Top legal mistakes companies avoid by using an Employer of Record

Partnering with an Employer of Record (EOR) can simplify compliance, reduce legal risk, and get your team up and running faster – without the burden of setting up legal entities. Contact us to learn how we can help.

• Expanding globally without the right support can expose businesses to employment compliance risks and costly penalties.
• Employer of Record (EOR) services help organisations sidestep the most common mistakes when they hire internationally.
• From misclassification to payroll errors, an EOR keeps your global workforce compliant and your expansion on track.

Employer of Record (EOR) is a powerful force behind the globalisation that defines today’s working world. Simplifying global expansion by hiring overseas workers on behalf of client companies allows these companies to eliminate the complexity and cost of establishing legal entities in new countries.

Services like EOR mean that global expansion is becoming increasingly straightforward. It is no surprise, then, that analysts valued the global EOR market at approximately USD 8.3 billion in 2024 and predict continued growth over the coming years.

By leveraging the services of an EOR, organisations avoid risky complexities. EORs ensure compliance with local laws, reduce administrative burdens, and mitigate risk. They also reduce costs by consolidating legal, payroll and consultancy services into one simple solution.

Attempting to move into new markets without local expertise is a legal minefield. Employment and tax laws differ hugely between jurisdictions. Non-compliance, even if accidental, can lead to serious financial penalties, legal proceedings and damaged reputations.

Let’s examine the top legal mistakes companies avoid when using an Employer of Record.

For more information on Employer of Record, visit our Ultimate guide to Employer of Record.

Misclassifying employees and contractors

A common legal pitfall when hiring abroad is misclassifying workers. This happens when employers classify workers as independent contractors when they actually meet the legal definition of employees. Many businesses take this shortcut to avoid establishing entities or providing benefits.

The National Employment Law Project notes that as many as 10%-30% of US employers misclassify their workers. This is an unethical hiring practice. As the Economic Policy Institute points out, “workers misclassified as independent contractors lose out on critical protections, benefits, and labour rights including minimum wage, overtime pay, unemployment insurance, the right to form a union, and anti-discrimination protections in most states. Additionally, these workers bear the full financial costs of Social Security and Medicare contributions [in the USA].”

Not only this, but the misclassification of workers is also broadly illegal. Most governments impose tough penalties for misclassification.

These include the payment of back taxes, significant fines, and the provision of retroactive employee entitlements. They may also include legal proceedings against the organisation. This, in turn, can damage the business’ future in-country opportunities.

Organisations of all sizes and statuses can be caught out for misclassification. In 2025, Ireland’s national broadcaster, RTÉ paid out 4 million EUR related to employee misclassification.

By using Employer of Record services, companies avoid this risk entirely. An EOR provides compliant employment contracts that correctly classify workers under local employment laws. This protects both the organisation and the employee, ensuring a secure, long-term working relationship.

Failing to comply with international employment laws

Employment compliance is one of the most complex areas of global workforce management. Rules around working hours, annual leave, pensions, health and safety, and collective bargaining differ significantly across countries. Failing to follow proper procedures can lead to costly disputes or litigation.

For example, authorities fined a company in Texas 4 million USD for hiring undocumented workers. Meanwhile, one of Europe’s largest retailers, Sports Direct, has come under fire for the mistreatment of their global employees.

With EOR services, global compliance is built in. The EOR monitors legal updates and ensures all contracts and policies remain aligned with local labour laws. It ensures employees legally employed in accordance with all regulations and have access to all their rights, as well as on-the-ground HR support. This reduces the legal burden on employers and makes global expansion far less risky.

Mishandling international payroll and tax

International payroll is one of the most technically challenging aspects of global human resources solutions. Each country has unique requirements for tax withholding, social security contributions, and reporting. Even minor mistakes in payroll calculations or late submissions can result in penalties from tax authorities and frustration among employees. Damaging employee morale is a surefire way to impact your retention levels and reputation as a desirable employer.

An Employer of Record handles payroll processing accurately and on time. From calculating salaries and deductions to submitting statutory filings, the EOR ensures compliance with every local tax system. This not only avoids financial penalties but also keeps employees satisfied with reliable, timely payments.

Lisa Phillips, Finance Director at The PIE News, says of Mauve Group’s Employer of Record service:

Working with Mauve has been completely painless. It’s been like having an extension to my own finance department. It’s amazing having a dedicated resource, and someone there who has that extra knowledge and expertise - which we would never be able to access otherwise - and who always respond quickly.

Read The PIE’s full testimony. 

Overlooking statutory employee benefits

When businesses hire internationally, they sometimes underestimate the importance of statutory employee benefits. Many jurisdictions mandate specific entitlements such as paid parental leave, pensions, healthcare, or severance pay. Failing to provide these is not just uncompetitive and neglectful of employee wellbeing, it is also illegal.

The World Economic Forum (WEF) estimates that health-related productivity losses cost employers 530 billion USD annually. Companies should ensure employees are provided with health, wellness, and all other statutory benefits. Offering additional benefit options is also a good idea, to remain competitive in the labour market.

Partnering with an EOR guarantees that benefits packages meet or exceed local legal requirements. Beyond compliance, EOR services also help employers offer competitive perks that attract and retain top global talent.

Mishandling employee terminations

Terminating employment in a foreign country is rarely straightforward. Some jurisdictions require lengthy notice periods, specific severance pay calculations, or government approval for dismissals. Companies that mishandle termination processes risk legal claims, reputational damage, and financial penalties.

In August 2025, billionaire Elon Musk and social media firm X reached a settlement with former employees who had sued for 500 million USD owed in severance pay after their dismissal.

An Employer of Record manages the termination process in line with international employment laws. EORs cover everything from compliant documentation to advising on local procedures. This ensures that your workers' terminations are handled fairly, legally, and with minimal risk.

Neglecting data protection and employee privacy

Data protection has become a global priority. Frameworks like GDPR impose tight rules on how personal information is collected and stored. Mishandling sensitive employee data can cause serious issues for employers.

In 2025, social media giant TikTok was fined 500 million USD for breach of GDPR. The previous year, LinkedIn was fined 300 million EUR by Irish authorities for a similar offence.

Employer of Record services include secure systems for managing payroll, contracts, and employee records. An EOR ensures compliance with international data protection laws. It ensures data security, and safeguards both the employer and the workforce.

Why businesses choose Employer of Record services

Without local expertise, businesses may struggle to interpret complex labour laws and tax systems. With the help of an EOR, businesses can rely on an experienced partner to manage compliance, payroll, and contracts. This reduces legal risk and frees internal teams to focus on strategy, growth, and managing their people.

By working with an Employer of Record, organisations gain the flexibility to hire internationally without the delays and costs of establishing entities, while knowing their global workforce management is fully compliant.

Mauve Group: your trusted global HR partner

For almost 30 years, Mauve Group has helped organisations expand into new markets through trusted Employer of Record services, international payroll, and global HR solutions. Operating in more than 150 countries, Mauve enables businesses to hire internationally with confidence, speed, and compliance.

Whether you are testing a new market, hiring your first overseas employee, or managing a large international workforce, Mauve Group provides the expertise and infrastructure to keep your operations compliant and efficient.

Discover how Mauve Insight and Mauve Group’s EOR services can simplify your global expansion. Contact us today to book a consultation.

Frequently Asked Questions

1. What legal issues can an Employer of Record prevent?

An EOR helps companies avoid mistakes such as misclassifying workers, mishandling payroll, overlooking statutory benefits, or failing to comply with international employment laws.

2. How does an EOR simplify international payroll?

An Employer of Record manages payroll across multiple countries, ensuring accurate tax withholding, social contributions, and reporting, keeping employers compliant with local tax authorities.

3. Can I expand into new markets without setting up a legal entity?

Yes. With EOR services, businesses can hire internationally without creating a local entity, saving time and money while maintaining full legal compliance.