Employer of Record vs Common Law Employer

If you are planning to grow your team across borders, one of the first decisions you will face is how to legally hire in another country. Most companies either work with an Employer of Record (EOR) or take on the role of a common law employer themselves.

While both options will allow you to build an international team, they come with very different responsibilities around compliance, liability, and control. In this article, we’ll walk you through how each model works and help you choose the right fit for your hiring goals.

What is a Common Law Employer?

When you hire employees directly under your company’s name, you are acting as a common law employer. This means you have full and direct responsibility for every aspect of the employment relationship, including legal compliance, payroll, benefits, and workplace policies.

As the common law employer, you control how and when the work is done, you set the wages, and you manage performance. You are also obligated to provide the tools and equipment necessary for the job. While this model gives you complete control, it also means you carry the full legal and administrative burden. If you’re hiring in a country where you do not have a registered legal entity, this can be a complex approach, as you would need to register a new company to become a legal employer in that country.

What is An Employer of Record (EOR)?

An Employer of Record (EOR) is a service provider that hires employees on your behalf and takes care of all the legal and administrative responsibilities that come with it. This includes payroll, taxes, benefits, contracts, and compliance with local labor laws.

However, you will still manage your employees’ daily work by assigning tasks, setting priorities, and integrating them into your team. The EOR only acts as the legal employer that handles the hiring and admin work to keep things compliant.

If you want to hire in a new country without going through the time and expense of setting up a local entity, an EOR is a practical and reliable solution. It is especially useful for building remote teams quickly while staying compliant with local regulations.

Employer of Record vs Common Law Employer

Choosing between an Employer of Record and acting as a common law employer comes down to how much control you want and how much responsibility you are ready to take on. Both models allow you to build a remote global team, but they handle the legal and administrative sides of employment very differently. 

To help you decide, here’s a simple side-by-side comparison:

When to Use Each Model for Your Business

Choosing between the two models depends on how your business is set up and what kind of control or flexibility you need. 

Use an Employer of Record if you:

• Want to hire in a country where you do not have a legal entity.
• Prefer to avoid the cost and time of setting one up.
• Need to get up and running quickly with local compliance handled for you.
• Want to focus on managing your team while someone else takes care of payroll, taxes, and HR administration.
• Are building a remote team and want a low-risk way of expanding across borders.

A common law employer structure is suitable if you:

• Already have a legal entity and HR team in place.
• Want direct control over employment contracts, policies, and benefits.
• Are comfortable with managing local labor laws, tax filings, and compliance on your own.
• Plan to scale a larger team in one location and prefer not to use third-party services.

For companies just starting to build a global team, an EOR is often the fastest and safest way to expand. As your presence in a market grows, you can always transition to direct employment under your own entity later.

How RecruitGo Can Help Your Business

If you are looking for a reliable Employer of Record service provider to grow your team globally, our team at RecruitGo is here to help. We’ll handle the administrative side of things to keep you legally compliant while you focus on growing your business.

Here’s how we support you:

• Hire full-time employees in new countries quickly and legally.
• Handle local HR tasks including employment contracts, onboarding, and benefits distribution.
• Take care of payroll, taxes, and regulatory filings in full compliance with local laws.
• Provide a platform to easily manage your global team across multiple countries.
• Ensure your employees are paid accurately and on time.

Ready to expand your team globally? Get in touch with us to find out how our EOR service can simplify your expansion.

Frequently asked questions

The legal test for determining a common law employer varies by country, but the core factors are often similar. The test focuses on:

• Type of relationship (including permanency, benefits, and training)
• Behavioral control (how much the employer controls the work)
• Financial control (how the worker is paid, whether expenses are reimbursed, etc.)

The EOR signs the contract with the employee, while the client typically reviews and sets the terms of employment, but the legal employer on paper is the EOR.

Yes, but it depends on the EOR’s structure. You can coordinate bonuses and incentive plans for your EOR employees by including them in your employment contract or adding them as amendments. Stock options may be offered by your company directly, but the specifics will depend on the EOR’s structure and local laws.

Yes, you can provide equipment to EOR employees. It can be done by shipping directly, reimbursing employees, or coordinating through the EOR itself. Do keep in mind any potential import taxes, customs, and compliance issues in the employee’s country.

EOR employees follow the public holiday schedule of their country of employment, not the client company’s head office calendar.