Disclaimer: The views and opinions expressed in this article are not considered legal advice.
Global regulators are increasingly scrutinizing employer-of-record (EOR) models, and companies that rely on them for fast expansion may face compliance challenges if they don’t adapt. Countries like Singapore, the United Kingdom, and the Netherlands are reviewing their own tax, immigration, and other policies, and companies need to take more care in choosing which model makes the most sense for their strategy. Christine Smith, global immigration director at Deel, and David Mayes, principal in KPMG’s global mobility services practice, outline some of the challenges EOR arrangements can face and how companies can remain compliant and still meet their strategic goals.
Regulators are looking at EOR arrangements from an immigration perspective, but in some cases, like in the Netherlands, the scrutiny of EORs came from a regulatory focus on the salaries of highly skilled migrants and the conditions needed for them to achieve authorized sponsored status, according to Mayes. “Regulatory officials are considering market conformity tests,” he says. This illustrates why companies must review not just immigration rules but also labor market norms in each expansion jurisdiction.
Another area of concern for EOR arrangements is the review of equal pay requirements, particularly in the European Union (EU). “EU directives applied by different member states could indirectly impact EORs,” Mayes says. “It’s a very fluid environment where the regulations are changing.” Within different jurisdictions, regulator awareness and understanding of EORs is just beginning. Jurisdictions are trying to understand how the current regulations apply to this type of workforce. Mayes advises companies to stay on top of regulatory developments in each jurisdiction they plan to enter.
Strategic Thinking Is Necessary, But Especially When Regulatory Changes Occur
Smith says that EORs may see regulatory changes, but the model is “one of the most strategic tools for companies wanting to compete in today’s increasingly global economy.” She points out, “Authorities are gaining better visibility into cross-border work arrangements through advanced technology, and they’re rightfully focused on ensuring employment relationships are genuine and compliant.” This means that talent mobility professionals need to be more strategic.
EORs provide powerful benefits to employers looking to test out new markets. Mayes says that EOR arrangements have enabled companies to navigate the complexities of international employment. “Each organization, however, needs to evaluate whether an EOR is the right tool for the purpose,” he adds. “This entails assessing the duration of employment, the location, the activities employees will be performing in those locations, and other aspects of an EOR arrangement.”
EORs can be flexible tools, but it is important to conduct a nuanced assessment.
According to Smith, “For mobility professionals, this translates into closer collaboration with legal, tax, and human resources teams to thoroughly vet EOR arrangements and ensure they align with local regulatory expectations.”
EORs are more than administratively convenient. Some of the most successful approaches treat every engagement as a strategic partnership, ensuring supervision, genuine employer relationships, and complete transparency with local authorities. “This isn’t about workarounds; it’s about building sustainable, compliant global operations that can scale with business growth,” she says.
EOR arrangements are perfect for international expansion because they are one of the most agile models available to companies. “The benefits still far outweigh the due diligence requirements,” Smith says.
With traditional subsidiaries, it can require significant capital investment and take months to set up, and an EOR arrangement allows for quicker market entry without the need for a long-term commitment. “Top global talent can be hired within weeks, rather than months, and companies can do so with fully compliant employment contracts that meet local labor law requirements,” Smith says.
EOR arrangements cover tax withholdings and payroll processing, as well as statutory benefits, such as mitigating possible compliance penalties or risks of misclassification. “At Deel, we’ve seen companies use this approach to successfully enter more than 150 countries, demonstrating the model’s versatility across diverse regulatory environments,” Smith says. “What’s changed isn’t the viability of EORs, but the need for more sophisticated, compliant approaches.”
Some of the most successful EOR providers employ regional specialists and own local entities, providing infrastructure to employer relationships. “These partners are more than intermediaries; they’re there to make running a global business as easy as running a local one,” she says. “As companies increasingly operate across borders and talent becomes more distributed, the EOR model becomes even more critical. It’s about democratizing access to global opportunities for companies of all sizes.”
Mayes points out that EORs can also help companies after a merger or acquisition or even following a divestiture. “If they have acquired a company with a broader global footprint, they may find they have employees in countries where they previously had no presence,” he says. “EOR is a solution to help the acquiring company comply with local labor laws and legal requirements quickly, allowing them ample time to establish their operations and onboard those new employees.”
Where EOR Models Face the Most Scrutiny
Employment compliance is increasingly intertwined with immigration changes in a number of jurisdictions, and Smith says that regulatory authorities are scrutinizing EOR models to ensure there are genuine employer relationships. “For instance, some jurisdictions now require direct sponsorship by the entity truly benefiting from the employee’s work,” she says. “Countries like the United Kingdom, Singapore, and parts of the European Union want proof of clear connections between visa sponsors and actual job duties. This means EOR providers must demonstrate genuine supervisory capacity, not just administrative processing.”
Smith points out that the most successful EOR approaches are ones that incorporate the entire process, not act as intermediaries. “EOR providers that maintain actual control and accountability, with in-house legal and compliance experts across multiple countries, can demonstrate the genuine employer relationships that authorities expect,” she says.
In many cases, regulators are looking for proof from sponsors. Authorities want sponsors to demonstrate physical operations, financial standing, and supervisory capacity, according to Smith. Not all vendors can demonstrate a local presence, which is why choosing the best partner for an EOR is essential.
Stricter labor market testing is another challenge that is accelerating. “Governments are enforcing advertising requirements, wage benchmarking, and nondiscrimination policies more rigorously,” Smith says. “This requires EOR providers to supply genuine vacancy evidence and ensure proper wage levels and job descriptions align with immigration processes.” Any discrepancies between immigration processes and actual job requirements can result in visa rejection or revocation.
Mayes adds that another area of potential concern with EOR models is, from a tax perspective, “using an EOR might not eliminate the risk of creating a permanent establishment (PE) for the client company in a particular country with resulting corporate tax implications. We encourage organizations to engage with their corporate tax colleagues or an advisor to establish guardrails to mitigate this risk.”
Signs It’s Time to Shift Beyond an EOR
According to Mayes, one key indicator that an EOR should be reassessed is when the number of employees in a particular jurisdiction increases. “If the number of employees increases or the duration of employees transferred there lengthens, employers should consider evaluating whether an EOR arrangement makes the most sense,” he says. “These factors can indicate more growth than the business anticipated, and the business may need a more permanent presence.”
Of course, employers will have to assess the costs of establishing a subsidiary or new branch, the possible tax implications, and other concerns.
In some instances, Mayes says, “employers are evaluating the viability of other structures, including creating their own global employment company.” In these arrangements, it offers a separate legal entity within the firm’s current structure to manage and employ a portion of the organization’s global workforce.
“Essentially, that internal global employment company becomes the contractual employer,” he says. “It effectively becomes an employer’s own internal EOR that handles the global workforce in a tax-effective manner with or without a local presence.”
Mayes also notes that it provides a centralized standardization of services necessary to manage a global workforce, particularly concerning administrative tasks and ensuring compliance within different jurisdictions.
For example, a U.S.-headquartered company may decide it wants to test markets in Europe, placing one to two employees in the United Kingdom, Spain, and the Netherlands. “The company could choose to create one entity in the Netherlands to employ all its EU-based employees. That entity would be responsible for complying with all necessary tax and labor laws in all jurisdictions. These employment structures require strong due diligence and should involve stakeholders throughout the organization,” Mayes says.
Additionally, he says that companies should periodically review their EORs to ensure they align with each firm’s risk tolerance, assess their own focus within their industry, and determine whether an EOR is going to help them achieve their strategic objectives going forward.
According to Smith, companies should ensure their EOR partner can demonstrate genuine employer status, whether through a local operation or owning an entity for that purpose. As the regulatory definition of “employer” is refined, EORs need to meet the criteria of an employer, an entity that has hiring and firing authority, is legally accountable for work output, and has day-to-day managerial control.
“For global mobility managers, this requires thorough risk assessment in each jurisdiction and alignment between immigration, legal, and tax functions to avoid misclassification risks and reputational damage,” she says. “The goal should always be to remove barriers to internationalization rather than creating new ones.”
Lock in EOR Success
EORs are more than outsourcing arrangements; they are strategic partnerships. “EORs enable global expansion with speed, compliance, and minimal risk, while maintaining an exceptional employee experience,” Smith says.
Successful EORs must:
- Ensure full legal, immigration, and tax compliance.
- Enable quick hiring of top talent in new markets.
- Provide access to comprehensive payroll, benefits, and human resource infrastructure.
- Offer clear transition planning for employee-transferees.
“Workers should have access to the best career opportunities regardless of where they live,” Smith says. “At Deel, we believe a high-functioning EOR isn’t a workaround but a strategic asset that’s flexible, compliant, and aligned with long-term workforce and business goals. It’s about democratizing access to global talent so companies of all sizes can compete internationally.”
Companies with collaborative EORs will have the most success in solving business problems and ensuring smooth employee transitions. According to Mayes, part of that is guided by the business’s long-term strategy. “The need to know what their workforce is accomplishing in a different jurisdiction and how that feeds into the strategy,” he says. EOR success will require periodic testing of the model and third-party guidance to ensure EORs are considered “genuine employers” in each jurisdiction where they operate.
For more on EORs, check out the following Mobility News articles: