What is an Employer of Record?
An employer of record (EoR) is a third-party organisation that becomes the legal employer of a worker on behalf of another company. The EoR takes on full responsibility for employment contracts, payroll, tax compliance, and statutory benefits, while the client company retains day-to-day direction of the worker’s activities. The sections below address the most common questions businesses ask before engaging an employer of record service.
How does an employer of record actually work?
An employer of record works by entering into a formal employment relationship with a worker on behalf of a client company. The EoR issues the employment contract, runs payroll, withholds and remits taxes, administers statutory benefits, and manages HR compliance. The client company directs the worker’s tasks and performance, but the EoR carries the legal employer obligations.
In practice, the arrangement involves three parties: the worker, the EoR, and the client company. The client identifies the individual they want to engage and agrees on the commercial terms with the EoR. The EoR then onboards the worker under a compliant employment contract in the relevant jurisdiction, whether that is the Netherlands, another EU country, or further afield.
This structure is particularly valuable when a company wants to hire in a country where it has no registered legal entity. Rather than incorporating a subsidiary, which can take months and carry significant administrative overhead, the company uses an EoR to begin hiring immediately under a compliant framework. The EoR absorbs the regulatory complexity so the client can focus on output.
What’s the difference between an employer of record and a PEO?
The key distinction is legal structure. An employer of record becomes the sole legal employer of the worker, which means it can operate in jurisdictions where the client has no registered entity. A professional employer organisation (PEO) operates under a co-employment model, meaning the client company must already have a legal presence in the jurisdiction for the arrangement to function.
Under a PEO arrangement, both the PEO and the client company share employer responsibilities. The PEO typically handles HR administration, benefits, and payroll processing, but the client remains a co-employer and retains certain legal obligations. This works well for companies that are already established in a market and want to outsource HR functions without fully relinquishing employer status.
An EoR, by contrast, is the only employer of record in the arrangement. The client has no formal employment relationship with the worker under local law. This makes the EoR model the appropriate choice for international market entry, cross-border hiring, or situations where establishing a local entity is not commercially justified.
When should a company use an employer of record?
A company should use an employer of record when it needs to employ workers in a jurisdiction where it lacks a registered legal entity, when it wants to test a new market before committing to a permanent structure, or when it needs to onboard talent quickly without waiting for entity setup. It is also the right tool when hiring a small number of workers in a country where the volume does not justify the cost of incorporation.
Common scenarios include international expansion into European markets, hiring remote workers who are based in a different country from the company’s headquarters, and bridging the gap during a merger or acquisition when employment structures are being reorganised. Companies entering the Netherlands, for example, face a detailed and highly regulated employment framework. Using an EoR with deep knowledge of Dutch employment law significantly reduces the risk of non-compliance.
The EoR model is also well-suited to project-based hiring, where a business needs specialist skills for a defined period but does not want to create a permanent headcount obligation in a foreign jurisdiction. It provides flexibility without sacrificing compliance.
What are the legal and compliance responsibilities of an employer of record?
An employer of record is responsible for all legal and compliance obligations that attach to the employment relationship in the relevant jurisdiction. This includes drafting and executing compliant employment contracts, managing payroll and statutory deductions, ensuring correct social security contributions, administering mandatory benefits, and adhering to local labour law on working hours, leave entitlements, and termination procedures.
In the Netherlands specifically, this means compliance with the Dutch Civil Code employment provisions, the Wet allocatie arbeidskrachten door intermediairs (Waadi), and collective labour agreement obligations where applicable. An EoR operating in the Dutch market should hold NEN4400-1 certification, which is the quality mark of the Dutch temporary employment sector and confirms that the organisation meets the standards required to act as a legal employer. Regular audits are required to maintain this certification, providing an ongoing assurance mechanism for clients.
GDPR compliance is a further obligation. The EoR processes significant volumes of personal employee data, including payroll records, identification documents, and tax information. A credible EoR will have robust data handling policies in place and will operate transparently within the GDPR framework. Clients should verify this before entering any EoR arrangement.
How much does an employer of record service cost?
Employer of record pricing typically follows one of two models: a flat monthly fee per employee or a percentage of the employee’s gross salary. Flat fees generally range from a few hundred to over a thousand euros per employee per month depending on the jurisdiction, complexity of the role, and scope of services included. Percentage-based fees commonly fall between five and fifteen percent of gross payroll, though this varies by provider and market.
The total cost should be assessed against the alternative. Setting up a legal entity in a new country involves incorporation fees, ongoing accounting and legal costs, local HR administration, and the time investment of senior management. For a small headcount, these fixed costs rarely make commercial sense. The EoR fee, by contrast, scales with the number of employees and carries no fixed overhead beyond the service agreement.
When evaluating cost, factor in what is included. Some providers bundle compliance management, HR support, and benefits administration into a single fee. Others charge separately for each component. A clear breakdown of what is and is not covered is essential before committing to any provider.
What should you look for in an employer of record provider?
The most important criteria when selecting an employer of record provider are compliance credentials, local expertise, and transparency of service. A provider operating in the Netherlands should hold NEN4400-1 certification and be fully GDPR compliant. These are not optional markers of quality but baseline requirements for operating lawfully in the Dutch employment market.
Local expertise matters because employment law varies significantly across jurisdictions. A provider that understands Dutch collective labour agreements, statutory leave entitlements, and termination protections will handle edge cases correctly. One that applies a generic framework risks creating liability for the client.
Responsiveness and account management quality are also significant. When employment issues arise, whether a contract dispute, a payroll discrepancy, or a regulatory change, you need a provider that responds quickly and with authority. Ask prospective providers how they handle escalations and what their average response time is for client queries.
Finally, consider track record. A provider with decades of experience in the Dutch and European recruitment market, and established relationships with businesses across sectors, brings a depth of practical knowledge that newer entrants cannot replicate. Blue Lynx’s EoR service is built on more than 35 years of Dutch recruitment and HR expertise, NEN4400-1 certification, and full GDPR compliance, offering businesses a structured, audited framework for compliant international hiring.