AOR vs. EOR: How to Choose the Right Model

Workforce management isn’t what it used to be. Before, employees worked in your office location and HR handled all the paperwork. End of story.

Those days are long gone.

Today’s workforce blends traditional employees, specialized freelancers, and independent contractors working together across borders and time zones. While this flexibility opens up new opportunities, it also introduces challenges—like navigating complex tax laws or avoiding costly misclassification fines.

As these arrangements become the norm, two solutions have emerged: Employer of Record (EOR) and Agent of Record (AOR). Let’s break down how they work—and why they matter for modern employers.

Employer of Record: How it Works

Imagine your company secures a major client in San Diego and you need a local account manager immediately. You find the ideal candidate, but there’s a catch: you’re based in Seattle and don’t have an office or legal entity in the area. Setting one up could take months and cost thousands.

Enter the Employer of Record.

An EOR acts as the legal employer for your new team members and others you might need in the future. You manage their day-to-day work, while the EOR handles the heavy lifting: payroll, taxes, benefits, and compliance. Think of them as a trusted partner who helps you overcome hurdles and cross the finish line in your hiring efforts.

What an EOR Does:

• Serves as the legal employer on all official documents
• Runs payroll in local currency and files taxes
• Designs benefits packages that meet local expectations
• Protects you from labor law risks
• Manages statutory requirements like health insurance, sick leave, and termination laws
• Provides localized employment contracts that align with regional regulations

Check Out: Essential Questions to Ask When Evaluating EOR Companies

Agent of Record: How it Works

While EORs provide structure for long-term hires, project-based or seasonal work demands a more flexible approach.

Say that your company is launching a new product and needs a UX designer, copywriter, and video producer—but only for a 3-month project. Full-time hires aren’t practical, and independent contractors could be the right fit. However, treating them like employees might lead to worker misclassification audits or legal consequences.

That’s where you need an Agent of Record.

An AOR doesn’t employ your contractors—they act as your compliance partner, handling tax filings, labor laws, and contractor agreements so you can focus on driving projects forward.

What an AOR Does:

• Validates contractor classification to avoid IRS/HR headaches
• Manages worker agreements
• Handles multi-currency invoicing and payments
• Offers liability protection by ensuring proper insurance and tax filings
• Monitors changing regulations (like California’s AB5 law governing worker classification or the EU’s platform worker directives)
• Creates a smooth onboarding process for contractors regardless of location

Check Out: Essential Questions to Ask When Evaluating AOR Companies

EOR vs AOR: Key Differences

 

Agent of Record		Employer of Record
Independent contractors	Worker type	Full-time and part-time payrolled workers
Compliant onboarding and payment including classification, contracts, invoicing, and ongoing compliance	Functions	Hiring, invoicing, and payment, including tax deductions, compliance, and benefits administration
Less expensive that EOR due to fewer responsibilities	Cost	Higher cost as EORs have more responsibilities and act as the legal employer
Best for managing short-term projects with independent contractors	When to use	Best for companies who use payrolled workers for long-term employment
Companies who have fluctuating volumes of work and want to engage contractors quickly without hiring a full-time employee	Business goals	Companies looking to expand their business in new markets where they do not have a presence but need payrolled workers
Companies wanting administrative support for managing contractor engagement	Ideal for	Companies wanting a partner to assume legal and financial liability for their workers
Provides compliance but employers retain a higher level of accountability	Compliance	Ensures 100% compliance with labor laws, tax and hiring regulations, and more
An AOR provider handles essential but non-revenue administrative tasks, including time tracking, invoicing, and onboarding, and more	Advantages	An EOR provider eliminates the cost and effort of establishing legal entities for employee presence, domestically and internationally
Workforce flexibility, cost savings, and compliance	Benefits	Reduced risk, organizational efficiency, business expansion and control

EOR vs. AOR: Which one do you need?

EOR and AOR solutions don’t just address today’s hiring challenges—they position your business to outpace competitors. Both services help companies take the next step forward, but they serve different purposes.

Use an EOR When:

• You need to hire quickly while staying compliant with local and regional laws.
• You require full-time/long-term workers in a country where you don’t have an established legal entity.
• You’re entering new markets or need benefits tailored to local requirements.
• You prefer a centralized system for payroll and HR reporting.

Use an AOR When:

• You rely on independent contractors for project-based work.
• You need to quickly scale your team without a prolonged hiring process.
• You want to mitigate contractor misclassification risks, which can lead to back taxes, penalties, and legal action.
• You seek simplified cross-border workforce management including payments and other administrative tasks.

Many companies use both—like a major corporation hiring full-time devs in the U.S. via an EOR while using an AOR to manage part-time designers in the U.K. and Ireland.

Imagine hiring workers in new markets in a matter of days, not months, or reallocating HR costs to fund R&D. That’s the power of partnering with EORs and AORs.

Discover: How to Attract Top Independent Talent: Tips on Becoming a Client of Choice

The Bigger Picture: What are the benefits of AOR vs EOR?

EORs and AORs do more than handle paperwork. These services help companies attract and retain the best talent so they can focus on growing—and stay ahead of their competitors.

Benefits of an EOR:

• Hire Globally, and Instantly: Onboard talent in countries around the globe without setting up a local entity
• Access Niche Talent: Tap into specialized skills like AI-driven supply chain experts or bilingual customer support teams
• Avoid Costly Compliance Errors: Stay ahead of labor laws (e.g., Germany’s termination rules) and prevent worker misclassification fines
• Accelerate Speed to Market: Launch teams in new regions in days, not months—ideal for urgent projects or rapid expansion
• Ensure Centralized Oversight: Manage payroll, benefits, and HR reporting for global teams from a single dashboard

Benefits of an AOR:

• Simplify Contractor Management: Automate onboarding, NDAs, and payments
• Eliminate Misclassification Risks: Ensure IRS/HR compliance (e.g., California AB5, EU directives) to avoid audits or lawsuits
• Flexible Payments: Pay contractors in multiple currencies—no manual conversions necessary
• Get Real-Time Cost Tracking: Monitor project budgets, contractor hours, and spend analytics through integrated platforms
• Scale On Demand: Ramp up contractors for seasonal demand or niche projects

Check Out: MBO’s Agent of Record Guide and Employer of Record Guide

EORs and AORs: Building the Workforce of the Future

EORs and AORs don’t always get attention, but they’re changing how work gets done. Whether you’re a small startup hiring someone from another country or a large corporation working with hundreds of freelancers, these tools give you the support to build the team you need, no matter where they are.

Want to stay ahead of the latest workforce management trends as you build your global team? For more information on how to work with independent contractors, visit MBO’s blog for the latest news and insights. We cover topics such as workforce compliance, AI technology, and much more to help you stay informed and ready for what comes next.