Employer of Record vs Agent of Record

Employer of Record (EOR) and Agent of Record (AOR) sound similar but serve fundamentally different purposes. An EOR becomes the legal employer of workers. An AOR acts as a representative or intermediary without becoming an employer.

The confusion is understandable—both involve third parties managing workforce relationships. But the scope, liability, and cost are completely different. Understanding the distinction helps you choose the right model for your needs.

The fundamental difference

Employer of Record (EOR) becomes the legal employer of full-time employees. The EOR handles payroll, withholds taxes, provides benefits, ensures compliance with local employment law, and assumes employment liability. The worker is employed by the EOR but works for your company.

Agent of Record (AOR) acts as a representative or intermediary. In HR contexts, an AOR typically manages relationships with independent contractors or benefits providers. They handle administrative tasks and documentation but don't employ anyone. The contractor remains self-employed.

Think of it this way: an EOR takes on employment responsibility. An AOR takes on administrative responsibility. The liability and cost implications are completely different.

Side-by-side comparison

When to use an EOR

Use an EOR when you need to hire full-time employees in countries where you have no legal entity. The classic scenario: you're a U.S. company hiring a full-time employee in Germany. You don't have a German entity, don't want to set one up, and need someone to handle German employment law, payroll, and benefits.

The EOR becomes the legal employer in Germany. They handle the employment contract, process payroll in euros, withhold German taxes, provide mandatory benefits, and ensure compliance with German labor law. The employee works for your company but is employed by the EOR.

EORs are for employment relationships. If you need someone full-time, want to provide benefits, and need local employment law compliance, an EOR makes sense.

When to use an AOR

Use an AOR when you're working with independent contractors and want to outsource administrative tasks. The contractor remains self-employed, works for multiple clients, and handles their own taxes and benefits. The AOR manages contracts, invoices, payments, and documentation.

The classic scenario: you're a staffing agency placing contractors at client sites. You use an AOR to manage contracts and payments for hundreds of contractors. The AOR handles the paperwork, you focus on matching talent to opportunities.

AORs are also used in benefits administration. A company might designate an AOR to manage relationships with insurance brokers or benefits providers, giving the AOR authority to make decisions and handle administrative tasks on the company's behalf.

Cost implications

EORs cost more because they assume employment liability. Typical pricing is $49-99 per employee per month, plus the employee's salary, benefits, and employer taxes. For a $60,000/year employee, total cost might be $75,000-80,000 annually (salary + benefits + taxes + EOR fees).

AORs cost less because they don't employ anyone. Typical pricing is $5-50 per contractor per month, or 3-5% of contractor payments. For a contractor billing $5,000/month, AOR fees might be $25-250/month depending on the provider and services.

The cost difference reflects the liability difference. EORs take on employment risk; AORs provide administrative services without employment liability.

Liability and risk

With an EOR, employment liability transfers to the EOR. If there's a wrongful termination claim, employment law violation, or payroll error, the EOR is the legal employer and assumes primary liability. This is why EORs cost more—they're taking on significant risk.

With an AOR, there's no employment liability because the AOR isn't an employer. However, misclassification risk remains with you. If a contractor should actually be an employee, using an AOR doesn't protect you from penalties. The AOR can help assess classification and provide documentation, but they don't eliminate the risk.

This is a critical distinction. EORs assume employment liability. AORs provide administrative services but don't protect you from misclassification risk.

Can you use both?

Yes, and many businesses do. You might use an EOR for full-time employees in countries where you have no entity, and an AOR (or direct management) for independent contractors.

Example: A U.S. software company has 5 full-time employees in Europe (managed through an EOR) and 15 contractors globally (managed through an AOR or contractor management software). The EOR handles employment for the full-time staff. The AOR or software handles contractor administration.

The models serve different workforce types. EORs are for employees. AORs are for contractors. Using both makes sense if you have both workforce types.

The direct management alternative

For contractors, many businesses skip the AOR entirely and manage relationships directly using contractor management software. This approach costs less ($99/month for up to 25 contractors vs $50-500/month for AOR services), gives you more control, and maintains direct relationships.

With contractor management software, you create contracts, track milestones, approve invoices, and coordinate payments through your existing payment accounts (Wise, PayPal, Payoneer). The software provides organization and documentation without adding a middleman.

For employees, you still need an EOR if you're hiring internationally without a local entity. But for contractors, direct management is often simpler and more cost-effective than using an AOR.

Common questions

Can an AOR become an EOR? No, they're different legal structures. An AOR is a representative; an EOR is an employer. If you need employment services, you need an EOR, not an AOR.

Does using an AOR protect me from misclassification? Not entirely. An AOR can help assess contractor classification and provide documentation, but they don't eliminate the risk. If a contractor should be an employee, you're still liable.

Which is faster to set up? AORs are typically faster (1-2 weeks) because they're not setting up employment. EORs take 2-4 weeks because they need to establish employment contracts, benefits, and payroll in the local jurisdiction.

Can I switch from AOR to EOR? Yes, if a contractor relationship evolves into an employment relationship, you can transition from AOR to EOR. The contractor becomes an employee, and the EOR takes over employment responsibilities.

The bottom line

EORs and AORs serve different purposes. EORs are for employing full-time staff internationally. AORs are for managing contractor relationships administratively. The cost, liability, and use cases are completely different.

If you need to hire employees in countries where you have no entity, use an EOR. If you're working with contractors and want to outsource administration, consider an AOR—or manage directly with contractor management software for more control and lower cost.

Know your workforce type. Employees need an EOR. Contractors can be managed through an AOR or directly. The right choice depends on your needs, budget, and desired level of control.