Employer of Record Agreement: Everything You Need to Know

What Is an Employer of Record Agreement?

Hiring internationally sounds exciting, until you get into the legalities. An Employer of Record (EOR) agreement is the legal document that ensures compliance in writing. It covers compliance, liability, payments, intellectual property and what happens if things go wrong. 

If you're considering an EOR (or already working with one), understanding this agreement isn't optional. It determines whether you're actually protected or just think you are. 

Here, we'll break down what's inside an EOR agreement, what to watch out for and how to evaluate one before you sign. 

An Employer of Record agreement, also called an employer of record contract or employer of record service agreement, is the legal document that outlines the relationship between your company and the EOR. It defines:

• Who is the legal employer (the EOR)
• What services the EOR provides (payroll, compliance, benefits, HR support)
• What you're responsible for (managing the employee's work, approvals, performance)
• Who pays if something goes wrong (liability and indemnification)
• How payments work (fees, pricing structure, hidden costs)

Why does Employer of Record Contract Exists

When you hire someone in another country, someone has to be the legal employer on paper in that country. That's the EOR. But just because they're the legal employer doesn't mean they assume all risk or responsibility. The agreement clarifies exactly where the lines are drawn.

Why You Can't Skip It

According to some studies, more than half of organizations expanding internationally report that compliance with foreign labor and tax laws is among their top challenges (Atlas, 2023). Even if you trust the EOR, you're entering into a legal relationship that involves foreign labor laws, tax obligations and potential penalties. Without a clear agreement, you're exposed to:

• Misclassification penalties
• Tax liabilities
• IP ownership disputes
• Unclear termination processes
• Lost employee trust

Why Every Employer of Record Has a Different Version

There’s no standardized employer of record agreement template. Some EORs assume more liability. Some shift it back to you. Some customize agreements by country. Others use generic templates. The differences matter.

Why the Employer of Record Agreement Matters

You hired an EOR so you wouldn't have to think about compliance, payroll or benefits. So why does the agreement matter? Because the EOR handles everything, right?

Non-compliance penalties globally, across labour, tax, data compliance, jumped significantly: total global corporate penalties estimated at roughly USD 13.8–14 billion in 2024, a 22% increase from 2022 (Employerrecords, 2025).

The agreement determines whether the EOR is actually protecting you or just processing paperwork while you remain liable. Make sure you’re not contributing to the stats above next year. 

It Determines Who Is Responsible for Compliance

Employment laws vary wildly by country. The agreement should specify:

• Who ensures compliance with local labor laws?
• Who handles tax filings?
• Who monitors regulatory changes?

If the agreement is vague, you could be held responsible for violations you didn't even know existed.

It Defines Who Pays If Something Goes Wrong

Misclassification. Late tax filings. Benefits violations. These happen. The agreement should clearly state who's liable and who pays penalties. If it doesn't, assume it's you.

It Clarifies Worker Classification, Taxes, Benefits and Terminations

• Is the worker classified correctly as an employee (not a contractor)?
• Are statutory benefits being provided?
• What happens if local termination laws require severance you didn't budget for?

The agreement should answer all of this.

It Covers IP Ownership (A Massive Concern for Tech Companies)

If your offshore employee builds a product, writes code or creates designs, who legally owns it? Without clear IP assignment language in the EOR agreement, you could be in a gray area. Some countries have strong employee IP protections. If the EOR's contract doesn't explicitly transfer IP to you, you might not own what you paid for.

What's Inside a Typical Employer of Record Contract?

Let's walk through what you'll actually see in an EOR agreement.

Scope of Services

This section defines what the EOR will handle. Typical services include:

• Payroll processing
• Tax withholding and filings
• Employment contracts
• Benefits administration (health insurance, pension, leave)
• Onboarding and offboarding
• Ongoing HR support

What to check: Is everything you need actually listed? Or are some services "available upon request" (aka extra fees)?

Employer Responsibilities vs Client Responsibilities

This is the most important section. It spells out who does what.

EOR typically handles:

• Legal employment relationship
• Compliance with local labor laws
• Payroll, taxes, benefits
• Contract drafting and management

You (the client) typically handle:

• Day-to-day management and tasks
• Performance reviews and feedback
• Work assignments and approvals
• Deciding on terminations or promotions

What to check: Is it crystal clear? Or are there gray areas like "client is responsible for ensuring compliance with local regulations"?

Compliance Obligations

This section should confirm:

• The EOR ensures proper worker classification (employee, not contractor)
• The EOR provides all legally required benefits
• The EOR handles tax filings and social contributions
• The EOR stays updated on local labor law changes

What to check: Does the agreement explicitly state the EOR assumes compliance responsibility? Or does it say you "share" responsibility?

Payment Terms and Pricing Structure

How much do you pay and what's included?

Common structures:

• Per-employee monthly fee (e.g., $500/employee/month)
• Percentage of payroll (e.g., 10% of gross salary)
• Setup fees + monthly fees

What to check:

• Are setup fees one-time or recurring?
• Are benefits included in the monthly rate or billed separately?
• Are there fees for contract amendments, terminations or compliance updates?

IP Ownership and Confidentiality

For tech companies, this is non-negotiable.

The agreement should state:

• All work created by the employee belongs to your company
• The EOR facilitates IP assignment from the employee to you
• Confidentiality obligations apply to both the EOR and the employee

What to check:

• Is IP transfer explicit and unambiguous?
• Does the agreement reference local IP laws that might complicate ownership?
• Are there confidentiality clauses protecting your business information?

Termination Rules

What happens when you need to end the employment relationship?

The agreement should cover:

• Notice periods required by local law
• Severance obligations (if any)
• How the EOR handles offboarding
• What you're responsible for in the termination process

What to check:

• Does the agreement reflect local termination laws accurately?
• Are you on the hook for severance costs you didn't budget for?
• What happens if you terminate the EOR relationship but want to keep the employee?

Liability and Indemnification Clauses

This is the dealbreaker section.

Indemnification means who's responsible if something goes wrong. For example:

• If an employee sues for wrongful termination, who defends the case?
• If there's a tax penalty, who pays it?
• If a misclassification audit happens, who's liable?

What to check:

• Does the EOR indemnify you (protect you) from compliance failures on their end?
• Are there clauses where you indemnify the EOR (protect them) from your mistakes?
• Is the language balanced or heavily weighted toward protecting the EOR?

The Red Flags to Look Out For

Not all EOR agreements are created equal. Here are the warning signs:

Ambiguous Compliance Responsibilities

Red flag. You're paying them to handle compliance. If they're shifting responsibility back to you, they're not a real EOR. "Client remains responsible for local tax filings" buried in footnotes. Some agreements bury this in fine print. If you're still responsible for tax filings, you haven't actually offloaded the complexity.

No Mention of Local Labor Law Differences

Labor laws vary by country. A good EOR agreement acknowledges this and specifies how they handle differences. A bad one uses generic language that applies nowhere specific.

Generic Templates Used Across All Countries

If the same contract is used for employees in Pakistan, Poland and Peru, it's probably not compliant in any of them. Look for country-specific terms or at least acknowledgment of local law variations.

Unclear IP Transfer

If the agreement doesn't explicitly state that all work products belong to you or if it says "IP transfer is subject to local law," you have a problem. IP ownership should be unambiguous.

Vague Refund/Cancellation Terms

What happens if you cancel after a month? Are setup fees refundable? Can you switch employees between EOR providers? Unclear terms mean you're locked in with no flexibility.

Liability Clauses That Protect Only the EOR

If every indemnification clause protects the EOR while none protects you, the agreement is one-sided. A good EOR stands behind their work.

Employer of Record Agreement Template

While every EOR agreement is unique, here's a high-level outline of what should be included:

1. Parties Involved 
   Lists the client company, EOR entity and the employee (if applicable).

2. Scope of Services 
   Defines what the EOR will provide (payroll, compliance, benefits, HR support).

3. Legal Employer Responsibilities 
   Outlines the EOR's obligations as the legal employer on record.

4. Client Responsibilities
   Clarifies what the client handles (day-to-day management, work assignments, performance).

5. Employment Terms 
   Specifies employee classification, salary, benefits, work hours and location.

6. Compliance 
   Confirms the EOR's responsibility for tax filings, labor law adherence and regulatory updates.

7. Payments and Fees
   Details pricing structure, payment terms and any additional costs.

8. Confidentiality 
   Protects sensitive business information shared between the client, EOR and employee.

9. IP Rights 
   Transfers intellectual property created by the employee to the client.

10. Termination
    Explains notice periods, severance obligations and offboarding procedures.

11. Dispute Resolution
    Defines how conflicts will be resolved (arbitration, mediation, jurisdiction).

12. Governing Law 
    Specifies which country's laws govern the agreement.

How to Evaluate an Employer of Record Agreement

Before signing, run through this checklist:

• Are responsibilities clearly divided?
  You should know exactly what the EOR handles and what you handle. No gray areas.

• Does the EOR take real liability?
  Check the indemnification clauses. Is the EOR protecting you from their compliance failures or are they shifting risk back to you?

• Are local laws reflected accurately?
  Does the agreement acknowledge country-specific labor laws or is it a one-size-fits-all template?

• Any hidden fees?
  Are setup, benefits, termination or amendment fees clearly disclosed? Or are they buried in fine print?

• How is IP handled?
  Is there explicit language transferring all work products to your company? Or is it ambiguous?

• Does the agreement mention employee experience?
  A good EOR cares about how employees are treated; payroll timing, benefits quality, support responsiveness. Does the agreement reflect this?

• What happens if you want to switch EORs or bring employees in-house?
  Are there penalties? Notice periods? Transition support? Or are you locked in?

• Is the pricing structure transparent?
  Can you calculate total cost per employee, including all fees? Or is it vague?

• Are termination and severance rules clear?
  Does the agreement reflect local termination laws? Are severance costs disclosed upfront?

• Is there a dispute resolution process?
  If something goes wrong, how is it handled? Arbitration? Mediation? Which jurisdiction applies?

Final Thoughts

An Employer of Record agreement isn't just a formality. It's the legal foundation of your international hiring strategy. Understanding the agreement helps you make better global hiring decisions. It prevents disputes, misclassification penalties and legal risk. 

It ensures you actually know what you're paying for and who's responsible when things go wrong. Every EOR provider structures its agreement differently. Some assume real liability. Some don't. Some are transparent about costs. Some aren't. Read the agreement carefully. Ask questions. If necessary, consult legal counsel. The 30 minutes you spend reviewing it now could save you months of headaches later.

At East Consulting, we approach EOR agreements with full transparency. Our contracts clearly outline what we handle; payroll, compliance, employment contracts, HR support, and what you handle, day-to-day management. We don't bury fees in fine print or shift compliance responsibility back to you. We work with North American companies building teams in South Asia, and our agreements reflect the specific labor laws of the countries where we operate, not generic templates.

If you're new to EORs and want to understand the basics first, check out our guide: What is an Employer of Record?