Employer of Record (EOR) vs global payroll: when to use each solution

• An Employer of Record (EOR) enables fast, compliant hiring in countries where a business has no legal entity by acting as the official employer and handling all local compliance obligations.
• Global payroll is a centralised payroll management solution for companies that already have local entities and want to streamline payroll processing, reporting, and compliance across multiple countries.
• EOR is ideal for early expansion, market testing, or short-term hiring, while global payroll suits mature operations with established entities and long-term growth plans.

Expanding into international markets brings enormous opportunity, but it also adds layers of administrative complexity. Two of the most common solutions companies consider when hiring abroad are an Employer of Record (EOR) and global payroll. Although these services are sometimes mentioned in the same breath, they solve very different problems.

Understanding the differences, and knowing when each option is appropriate, can help growing organisations scale confidently while staying compliant in every country in which they operate.

The international global payroll market is valued at 1.1 billion USD, while the EOR market is valued at 4– 6 billion USD. These figures show how popular the two solutions are for ambitious businesses and why it’s important to know which one is right for you.

What an Employer of Record does

An Employer of Record is a third-party organisation that legally employs workers on behalf of another company in a country where that company does not have a legal entity. The EOR becomes the official employer in the eyes of local authorities, meaning it is responsible for everything involving compliance with labour laws. This includes drafting compliant contracts, administering payroll, handling benefits and statutory contributions, managing taxes, and assuming liability for employment-related obligations.

Using an EOR allows a company to hire talent abroad without setting up a local subsidiary. The EOR acts as the legal infrastructure that supports cross-border hiring. The client company still directs the employee’s day-to-day work, manages performance, assigns projects, and integrates the employee into the team. The EOR simply handles the employer-side responsibilities required by local law.

This model is especially beneficial when hiring in a new country for the first time or when a business wants to test a market before committing resources to opening an entity. EOR services can be launched quickly, often in days rather than months, giving organisations a fast and flexible entry into global talent markets.

What global payroll is designed for

Global payroll, by contrast, is not a legal employment solution. It is a centralised system for processing payroll across multiple countries for employees who already work directly for the company’s own local entities. Global payroll consolidates payroll data, standardises processes, and streamlines reporting across borders. The company remains the legal employer in every country and, therefore, retains all compliance responsibilities associated with each jurisdiction.

Organisations typically use global payroll when they already have established local entities in the countries where they employ people. It is primarily a tool for operational efficiency. Instead of managing separate payroll providers or systems in every location, global payroll aggregates everything into one platform, offering a unified view of salaries, taxes, deductions, and compliance procedures across the entire workforce.

The compliance differences between EOR and global payroll

One of the clearest distinctions between EOR and global payroll lies in who bears legal responsibility for employees. With an EOR, the provider is the legal employer. This shifts the burden of compliance to the EOR, which ensures that employment contracts, payroll calculations, statutory benefits, and labour protections align with local requirements. If something goes wrong, such as misclassification or errors in filings, the EOR carries the liability.

With global payroll, the company itself assumes all legal and compliance responsibilities. The payroll provider manages calculations and processing, but it does not take on liability. The organisation must maintain its own legal entities, stay up to date on legislative changes, and ensure its internal HR practices comply with each country’s rules.

This difference is often the deciding factor in whether a business chooses an EOR or global payroll. If establishing an entity and taking on compliance obligations is not feasible, an EOR becomes the more practical option.

When an EOR is the better choice

An EOR is ideal for companies that want to hire internationally without setting up their own entities. It is also the right choice for organisations that value flexibility and need to scale quickly into new markets.

Companies often choose an EOR when entering countries where they have no existing infrastructure or long-term plans. For example, a growing tech company may identify a talented engineer in Brazil but has no local entity there. Instead of forgoing the hire or spending months establishing a subsidiary, the company can use an EOR to onboard the engineer almost immediately.

EORs are also beneficial for companies testing new markets. Before committing to a full expansion, a company can hire one or two employees through an EOR to evaluate demand, understand customer behaviour, and build local presence. If the market proves promising, the company may later transition those employees to its own entity.

Additionally, EOR solutions are particularly useful for short-term projects or temporary hiring needs. If a business requires specialised talent for a six-month contract in a foreign country, setting up an entity would be unnecessarily costly and time-consuming. An EOR offers a compliant, low-risk alternative.

When global payroll is the better choice

Global payroll is most effective when a company already operates in multiple countries and has its own legal entities established. Instead of acting as a shortcut for expansion, it functions as a harmonisation tool for mature organisations that want to bring efficiency and transparency to their international payroll operations.

For example, a multinational company may have subsidiaries in ten countries, each using a different payroll provider, calendar, and reporting structure. This can create inconsistencies, compliance gaps, and administrative strain. Global payroll centralises these systems and provides unified visibility into payroll spending across markets.

Global payroll also enhances strategic planning. With consolidated analytics, leadership can better forecast labour costs, monitor compliance trends, and evaluate workforce distribution. This level of insight is far more difficult to achieve when payroll systems are fragmented and decentralised.

Companies may also prefer global payroll over EOR when hiring at scale in countries where they already have a strong operational presence. If an organisation anticipates long-term growth and stability in a particular region, managing payroll through its own entity may be more cost-efficient than relying on an EOR.

Cost considerations for both solutions

Cost is often a key factor in choosing between an EOR and global payroll. EOR services typically charge a percentage of payroll or a flat monthly fee per employee. This cost reflects the compliance, legal infrastructure, and administrative burden that the EOR absorbs. While EOR fees may appear higher on a per-employee basis, they eliminate the need to create and maintain legal entities, which can be significantly more expensive.

Global payroll, on the other hand, usually involves software subscription fees or per-country service charges. Because the company is the legal employer, the provider’s role is narrower, focusing on calculations, reporting, and payroll processing. Costs are generally lower than EOR services, but the company must invest in entity setup, legal support, local HR teams, and ongoing compliance management.

Transitioning from EOR to global payroll

Many companies use an EOR as an interim solution during early expansion and later transition employees to their own entities, once the business matures in a given country. This shift requires coordination between the organisation, the EOR provider, and local authorities, but it is a common and effective growth pathway.

When transitioning, companies should consider timing, notice periods in employment contracts, and the administrative steps needed for entity creation. Once the new entity is established, employees can be re-onboarded under the company’s payroll and moved into a global payroll system for streamlined long-term management.

How to choose the right solution for your business

The simplest way to determine whether an EOR or global payroll is appropriate is to consider your company’s presence and goals in each country. If you do not have an entity and need fast, compliant hiring, an EOR is the clear choice. If you already have entities and want to improve payroll operations, global payroll is the practical solution.

Speaking to an experienced global employment solutions provider like Mauve Group can help. With three decades’ experience in EOR and global payroll, Mauve Group’s experts are best placed to support businesses to follow the right route for them.

Ultimately, EOR and global payroll are complementary rather than competing services. Each supports a different stage of global growth, and many organisations use both at various points in their expansion. By selecting the right solution at the right time, companies can reduce risk, control costs, and build a workforce that aligns with their international ambitions.

FAQs

1. Can a company use both an EOR and global payroll at the same time?

Yes. Many companies use an EOR during early expansion and transition to global payroll once they establish their own entities. Both solutions can coexist depending on the stage of growth in each country.

2. Is an EOR more expensive than global payroll?

EOR fees are typically higher per employee because the provider takes on full legal responsibility and compliance. However, using an EOR can be more cost-effective than setting up and maintaining a local entity. Global payroll costs are lower but require the company to manage its own compliance infrastructure.

3. When should a company switch from an EOR to its own entity and global payroll?

A transition makes sense when a company plans long-term growth in a country, needs to hire at scale, or wants greater control over HR operations. Once an entity is established, employees can be moved from the EOR to the company’s payroll and integrated into a global payroll system.