Agent of Record vs Employer of Record: What they do, how they differ, and which one you need

If you have been searching for the difference between agent of record vs employer of record, you are probably at a decision point. Maybe you are hiring across borders for the first time and trying to understand what employer of record services actually cover. Maybe your contractor headcount has grown faster than your processes.

Maybe someone in legal or finance has flagged a question about worker classification, and now it is sitting on your desk. Whatever brought you here, the good news is that this is a straightforward distinction once you see it clearly. AOR and EOR solve different problems for different worker types. This guide walks you through both.

An Agent of Record is a third-party organisation that manages the administrative and compliance requirements for companies engaging independent contractors. The keyword is independent.

The AOR does not employ the contractors, and neither does your company. The AOR sits in the middle, handling the paperwork, payments, and insurance obligations that come with independent contractor relationships.

AOR is a US-centric model, though its principles apply wherever companies engage freelancers and self-employed workers at scale.

The AOR’s core function is managing insurance and risk documentation for contractors. This includes verifying that contractors carry adequate professional liability, general liability, and workers’ compensation coverage, or procuring those policies on their behalf.

In industries where client contracts require proof of insurance from every vendor in the chain, this is genuinely useful. Without the right coverage in place, your company picks up the liability. The AOR takes care of that.

Beyond insurance, AORs handle certificate of insurance (COI) collection and compliance tracking, so contractors meet your requirements before work begins and stay compliant throughout the engagement. It is the kind of operational work that feels manageable with a handful of contractors and quietly overwhelming at scale.

AOR works well when your workforce already consists of legitimately classified independent contractors and the overhead of managing them directly has grown beyond what your team can reasonably absorb.

Technology companies running large networks of freelance engineers, creative agencies managing project-based talent, and professional services firms engaging specialist consultants on a contract basis are all natural fits.

The AOR handles onboarding, contract execution, payment processing, and compliance documentation. Your contractors keep their independent status. You keep control of the work.

An Employer of Record is a third-party organisation that becomes the legal employer of your workforce in a given jurisdiction. The EOR employs your workers on your behalf, taking on full legal responsibility for employment compliance in that country or territory. You direct the day-to-day work. The EOR handles the rest.

For companies growing internationally, Employer of Record services are often the most practical route into a new market. When you need to hire in Germany, Singapore, or Brazil before you have a legal entity there, an EOR makes it possible without the cost and time of setting up a local structure.

When you use an EOR, the EOR is the Employer of Record with the relevant labour authorities. That means they are responsible for compliance with local employment law: statutory notice periods, termination requirements, minimum wage obligations, and employee rights. If an employment dispute arises in a jurisdiction where you have no entity, the EOR handles the legal exposure.

In countries with strong worker protections like France, Germany, or the Netherlands, getting this right matters. Employment law there is detailed and actively enforced, and having a partner who understands it locally is a significant advantage.

The EOR runs payroll in the local currency, deducts the correct social contributions and income taxes, and remits them to the relevant authorities on time. This covers employer social security contributions, pension obligations, mandatory benefits, and any statutory levies specific to that country.

Beyond payroll, the EOR maintains HR compliance documentation, issues locally compliant employment contracts, manages statutory leave entitlements, and makes sure your workers receive everything they are entitled to under local law. For a company operating across multiple countries, this removes a layer of complexity that would otherwise need specialist resources in every market. Our country guides cover exactly what employers are obligated to provide in each jurisdiction.

The core difference is employment status. Everything else follows from that.

AOR works exclusively with independent contractors. The contractors remain self-employed and are not on anyone’s payroll. The AOR administers the engagement but does not change how the worker is classified.

EOR works with employees. The workers are legally employed, with all of the rights and protections that employment status carries in a given jurisdiction. When you are deciding between AOR and EOR, classification is the first question to answer. If the nature of the role points toward employment, an EOR gives you the right structure from the start.

AOR compliance focuses on contractor administration: insurance verification, contract compliance, payment terms, and documentation. Because there is no employment relationship, the AOR does not carry employment law obligations.

EOR compliance covers employment law in full across every country where workers are engaged. That includes labour law, payroll tax, social security, mandatory benefits, anti-discrimination obligations, data protection requirements for employment records, and local termination rules. The scope is broader because the responsibility is greater.

With AOR, contractors invoice for their services and the AOR processes those payments. Contractors manage their own tax filings and national insurance contributions. There is no payroll in the employment law sense.

With EOR, payroll is fully managed. Employees receive payslips, deductions happen at source, and all statutory benefits including paid leave, sick pay, pension contributions, and parental leave entitlements are administered in line with local law.

If you want to understand how global payroll works in practice across different countries, our payroll guides go into the detail country by country. The EOR also coordinates access to benefits packages, which in competitive hiring markets can be just as important as the statutory baseline.

With AOR, the primary risk to be aware of is worker misclassification. If a tax authority or labour tribunal finds that a contractor was, in practice, working like an employee, that is a shared exposure between your company and the AOR. An AOR manages operational compliance within the contractor relationship, and does that well, but it works on the assumption that classification is correct from the outset.

With EOR, the employment risk sits with the EOR as the legal employer. Payroll errors, non-compliant contracts, and missed statutory obligations are theirs to resolve. Your responsibility is to keep the EOR well-informed so they can do their job properly.

Use AOR when you are working with independent contractors and the volume or geographic spread has made managing them directly unwieldy. If you have contractors across multiple states or countries and tracking insurance certificates, contracts, and payments is taking up more time than it should, an AOR brings structure and efficiency without changing the underlying model.

Use Employer of Record services when you want to hire employees in a country where you have no legal entity, or when you are not certain whether your current contractors should be classified as employees. EOR is also the natural fit when local labour law requires a compliant employment contract, when the people you want to hire expect employment benefits, or when the work is ongoing, supervised, and central to how your business operates.