Do you actually need an EOR?

Most companies think they need an Employer of Record because they're hiring internationally. But an EOR solves a specific problem: becoming the legal employer of workers in countries where you have no entity. If you're working with independent contractors instead of employees, you probably don't need one.

This article helps you figure out what you actually need.

What an EOR actually does

An Employer of Record becomes the legal employer of your workers in different countries. They handle payroll, tax withholding, benefits administration, and employment compliance. You hire through them, they manage everything.

EORs exist to solve a real problem: hiring employees in countries where you don't have a legal subsidiary is complicated. You need to register with tax authorities, understand employment law, offer benefits, and manage payroll. Setting up a subsidiary costs $10,000-50,000 per country. An EOR lets you skip that and hire employees directly without owning a local entity.

The tradeoff is cost (typically $49-120 per employee per month) and some loss of control (the EOR is technically the employer).

The fundamental distinction

The question isn't "should I hire internationally?" It's "am I hiring employees or contractors?"

Employees work exclusively or primarily for you. You control their schedule, provide equipment, integrate them into your organization, and expect ongoing work. Employees need benefits, paid time off, and legal protections. You withhold taxes and handle compliance. An EOR is built for this.

Contractors work for multiple clients. They control their own schedule and methods. They provide their own equipment. Work is project-based or time-bound, not ongoing. Contractors handle their own taxes and don't get benefits. The relationship is transactional. Contractor management software is built for this.

These aren't just labels. Labor law distinguishes between them. If you misclassify an employee as a contractor, you face penalties, back taxes, and legal liability. Conversely, using an EOR for contractors means overpaying significantly for infrastructure you don't need.

The 5-question framework

Ask yourself these five questions to determine what you need:

1. Are you hiring employees or contractors?

Employees work exclusively for you, follow your schedule, use your equipment, and you direct their work. Contractors work for multiple clients, set their own hours, use their own tools, and invoice you for deliverables.

If employees: You likely need an EOR or payroll infrastructure. If contractors: You need contractor management, not an EOR.

2. Do they need benefits and payroll?

Employees typically need health insurance, paid time off, retirement benefits, and regular paycheck processing. Contractors handle their own benefits, insurance, and taxes.

If yes to benefits: You need an EOR or payroll software. If no (contractors handle it): You don't need an EOR.

3. How many people are you hiring?

This affects the cost-benefit calculation. Hiring 10 full-time employees across different countries? An EOR makes sense—you avoid expensive subsidiary setup. Hiring 10 contractors across different countries? Direct management is cheaper and simpler.

10+ employees in multiple countries: EOR likely makes sense. 5-30 contractors across countries: Direct contractor management is simpler and cheaper.

4. What's your risk tolerance for misclassification?

If someone works exclusively for you, follows your schedule, and you control their work—labor law might classify them as an employee regardless of your intent. This creates legal risk.

High risk of misclassification: Use an EOR to be safe. Clear contractor relationship: Manage directly with proper documentation.

5. Do you need a local legal entity?

In some countries, hiring employees requires a local business entity. Setting one up costs thousands and takes months. An EOR bypasses this.

Yes, you need a local entity: EOR is convenient (though not required). No, you're just buying services: You don't need an entity or an EOR.

What the answers tell you

If you answered "Yes" to questions 1, 2, and 5:

You're hiring employees who need payroll, benefits, and tax withholding in countries where you don't have a legal entity. An EOR is designed for this. Compare providers like Deel, Remote.com, Oyster, or Rippling. Expect $49-120 per employee per month plus local employment costs.

If you answered "No" to questions 1 and 2:

You're working with independent contractors who handle their own taxes and benefits. You don't need an EOR. You need contractor management—software that helps organize contracts, track milestones, approve invoices, and record payments. Pay directly via bank transfer, Wise, PayPal, or Payoneer.

If you're hiring both employees and contractors:

Use an EOR for employees and direct contractor management for contractors. Don't pay EOR fees for people who aren't employees. Example: 3 employees in the UK via EOR = $147-360/month. 8 contractors across multiple countries via direct management = $99/month contractor management software + Wise transfer fees. Total savings: $48-261/month.

The cost reality

Managing 10 employees via EOR:

• Monthly: $490-1,200
• Annual: $5,880-14,400
• Plus local employment costs, benefits, taxes

Managing 10 contractors via direct payment + management software:

• Contractor management software: $99/month
• Payment transfers via Wise: $30-100/month (5-10 transfers)
• Annual total: $1,500-1,800
• No employee costs or benefits

Annual difference for 10 contractors: $4,080-12,900

The gap is significant. Over 5 years with 10 contractors, using EOR instead of direct management costs $20,000-65,000 extra—for people who don't need employee infrastructure.

Real-world scenarios

Scenario 1: Marketing agency with 8 freelance designers

These designers work for multiple clients. They invoice for completed projects. They set their own hours and use their own equipment. They handle their own taxes.

This is contractor management, not EOR. Cost to manage via EOR: $392-944/month. Cost to manage directly: $99/month software + payment transfers. Savings: $293-845/month or $3,516-10,140/year.

Scenario 2: SaaS startup with 1 full-time developer in Argentina and 4 part-time contractors

The full-time developer is an employee who works 40 hours/week exclusively for you, follows your schedule, and you provide equipment. The 4 contractors work 10-15 hours/week on specific features, work for other clients, and invoice you.

Use EOR for the employee (handles compliance, taxes, benefits). Use contractor management for the 4 contractors (organize contracts and payments). Cost: EOR for 1 ($49-99/month) + contractor management for 4 ($99/month). Much cheaper than EOR for all 5.

Scenario 3: Production company with project-based crews

For each 3-week project, you hire 15-20 contractors (videographers, editors, sound designers). They work on specific deliverables, then move to the next project.

This is pure contractor management. These aren't employees—they're project-based. Cost via EOR for 15 people: $735-1,890 for a 3-week project. Cost via direct contractor management: $99/month for the platform + $45-150 in transfer fees. Savings: $590-1,800 per project.

Common concerns and honest answers

What if I'm not sure about classification?

If someone works exclusively for you, follows your schedule, uses your equipment, and you direct their work—they're likely an employee legally, even if you call them a contractor. This creates risk. Options: Consult with an employment lawyer, use an EOR to be safe, or restructure the relationship to be genuinely independent.

If they have multiple clients, set their own hours, use their own equipment, and invoice you—they're clearly a contractor.

Can I start with contractors and switch to EOR later if they become employees?

Yes. Many companies start with contractors to test a market, then hire full-time employees via EOR if successful. Just ensure proper classification from day one. Misclassifying someone as a contractor then reclassifying them later creates tax issues.

What about U.S. contractors?

U.S. contractor management is straightforward and doesn't require an EOR. Collect a W-9 (tax ID), pay via ACH/check/Wise, issue a 1099 at year-end. EORs are for employees or international complexity.

Do I need an EOR if I'm hiring in the EU?

Not necessarily. If you're hiring employees, you might need to register with local tax authorities and handle employment law, but this varies by country. An EOR makes it simpler. If you're hiring contractors, you don't need an EOR—you just need proper documentation (contract, tax ID, payment records).

What about tax compliance for contractors?

Contractors handle their own tax compliance. You maintain records and may need to file forms (1099s in the US, etc.). Contractor management software helps organize these records. But proper tax filing depends on the contractor's location and your location—consult with an accountant or tax professional.

Can I use a contractor management platform instead of an EOR?

Only if you're actually working with contractors, not employees. A contractor management platform organizes contracts, invoices, and payments. It doesn't provide employee benefits, tax withholding, or payroll processing. If you need those, you need an EOR or payroll software.

The decision framework summarized

You need an EOR if:

• You're hiring employees (not contractors)
• They work exclusively for you
• You want to provide benefits
• They're in countries where you don't have a legal entity
• You want to avoid setting up subsidiaries

You don't need an EOR if:

• You're working with independent contractors
• They have multiple clients
• They handle their own taxes
• You have 5-30 of them (not dozens)
• Cost is a concern

You might need both if:

• You have employees in some countries and contractors in others
• Use EOR for employees, direct contractor management for contractors

The bottom line

EORs are valuable for hiring employees internationally. They solve a real problem. But most companies using EORs for contractors are overpaying significantly.

If you're working with independent contractors who have multiple clients, control their own work, and invoice you—you don't need an EOR. You need contractor management: software that organizes contracts, tracks payments, and maintains documentation. Plus payment tools (bank transfer, Wise, PayPal) that contractors already use.

The difference in cost is substantial ($4,000-12,000+ per year for 10 contractors). The difference in speed is real (direct payment in 1-3 days vs EOR payout in 3-5 days). And you maintain more control.

Figure out whether you're hiring employees or contractors. Then choose the right tool for that situation. Most companies will find they don't need an EOR—they just need better contractor management.