Employer of Record Pros and Cons (2025 Guide)

You’ve likely moved past the basics of what an EOR is. Now you’re facing the real question: Does this model scale with you or create hidden friction as you grow?

This guide is designed for companies that weigh speed and simplicity against long-term costs, control, and compliance. We’ll break down where EORs work brilliantly, where they don’t, and what risks you need to account for before you commit.

Whether you’re testing a new market, hiring a remote team, or preparing to scale globally, this article will help you make an informed decision.

What Is an Employer of Record?

An EOR is a third-party provider that becomes the legal employer of your international hires, so you don’t need to set up a legal entity in every country you hire in.

While you manage your employee’s work, the EOR handles everything behind the scenes, like:

• Drafting and issuing compliant employment contracts
• Running local payroll in the correct currency
• Withholding and remitting taxes
• Administering statutory benefits
• Ensuring labor law compliance

Consider an EOR when hiring in a new market to avoid the time, cost, or complexity of registering a local entity. It’s especially useful for testing a new region, hiring a small remote team, or staying lean while scaling internationally.

Read more about what an EOR is.

Employer of Record Pros and Cons at a Glance 

Take a look at this table to understand what we’ll be exploring in detail further into the article.

Pros	Cons
Hire globally in days, not months	Higher per-employee cost at scale
No need to set up a local entity in each country	Less control over HR policies, contracts, and employment terms
Handles compliance, payroll, taxes, and benefits across borders	Limited customization of compensation and perks
Access to talent in 100+ countries (depends on the EOR you use)	May impact employee engagement or sense of belonging
Scales quickly across markets	Dependent on EOR performance and reliability
Reduces internal HR/legal workload	Currency fluctuations can affect monthly costs
Ideal for short-term or project-based hiring	Not ideal for regulated, sensitive, or high-security roles
Good for testing new markets without long-term commitment	Doesn’t eliminate all compliance or tax exposure risks

Employer of Record Pros

EORs don’t just remove red tape; they give you operational leverage. Here are a few employer of record benefits that create real strategic value:

1. Fast global onboarding and market entry

Speed matters when you’re competing for talent or testing a new region. With an EOR, you can legally hire in as little as 5–10 business days, compared to the 3–6 months it typically takes to register a local entity.

For example, a U.S.-based SaaS startup can use an EOR to hire a product manager in Germany in under two weeks, beating a competitor still waiting on legal approval to set up operations. 

2. No need to set up a local entity

Entity setup costs range from $10,000 to $50,000+ per country, and that’s before you factor in ongoing legal, accounting, and compliance head. 

EORs eliminate that. They hold the local license, handle employee liabilities, and charge a flat monthly fee per employee.

This is ideal if you’re hiring fewer than 10–20 employees in a given country or testing market viability.

Want to see the savings for your hiring plan?

Try Tarmack’s Global Hiring Cost Calculator to compare entity setup vs EOR across markets.

3. Legal compliance and risk mitigation

Hiring internationally means navigating tax codes, employment laws, benefits mandates, and reporting requirements, all of which vary by country and change often. 

A single misclassification or missed tax filing can trigger audits, fines, or bans from hiring in that country. EORs act as your in-country compliance partner. They maintain up-to-date employment contracts, withhold taxes, and ensure you meet local labor laws from day one.

4. Simplified payroll and HR admin

Hiring globally without an EOR often means juggling a patchwork of local payroll vendors, benefits providers, and compliance tools, each with its own processes, systems, and time zones. The operational drag is real:

• Manually exporting payroll data between systems
• Chasing updates across jurisdictions
• Coordinating with vendors in different languages and time zones
• Scrambling to stay compliant with changing local laws

EORs remove that friction by consolidating everything into one platform. Without an EOR, you’ll need separate vendors for payroll, benefits, and HR in every country you hire.

Instead of managing multiple tools and vendors, one provider handles salary disbursement, payslips, local benefits, tax filings, and employee records—globally.

Instead of hiring in-house legal or HR for each region, your core team stays lean and focused. EORs reduce admin burden, limit vendor sprawl, and free up bandwidth for strategic work.

For companies scaling across borders, the value is clear: less overhead, more control.

5. Access to global talent

Without an entity, you’re locked out of most global markets. EORs change that.

You can legally hire talent in 100+ countries: engineers in Poland, designers in Vietnam, sales reps in France, finance teams in Singapore, or content marketers in Thailand, all without setting up a local entity. EORs allow you to hire wherever the best talent is, not just where you have an entity. This expands your candidate pool dramatically.

Hiring in Eastern Europe in advanced industries like AI development can cut costs for US businesses up to 60%, while giving these job-seekers a better-paying role than they’d locally get.  

6. Scalability and flexibility

Whether you need one employee in Spain or a regional team across APAC, EORs let you ramp headcount up without requiring infrastructure changes. You can enter or exit markets quickly or run pilot teams in new geographies.

When you’re ready to invest long-term, you can transition from EOR to your own local entity.

Tarmack supports both, helping you hire fast today, and build your own base when the time is right.

7. Lower expansion costs for small teams

EORs may seem expensive at first, but for teams under 20 people per country, they are usually a cost-effective option. 

You skip entity setup, legal retainers, accounting fees, and ongoing admin costs. Instead, you pay a flat monthly fee per employee. In high-cost countries like Germany or Japan, that shift can save your business over $200,000 in just the first year.

Plus, if your EOR handles compliance, fines and penalties from hiring mistakes are their responsibility, not yours.

8. Improved employee experience abroad

When you hire through an EOR, employees get paid on time, in their currency, with the right local benefits, from day one.

They also get access to native-language HR support, holidays that match their region, and onboarding that reflects local norms, without depending on your HQ team.

This leads to faster ramp-up, better engagement, and fewer resignations due to poor employee experience.

Explore 5 hacks for hiring and managing talent abroad.

Employer of Record Risks and Drawbacks

EORs can accelerate global hiring, but they’re not a perfect fit for every company or every stage of expansion. Here’s what you need to weigh before committing:

1. Higher ongoing cost vs other models

EORs trade lower upfront costs for higher per-employee fees. You’re typically paying a monthly fee per employee (or a markup of 10–15% on salary), which adds up quickly at scale, depending on the EOR you choose.

If you’re hiring more than 15–20 employees in one country, a local entity may become more cost-effective within 12–18 months.

Bottom line: EORs save upfront costs, not long-term operating expenses.

2. Loss of direct control over HR processes

The EOR, not you, is the legal employer. That means they control employment contracts, benefits administration, and local compliance processes. You guide the work, but you can’t always dictate how it’s wrapped in policy.

3. Limited flexibility in contracts or benefits

EORs standardize employment contracts to minimize risk, but that can restrict your ability to tailor terms by region or role. Some won’t support custom PTO policies, bonuses, or fringe benefits.

This may create friction if you’re trying to match global comp or provide highly competitive local offers.

4. Currency fluctuations and variable costs

You pay employees in local currency, but you’re billed in your home currency. Exchange rate volatility can make monthly payroll unpredictable, especially in high-risk or inflation-prone regions.

A 5–10% shift in FX rates can impact annual payroll costs by tens of thousands of dollars, depending on headcount and location.

5. Employee perception and engagement risk

When an employee is officially hired through a third party, they may feel disconnected from your core team or culture, especially if onboarding or internal comms aren’t handled well.

Employees could resign due to feeling “contracted out” with no visibility into the parent company’s roadmap.

6. Dependency on third-party performance

If the EOR makes a mistake—late payroll, mishandled termination, missed tax filing, you bear the impact. You’re trusting another company with high-stakes, high-visibility employee operations.

Tip: Always review your EOR’s SLAs and audit track record before signing.

7. Data privacy and compliance concerns

You’re sharing sensitive employee and payroll data with a third-party provider. If their systems lack strong data governance, you could face exposure to GDPR violations or breach risks.

Ask: Where is data stored? Is it encrypted end-to-end? Does the EOR meet SOC 2 or ISO 27001 standards?

8. Coverage gaps or local regulatory limits

Not every EOR supports every country or every employment type. Some markets restrict how long someone can be employed through an EOR or require specific licenses for regulated industries.

For instance, in Germany, EOR arrangements may trigger co-employment or labor leasing scrutiny if not handled carefully. 

9. Compliance mistakes still impact you

EORs reduce your exposure, but they don’t eliminate it. If they misclassify a worker or violate local law, your brand and operations can still suffer. Local regulators may still come knocking, even if the EOR is technically liable.

Treat the EOR as a compliance partner, not a black box. Stay engaged.

When an Employer of Record is (and isn’t) the Right Fit

An EOR isn’t a blanket solution. In some scenarios, it helps you hire faster, stay lean, and reduce risk. In others, setting up your own entity or working with contractors may be more efficient.

Here’s a side-by-side comparison to help you decide:

Use an EOR if…	An EOR may not be the best fit if…
You’re hiring a small team (fewer than 20 employees) in a new country	You’re planning to hire 50+ employees or build out a long-term presence in one country
You need to hire in under 30 days and can’t wait for entity setup	You have time and resources to establish a local entity for long-term control
You’re testing a new market to validate product-market fit	You need full control over compensation, equity, and HR policies
Your internal HR and legal teams lack international expertise	You’re hiring for high-security or compliance-heavy roles (e.g., fintech, defense, health tech)
The role is project-based or time-bound (e.g., 6–12 months)	You need a registered business to qualify for government contracts, RFPs, or improve in-country branding
You want to stay lean and avoid hiring local HR or legal consultants	Your in-country team is generating revenue or signing contracts, increasing the risk of permanent establishment (PE)

Read more about why you should hire remote workers.  

Pro tip: If you’re checking most boxes on the left, an EOR is likely your best starting point.Explore how Tarmack helps global teams scale smartly.

Alternatives to EOR (and When to Use Them)

An Employer of Record isn’t your only option. Depending on your hiring goals, scale, and risk tolerance, these alternatives may offer a better fit:

1. Local entity setup (subsidiary or branch)

This is only if you’re making a long-term investment in a specific market, plan to scale headcount, and want full ownership of employment, culture, and compliance.

Pros:

• Full control over HR, payroll, benefits, and equity
• Greater flexibility in structuring roles and compensation
• Builds local credibility for hiring, sales, or partnerships
• Lower long-term cost per employee once the team size justifies the overhead
  

Cons:

• High upfront investment—can cost $20K–$100K+, depending on the country
• 3–6 months average setup time
• Ongoing legal, tax, and admin responsibilities
• Winding down an entity is complex and expensive if the market doesn’t pan out
  

Best for:

Companies hiring 25+ people in one country, seeking brand visibility or bidding on local projects.

2. Staffing agencies or independent contractors

Hire this way when you need short-term talent quickly, or want to test a hire before committing to a full-time employment structure. However, for certain fields, this may just be your long-term answer.

If so, Tarmack can help with contractor management. 

Pros:

• Fast onboarding for non-core roles
• Lower cost than EORs for short-duration or freelance work
• Flexibility to scale teams up or down without long-term commitments
  

Cons:

• Misclassification risk if contractors are treated like full-time employees
• Inconsistent standards across countries/agencies
• Poor fit for roles that require deep integration into your team or IP handling
• No ownership of employee experience or loyalty
  

Best for:

Freelance or project-based roles, quick fill-ins, and non-critical hires in low-risk jurisdictions.

Find out how an EOR compares with staffing agencies.

3. PEOs (Professional Employer Organizations)

Use this when you already have a legal entity in-country and need help managing HR, payroll, and benefits locally.

Pros:

• Cost-effective for ongoing HR/payroll compliance
• Shared legal and administrative responsibilities
• Ideal for companies that want support without giving up employment control
  

Cons:

• Only works where you have an entity
• Not a solution for companies expanding into new markets for the first time
  

Best for:

Domestic workforce management or companies scaling in countries where they already operate.

Note: PEOs are not substitutes for EORs internationally. You must be a registered employer in the country to work with a PEO. They act as a co-employer, not a legal employer.

Here’s Why Employer of Record is Right for You

An Employer of Record solution is practical when you need to hire internationally without delay or complexity. But the value doesn’t come from the model alone. It comes from how it’s executed.

Tarmack helps you hire internationally: fast, compliantly, and without building local entities or expanding your internal team. 

You get one partner for contracts, payroll, benefits, and compliance across markets. And when you’re ready to scale further, we support your transition to full local entities.

Unlike rigid platforms, Tarmack adapts to your hiring model, whether you’re testing one hire in Vietnam or building a 30-person team across Europe.

Talk to our team about our global hiring plans 

Or sign up directly.