If you’re hiring talent overseas or building your team for the long term, you’ve probably asked yourself: Should I hire independent contractors, or work with an Employer of Record (EOR)?
Both options have benefits, but they’re designed for very different situations. Contractors can be useful for short-term projects. But if you’re expanding internationally, want to reduce risk and need reliable long-term support, using an EOR service is usually the smarter choice.
What’s the difference between an EOR and an independent contractor?
- Independent contractors are self-employed. They work on short-term projects, are paid for specific tasks and manage their own taxes and benefits.
- An Employer of Record (EOR) legally employs staff in another country and takes full responsibility for complying with local employment legislation and managing other statutory obligations. You’ll still manage your employee on a day-to-day basis, assigning them work and approving their time off, pay, and expense requests. But your Employer of Record will facilitate employment contracts, ensure compliance with local employment law, run payroll, pay taxes, organise employee benefits and much more.
Why does misclassification matter?
Using contractors opens you up to a massive risk: misclassification. If a contractor is actually working like an employee (for example, long hours, under your supervision and/or using your tools), your business could be subject to heavy fines, legal disputes and back payments for taxes and benefits. These misclassification rules can also vary depending on the country you are expanding into – in the UK, for example, the IR35 Rules are what businesses must adhere to when classifying workers.
There have been a number of high-profile cases in recent years, which have seen multinational companies hit with fines in excess of £1.7 billion for minimum wage and benefits violations that came about as a result of misclassification.
Working with an Employer of Record removes the risk of misclassification. They’ll take on the legal responsibility of being the employer themselves, classifying them correctly and compliantly under local laws.
How does an EOR keep you compliant?
Employment laws vary in every country – covering contracts, taxes, benefits and working conditions. If you’re hiring contractors abroad, it’s easy to miss a local regulation.
An EOR handles all of this for you, including contracts, payroll, taxes and benefits.
- Drafting compliant employment contracts
- Running payroll in an accurate and timely manner
- Paying local taxes
- Managing employee benefits
That means your business stays compliant without needing in-house legal expertise.
Is an EOR better for global expansion?
Yes – if you’re entering a new market, an EOR makes expansion faster and less risky. Setting up a legal entity in each country takes months and can be expensive.
With an EOR, you can:
- Hire talent in a new country right away
- Test new markets without long-term commitments
- Scale up or down quickly as your business grows
How does an EOR improve the employee experience?
Contractors typically work independently, and as such, typically don’t get benefits like paid leave, health cover or consistent HR support. This can make it harder to attract and keep hold of local talent.
Through an EOR, employees gain:
- Statutory benefits
- Paid time off
- Structured onboarding and HR support
- A consistent employee experience
Employers can expect stronger engagement from their team as a consequence, as well as higher retention rates.
Why EOR is usually the smarter choice
If your business is focused on long-term growth, risk reduction and international expansion, an Employer of Record is the clear winner. EORs provide:
- Reduced legal risk from misclassification
- Full compliance with local labour laws
- Faster global expansion without setting up entities
- Comprehensive HR and payroll support
- A better employee experience that attracts and retains talent
FAQs: EOR vs Independent Contractors
Is it cheaper to use an EOR or independent contractors?
In the short term, independent contractors can look cheaper because you don’t provide benefits or run payroll, but they often charge higher hourly or project rates. In addition, misclassification risks arise from using contractors, which can lead to nasty, unexpected fines. Although an EOR may have higher initial upfront costs, they ensure that your overseas recruits remain compliant and stable, and as such, typically offer better long-term value.
Can an EOR replace contractors completely?
Yes, in most cases. An Employer of Record (EOR) allows you to hire employees legally and compliantly in almost any market across the world, allowing you to build long-term teams instead of relying on short-term contractors.
What are the risks of hiring independent contractors internationally?
Working with independent contractors comes with many risks, the biggest of which are:
- Worker misclassification penalties
- Non-compliance with local labour laws
- Lack of control over how work is done
- Weaker employee loyalty and retention
An EOR eliminates these risks by acting as the legal employer in each country.
Do employees hired through an EOR get benefits?
Yes. When hiring employees through an EOR, they’ll receive statutory benefits required by local law, as well as (in most cases) additional benefits including paid leave, health cover and pensions. This makes attracting and retaining high-quality talent easier for businesses when compared to hiring contractors.
When should I choose an EOR instead of contractors?
You should consider an EOR if:
- You’re planning long-term roles
- You want to expand internationally without opening an entity
- You need to reduce compliance risks
- You want to offer a better employee experience
Contractors make sense for short-term or trial projects, but for growth and compliance, an EOR is usually the smarter choice.Ready to grow your team the right way?
With over 25 years of experience, Leap29 provides tailored EOR solutions across over 180 countries. Speak to our experts today on +44 (0) 20 8129 6860 or email expansion@leap29.com to get started.
