EOR vs contractor management

The question comes up constantly: should I use an EOR or contractor management software? The answer depends entirely on who you're hiring. Employees need EORs. Contractors need contractor management. Using the wrong tool means either overpaying for features you don't need or creating compliance risks you can't afford.

This guide breaks down the differences, costs, compliance realities, and decision framework to help you choose correctly.

Use cases

Use an EOR when: You're hiring full-time employees in countries where you have no legal entity. You need to provide local benefits (health insurance, pension, paid leave). You need to withhold and remit payroll taxes. You need employment contracts that comply with local labor laws. The worker will work exclusively for you, follow your schedule, and be integrated into your organization.

Example: A US startup wants to hire a full-time senior engineer in Poland. They have no Polish entity. The engineer will work 40 hours/week exclusively for them, receive benefits, and be part of the engineering team. This is an employee. Use an EOR.

Use contractor management when: You're working with independent contractors who work for multiple clients. They set their own schedules and use their own equipment. They handle their own taxes and don't need benefits. They invoice you for completed work. You need to organize contracts, track milestones, approve invoices, and coordinate payments.

Example: A marketing agency works with 8 freelance designers, copywriters, and social media managers across different countries. Each contractor has multiple clients, sets their own hours, and invoices for completed projects. These are contractors. Use contractor management software.

Cost model comparison

The cost difference is significant. Let's compare managing 10 people for one year.

For 10 contractors, using an EOR costs $4,692-10,692 more per year than contractor management software. That money buys you payroll processing, benefits administration, and employment compliance—none of which contractors need.

Compliance realities

The compliance requirements are fundamentally different for employees and contractors.

For employees (EOR handles): Payroll tax withholding and remittance. Social security and pension contributions. Mandatory benefits (health insurance, paid leave, sick leave). Employment contracts compliant with local labor law. Termination procedures and severance calculations. Work permits and visa sponsorship. Local entity representation.

For contractors (you handle): Independent contractor agreements (not employment contracts). Tax documentation (W-9 for US contractors, W-8BEN for international). 1099 forms at year-end (US only). Payment records for accounting. Proper classification (contractor vs employee). No payroll, no benefits, no withholding.

The contractor compliance burden is significantly lighter. You need clear agreements, proper documentation, and organized records. You don't need payroll infrastructure, benefits administration, or local entity setup. Contractor management software handles the documentation and organization. You handle the classification decision.

The biggest risk is misclassification—treating an employee as a contractor or vice versa. If someone works exclusively for you, follows your schedule, uses your equipment, and is integrated into your organization, they're likely an employee regardless of what your contract says. Use an EOR. If they work for multiple clients, set their own schedule, and operate as an independent business, they're a contractor. Use contractor management software.

Payment control

How money flows is different between EORs and contractor management.

With an EOR: You pay the EOR. The EOR processes payroll, withholds taxes, remits to authorities, and pays the employee. Your money sits in the EOR's system for 3-5 days before reaching the employee. You have no direct payment relationship with the employee. The EOR handles currency conversion at their rates. You get consolidated invoices from the EOR.

With contractor management: You pay the contractor directly via Wise, PayPal, or Payoneer. Your money goes straight from your account to theirs. No middleman, no delays. You control currency conversion and choose your payment method. You get direct confirmation from the contractor. The software tracks payments and maintains records.

For contractors, direct payment makes sense. They already have payment accounts. They don't need payroll processing. The 3-5 day delay through an EOR just adds friction. Direct payment is faster, cheaper, and gives you more control.

Migration paths

What happens when your needs change?

From EOR to own entity: When you're ready to set up your own entity in a country, you'll need to terminate employment with the EOR and rehire under your new entity. This can trigger severance obligations, notice periods, or other complications depending on local labor laws. Plan this transition carefully and budget for potential costs.

From contractor to employee: If a contractor relationship evolves into an employment relationship (they start working exclusively for you, follow your schedule, become integrated into your team), you'll need to convert them to an employee. This means either setting up an entity or using an EOR. The contractor management software can't handle this—you need employee infrastructure.

From employee to contractor: If you want to convert an employee to a contractor, you'll need to terminate employment and establish a new contractor relationship. This requires careful handling to avoid misclassification claims. The relationship must genuinely change—they must work for multiple clients, set their own schedule, and operate independently.

Decision framework

Use this framework to decide which solution you need:

If you answered "Use an EOR" to most questions, you're hiring employees. Use Deel, Remote.com, Oyster, or another EOR platform. If you answered "Use contractor management" to most questions, you're working with contractors. Use contractor management software like Kontrable.

The bottom line

EORs and contractor management solve different problems. EORs handle employment infrastructure for full-time employees in countries where you have no entity. Contractor management handles coordination and documentation for independent contractors who handle their own taxes.

Using an EOR for contractors means paying $5,000-11,000/year for 10 people when you could pay $1,188/year. You're buying payroll, benefits, and compliance features that contractors don't need. Using contractor management for employees means creating compliance risks and missing mandatory benefits and tax obligations.

Know the difference. Use the right tool. Don't overpay for infrastructure you don't need, and don't under-invest in compliance you can't avoid.