growth goals.

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