By 2030, the global Employer of Record (EOR) market is expected to reach USD 6.64 billion, driven by organisations expanding internationally without establishing local entities. For leadership teams, global hiring is no longer about feasibility but about how to scale without creating hidden compliance, operational, or reputational risk. EORs promise speed and local compliance without establishing local entities, and often deliver in the early stages. But are there any challenges in EOR service that employers should pay attention to or at least emigrate to? This article examines the practical pros, cons, and underestimated risks of using an Employer of Record (EOR), helping organisations make informed decisions about global hiring.
TL;DR
- Employer of Record (EOR) services enable fast, compliant global hiring without entity setup, making them ideal for market entry, pilot teams, and short- to mid-term international expansion.
- The hidden risks of using an EOR involve control, cost, and liability. Compliance responsibility, IP ownership, employer branding, and third-party dependency often remain with the business rather than the provider.
- Selecting the right EOR requires a strategic assessment of employment law exposure, exit strategy, data protection, and long-term scaling plans. This is especially important for companies expanding into regulated markets such as Vietnam.
Pros of Using an Employer of Record
Faster Market Entry Without Entity Setup
When organisations first consider international expansion, speed is often the deciding factor. Setting up a local entity can take months, involving legal registration, tax structuring, banking, and ongoing administration.
An Employer of Record removes this barrier. By hiring through an EOR, companies can onboard talent in new markets within weeks, not months. This makes EORs especially attractive for:
- Testing new markets
- Launching time-sensitive projects
- Hiring small, distributed teams
For businesses operating in fast-moving industries, this speed can mean the difference between capturing opportunity and missing it entirely.
Reduced Legal and Compliance Burden
Employment laws differ widely across countries and are frequently updated. Minimum wages, working hours, social insurance, termination rules, and statutory benefits all vary by jurisdiction.
EORs are designed to manage this complexity. They ensure compliant local employment contracts, handle payroll and statutory filings, and monitor changes in labor laws to help your business remain compliant.
For organisations without in-house expertise in local labor law, this significantly reduces the risk of administrative errors that could result in penalties or disputes.
Lower Upfront Costs and Predictable Spend
Establishing a local entity requires upfront investment legal fees, accounting support, local hires, and ongoing compliance costs.
In contrast, EOR models typically operate on a transparent, per-employee fee. This structure:
- Eliminates incorporation costs
- Avoids the need for local HR infrastructure
- Makes budgeting more predictable
For organisations with uncertain hiring volumes or short- to mid-term plans, this financial flexibility can be a compelling advantage.
Seamless employee termination and offboarding
Ending an employment relationship in a new country can be as complex as hiring, particularly where local labour laws impose strict notice periods, documentation requirements, or severance obligations. Through an Employer of Record, termination and offboarding processes are handled in line with local legal standards, reducing the risk of procedural errors.
This support of FDI without legal entities ensures exits are managed consistently, lawfully, and with minimal disruption protecting both compliance and employer reputation.
Cons of Using an Employer of Record
When evaluating the pros and cons of using an Employer of Record, the limitations rarely appear on day one. In fact, many organisations only begin to feel the constraints of the EOR model once operations stabilise, teams grow, and expectations around control, cost, and accountability increase.
What initially feels like simplicity can, over time, introduce structural trade-offs that deserve careful consideration.
Less Control Over Employment Operation
At the core of the EOR model is a legal distinction that often proves more consequential than expected: the organisation directs the work, but it is not the legal employer.
This separation means key employment actions such as issuing contracts, updating policies, or executing terminations are typically handled by the EOR. While this ensures local compliance, it can slow decision-making and reduce flexibility. Changes may take longer, exceptions are harder to manage, and employment decisions may feel disconnected from the business.
Higher Costs Over Time Compared to Local Entity Setup
EOR services come with additional fees, usually charged as a percentage of employee salaries or as fixed monthly costs. In the early stages of market entry, these costs are often justified by the speed and simplicity the model provides.
However, as headcount increases, the cumulative cost of EOR services can grow quickly. What works well for a small team or pilot phase may become less economical at scale. Over the long term, EOR fees can exceed the cost of operating a local entity, especially for organisations planning sustained growth in a single mar
Read more: EOR vs. Entity setup in Vietnam: 8 Critical Signs for Your Best Decision
Limited Flexibility in Compensation & Benefits Design
Relying on an EOR means transferring significant HR and compliance responsibilities to an external organisation. This dependence requires confidence not only in the EOR’s legal expertise, but also in its operational resilience and financial stability.
If the EOR experiences service disruptions, regulatory issues, or financial difficulties, the organisation’s ability to support, pay, and manage employees could be affected. Ongoing due diligence, performance monitoring, and clear escalation paths are therefore critical to mitigating this dependency risk.
Brand and Employer Identity Challenges
Employees engaged through an EOR are legally employed by a third party. Over time, this can create ambiguity around employer identity, weaken emotional connection, and complicate efforts to embed company culture.
From a reputational perspective, organisations must also consider how outsourced employment models are perceived by regulators, partners, and employees themselves particularly in an era where transparency, fair treatment, and ESG accountability are under increasing scrutiny.
Employer of Record Risks Companies Often Underestimate
When organisations enter a new market, using an Employer of Record often feels like the safest and simplest option. There is no need to establish a legal entity, no direct employment relationship with local staff, and no immediate responsibility for payroll, benefits, or statutory filings. On paper, the risk appears contained.
In practice, however, this sense of separation can be misleading.
EORs remove friction but they do not remove responsibility. And the consequences of misunderstanding this distinction often surface only when something goes wrong.
Compliance Risk Still Ultimately Sits With You
Many assume that using an EOR fully transfers employment risk. However, regulators and courts often examine who truly controls the work, regardless of contractual arrangements.
Where the organisation:
- Directs daily activities
- Sets performance expectations
- Integrates workers into core operations
The organisation may still be considered the de facto employer, regardless of the EOR structure.
This risk becomes particularly visible during employment disputes, regulatory audits, or inspections.
Some jurisdictions impose additional requirements. EORs may need specific licences, local registration, or compliance with labour-lending regulations. If these are not met, authorities may disregard the EOR arrangement entirely and treat the organisation as the actual employer, either immediately or after a set period.
These issues can have significant financial and legal consequences, impacting tax exposure, employment liabilities, and corporate reputation.
Dependency on Third-Party Infrastructure
Using an EOR also means relying on a third party’s operational and commercial stability. This dependency is often underestimated during early expansion phases.
Over time, organisations may encounter:
- Service disruption if the EOR exits a market or changes its operating model
- Pricing or contractual changes as headcount grows
Practical difficulties when transitioning employees to a local entity
Without a clearly defined exit strategy, businesses risk becoming locked into arrangements that no longer align with their growth plans or governance expectations. Data ownership, access to employment records, and continuity of employee contracts should be addressed from the outset, rather than waiting until change becomes urgent.
Misalignment Across Multiple Countries
Many EOR providers position themselves as “global.” In reality, service delivery is often uneven across regions.
Local labour laws differ significantly, and EORs may rely on different partners, interpretations, or processes in each country. As a result, organisations operating across multiple markets may experience:
- Inconsistent response times and service quality
- Varying interpretations of employment obligations
- Uneven employee experience across locations
At scale, this lack of standardisation complicates governance, reporting, and workforce planning particularly for organisations subject to internal controls or regulatory oversight.
Check Key Employment Law Issues Before Choosing an EOR
Before committing to an EOR model, organisations should pause and assess whether the structure will hold up under scrutiny.
Key compliance questions to ask any Employer of Record:
- Who is legally responsible if an employment dispute arises?
- How are terminations approved, documented, and executed?
- What happens if authorities conduct an audit or inspection?
- How are changes in employment law tracked and implemented?
These issues are not administrative details. They determine whether an organisation can confidently defend its employment model when challenged.
Ask the Critical Compliance Questions
Even where there is no immediate risk of being deemed the employer, reputational considerations remain. Organisations are increasingly expected to ensure that all workers direct or indirect are engaged on fair and compliant terms.
This includes confidence that:
- Minimum wage and working hour rules are respected
- Paid leave and pension obligations are met
- Tax and social security contributions are correctly handled
Complexity increases further if the organisation already employs staff directly in the same country. In such cases, workers engaged via an EOR may seek comparability of pay and benefits creating unexpected exposure.
Where internal expertise is limited, organisations should ask EORs detailed, verifiable questions about their compliance processes and controls.
Operational Control
What decisions require EOR approval? Where does operational authority sit in practice?
Data & IP Protection
Who owns intellectual property created by workers? How is confidential information protected and enforced locally?
Exit Strategy
Can employees be transferred to a local entity later? What costs, timelines, and legal steps are involved?
Audit Trail
What documentation is retained? How transparent and accessible is reporting?
Understanding how providers answer these questions is as important as asking them.
For a structured evaluation framework, see our guide on how to choose the right employer or record provider for your business.
Protect Business Interests When Using an Employer of Record
When organisations hire employees directly, contracts typically include provisions to protect the business covering confidentiality, intellectual property, and post-termination obligations.
When using an EOR, these protections do not disappear but they must be secured differently.
Contractual Safeguards to Look For
Organisations should establish whether the EOR’s employment contracts include:
- Confidentiality and data protection provisions
- Clear assignment of intellectual property rights
- Obligations relating to company property and post-engagement conduct
It is equally important to confirm that these provisions are enforceable under local law and that the EOR is prepared to support enforcement if required.
Internal Governance Still Matters
Even with an EOR in place, governance cannot be outsourced.
Organisations should:
- Assign clear ownership across HR, legal, and business leadership
- Conduct regular compliance reviews
- Monitor EOR performance and legal developments over time
EORs reduce operational workload but responsibility, oversight, and risk management remain firmly with the organisation.
Consider Immigration and Mobility Issues
EOR arrangements often work best when hiring local nationals. Where foreign nationals are involved, immigration complexity increases.
In many jurisdictions:
- Only locally established entities can sponsor work permits
- Visa sponsorship may need to align with where services are actually delivered
These issues should be discussed with the EOR early. Immigration constraints can affect timelines, role design, and even the viability of the EOR model itself.
In markets such as Vietnam, where employment and immigration rules intersect closely, these considerations are particularly important.
For investors in Vietnam, see our detailed guide on Employer of Record in Vietnam for FDI enterprises.
Employer of Record Pros and Cons: Which Outweighs Which?
An Employer of Record often makes sense in the early stages of international expansion, when teams are small, markets are being tested, or hiring needs are short to mid term. In these scenarios, speed, simplicity, and reduced compliance burden usually outweigh the loss of control.
However, as organisations scale, the balance can shift. When headcount grows, employer branding becomes strategic, or a long-term market presence is planned, the limitations of an EOR in cost, flexibility, and governance become clearer. At that point, alternative models may offer greater control and long-term efficiency.
Get the Basics Right Before You Decide Using Employer of Record
Before proceeding, organisations should combine discussions with potential EORs with independent research into:
- Local employment and tax frameworks
- Permanent establishment risk
- Personal income tax and withholding obligations
Finally, the EOR contract itself should be reviewed carefully to understand how liabilities are allocated. Questions such as who bears termination costs, penalties, or compliance failures are not theoretical; they define the organisation’s real exposure.
Getting these basics right early can prevent costly remediation later.
Read on our resources for Vietnam’s investor:
Vietnam’s Tax System for Businesses and Foreign Workers: A Practical Compliance Guide
Vietnam employment guide: how to hire and terminate staff legally
How Sunbytes Can Help?
International workforce expansion is often a trade-off between speed and control. Sunbytes is designed to remove that trade-off.
As a Dutch technology company with a long-established delivery hub in Vietnam, Sunbytes helps organisations accelerate workforce growth while maintaining delivery quality, governance, and security. By combining deep knowledge of Vietnam’s regulatory landscape with international compliance best practices, Sunbytes provides comprehensive Accelerate Workforce Solutions with built-in compliance protection, enabling businesses to scale with confidence rather than caution.
With over 14 years of experience supporting international teams, Sunbytes approaches workforce expansion through a delivery-first lens, not just volume. We build and modernise digital products end-to-end, so workforce design is grounded in real delivery needs.
Security and compliance are embedded by design. Sunbytes’ Secure by Design mindset is reinforced by ISO 27001 certification and recognised cybersecurity standards. This ensures teams scale with clear controls, defined access rights, and risk-aware processes. This foundation supports growing compliance expectations as headcount expands across borders.
Instead of adding disconnected headcount, Sunbytes builds delivery-ready teams that integrate smoothly into existing organisations and evolve with the business roadmap. The result is faster growth without sacrificing control, trust, or long-term resilience. Contact us for a free consultation!
FAQs
Yes. EORs are commonly used by SMEs and startups to test markets and hire internationally without long-term commitments.
No. While EORs manage execution, organisations remain accountable for oversight, reputation, and certain legal risks.
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