What Is an Employer of Record (EOR) and How Does It Work?

An Employer of Record (EOR) is a third-party organization that serves as the legal employer for a client company's workforce in a foreign jurisdiction. The EOR handles payroll, tax withholding, benefits administration, and employment compliance. The client company retains day-to-day management of the employee's tasks and output.

What Is an Employer of Record?

An Employer of Record is a legal entity that employs workers on behalf of another company in a specific country. The EOR assumes all statutory employer obligations including payroll processing, tax filing, social insurance contributions, and labor law compliance. The client company directs the employee's daily work without holding the employment contract.

The EOR model enables companies to hire in countries where they lack a registered entity. A company in the United States can hire an engineer in Vietnam through an EOR within 5-7 business days. The same process through entity incorporation takes 3-6 months and costs $15,000-$30,000 in Vietnam alone.EOR services in Vietnam provide compliant employment without company registration in Vietnam.

EOR providers operate in 150+ countries globally. The Southeast Asian EOR market reached $1.2 billion in 2024 and grows at 22% annually according to Everest Group research. Five countries: Vietnam, Singapore, Philippines, Malaysia, and Indonesia: account for 68% of EOR demand in Asia-Pacific.EOR services in Singapore handle CPF, SDL, and Employment Act compliance.

How Does an EOR Differ from a Staffing Agency?

An EOR and a staffing agency serve different functions in the employment chain. A staffing agency recruits, selects, and provides temporary workers to client companies. An EOR does not recruit: it serves as the legal employer for workers the client company has already identified and selected.

A staffing agency owns the candidate relationship and often marks up the employee's salary by 20-50%. An EOR charges a flat monthly fee per employee, typically ranging from $199-$799 depending on the country. The client company negotiates salary directly with the employee.

What Is the Legal Structure of an EOR?

An EOR operates through a registered legal entity in each country where it employs workers. This entity holds the business registration, tax identification number, and employer registration with local labor authorities. The EOR signs the employment contract directly with the worker under local labor law.

The relationship involves three parties: the EOR (legal employer), the client company (economic employer), and the employee. A service agreement between the EOR and client company defines responsibilities. The employment contract between the EOR and employee follows local labor code requirements.

In Vietnam, the EOR registers with the Department of Labor, Invalids, and Social Affairs (DOLISA). In Singapore, the EOR registers with the Ministry of Manpower (MOM). In the Philippines, the EOR registers with the Department of Labor and Employment (DOLE) and Securities and Exchange Commission (SEC).EOR services in the Philippines manage SSS, PhilHealth, and 13th month pay compliance.

How Does EOR Compare to PEO?

An EOR and a PEO differ in one critical dimension: entity requirement. A PEO operates under a co-employment model where the client company must have a registered entity in the target country. An EOR serves as the sole legal employer, eliminating the need for the client company to establish any local entity.

Companies with fewer than 20 employees in a country typically choose EOR. The break-even point where entity setup becomes cheaper than EOR fees occurs at approximately 15-25 employees, depending on the country. Aniday provides both EOR services (Aniday EOR Vietnam) and PEO services (Aniday PEO Vietnam) across Southeast Asia.

What Does an EOR Cost?

EOR costs follow two pricing models: flat fee per employee per month or percentage of payroll processing in Vietnam. The flat-fee model dominates the Southeast Asian market. Monthly fees range from $199 in Vietnam and Philippines to $799 in Singapore. Setup fees range from $0 to $500 depending on the provider.outsourced payroll in Vietnam

The total cost of employment through an EOR includes the employee's gross average salary in Vietnam, mandatory employer contributions (social insurance, taxes), and the EOR service fee. In Vietnam, mandatory employer contributions add 23.5% on top of gross salary. In Singapore, employer CPF contributions add 17% for employees under 55.

What Compliance Does an EOR Handle?

An EOR manages all statutory compliance obligations that fall on the legal employer. This includes employment contract drafting under local labor law, payroll tax withholding and filing, social insurance registration and contributions, work permit applications for foreign employees, and statutory leave tracking.

In Vietnam, the EOR files monthly social insurance contributions with Vietnam Social Security (VSS). In Singapore, the EOR submits CPF contributions by the 14th of each month. In the Philippines, the EOR remits SSS, PhilHealth, and Pag-IBIG contributions monthly. Failure to comply triggers penalties ranging from 2% monthly interest (Philippines) to criminal prosecution (Singapore).

The EOR also handles termination compliance. Each Southeast Asian country has specific rules for notice periods, severance pay, and lawful termination grounds. Vietnam requires 45 days notice for indefinite contracts. Singapore requires 1-4 weeks based on tenure. The Philippines distinguishes between just cause and authorized cause termination with different procedural requirements.

What Types of Contracts Can an EOR Issue?

An EOR issues employment contracts that comply with local Vietnam labour law for foreigners. The contract type depends on the country's labor code. Vietnam's Labor Code 2019 permits definite-term contracts (up to 36 months) and indefinite-term contracts. After two consecutive definite-term contracts, the third must be indefinite-term.

Singapore does not mandate specific contract types but requires written Key Employment Terms (KETs) within 14 days of employment start. The Philippines requires regularization after a 6-month probationary period. Malaysia mandates written contracts for all employees under the Employment Act 1955 (amended 2022).

Indonesia distinguishes between PKWT (fixed-term) and PKWTT (permanent) contracts. PKWT contracts have a maximum duration of 5 years including extensions. Employers must pay compensation at the end of PKWT contracts equal to one month's average salary in Indonesia per year of service.

Who Should Use an EOR?

An EOR serves three primary use cases. First, companies entering a new market with 1-20 employees who need to hire before establishing a legal entity. Second, companies testing market demand in a country before committing to entity setup costs of $15,000-$50,000. Third, companies hiring remote employees in countries where they have no commercial presence.

Companies with more than 20-25 employees in a single country should evaluate entity setup. The monthly EOR cost for 25 employees at $400/month equals $10,000/month or $120,000/year. An entity in Vietnam costs $15,000-$30,000 to establish with ongoing maintenance of $2,000-$5,000/month, becoming cheaper at scale.

Aniday provides EOR services in Vietnam (Aniday EOR Vietnam), Singapore (Aniday EOR Singapore), Philippines (Aniday EOR Philippines), Malaysia (Aniday EOR Malaysia), and Indonesia (Aniday EOR Indonesia).

What Are the Risks of Using an EOR?

EOR arrangements carry four categories of risk. First, permanent establishment risk: tax authorities may argue the EOR arrangement creates a taxable presence for the client company. Second, IP protection requires explicit assignment clauses in the service agreement. Third, employee loyalty may split between the EOR (contract holder) and the client company (work director).

Fourth, regulatory risk varies by country. Some jurisdictions restrict EOR-like arrangements. India's labor codes do not explicitly recognize the EOR model. Vietnam permits it under labor leasing provisions but caps leased workers at 12 months. Companies should verify EOR legality in each target country before engagement.

What is the difference between an EOR and a contractor?

An EOR employs workers as full employees with all statutory benefits. A contractor works independently without employee benefits, social insurance, or employer tax contributions. Misclassifying an employee as a contractor triggers penalties of 2-5x the unpaid contributions in most Southeast Asian countries.

How long does EOR onboarding take?

EOR onboarding takes 3-10 business days depending on the country. Singapore processes in 3-5 days. Vietnam and Philippines take 5-7 days. Indonesia requires 7-10 days due to BPJS registration timelines. Work permit processing for foreign nationals adds 4-12 weeks.EOR services in Indonesia handle BPJS, THR, and Manpower Law compliance.

Can an EOR sponsor work permits?

Most EOR providers sponsor work permits for foreign employees. In Singapore, the EOR applies for Employment Passes (EP) or S Passes through MOM. In Vietnam, the EOR applies for work permits through DOLISA. Processing times range from 4 weeks (Singapore EP) to 12 weeks (Vietnam work permit).

Does the employee know they are employed by an EOR?

Yes. The employment contract is between the EOR entity and the employee. The employee receives pay slips from the EOR. The employee's social insurance records list the EOR as the employer. Transparency is a legal requirement in all Southeast Asian jurisdictions.

What happens when an employee is terminated under an EOR?

The EOR manages the termination process according to local labor law. This includes serving the required notice period, calculating severance pay, processing final salary and unused leave payment, deregistering social insurance, and issuing employment certificates. Vietnam requires 45 days notice for indefinite contracts. Singapore requires 1-4 weeks.

Can I convert from EOR to my own entity later?

Yes. The conversion process involves establishing a local entity, transferring employees from the EOR contract to the new entity, and terminating the EOR service agreement. Employee consent is required for contract transfer. The process takes 2-4 months and may trigger severance obligations under the EOR contract before re-employment under the new entity.

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