The pros and cons of using an Employer of Record (EOR)

Thinking about using an Employer of Record (EOR)? You’re not alone. Many New Zealand businesses are turning to alternative ways of employment, like EOR services, to hire internationally, reduce compliance complexity and move faster in competitive talent markets. 

But EORs aren’t right for every situation. Going in without understanding the trade-offs can lead to real frustration. We’ll dive into an assessment of the pros and cons of using an Employer of Record, so you can make the right call for your business.

What is an Employer of Record?

An Employer of Record is a third-party organisation that legally employs workers on behalf of your company. 

In simple terms: the EOR’s name goes on the employment agreement, not yours.

While the EOR holds the legal employer status, day-to-day management stays entirely with you. You decide who to hire, set objectives, direct work and shape your team culture. The EOR handles everything that sits beneath that, such as payroll, tax filings, statutory contributions, employment agreements and compliance with local employment law.

This arrangement is particularly valuable when you want to hire someone in a country where your business doesn’t have a registered legal entity. Rather than spending months and significant budget establishing a local subsidiary, you plug into the EOR’s existing legal infrastructure from day one.

How does an EOR work in practice?

Understanding the mechanics makes it easier to assess whether an EOR fits your needs. Here’s how the typical process works:

1. You identify a candidate — in a country where you have no legal entity or simply don’t want to carry the employment admin burden directly.
2. The EOR onboards your new hire — issuing a locally compliant employment agreement, collecting the required tax and statutory information and enrolling them in the relevant payroll and benefits.
3. Payroll runs each period — the EOR handles all calculations, tax remittances, statutory deductions (like KiwiSaver or local equivalents) and keeps pace with any legislative changes.
4. You manage the work — performance, goals, projects and team culture remain fully in your hands.
5. If employment ends — the EOR acts as the primary legal entity responsible for managing the offboarding process in accordance with local law, significantly mitigating your direct exposure to structural termination disputes.

The division is clear: the EOR manages the structural legal and administrative complexities of employment, allowing you to stay focused on running and growing your business.

The pros of using an EOR

For businesses hiring across borders, the advantages are real and measurable. Here’s what you actually gain from bringing an EOR into the picture.

Hire internationally without setting up a legal entity

Setting up a legal entity in a new country takes time, money and a lot of specialist help. Depending on the jurisdiction, you’re looking at legal fees, registration costs, local accounting requirements and ongoing compliance obligations. All before a single person has started work.

An EOR removes that barrier. Because the EOR already has legal entities in place across multiple countries, you can hire compliantly in a new market without any of that groundwork. For businesses testing a new region or bringing on a single international hire, this is one of the most practical advantages the EOR model offers.

Faster onboarding

Speed matters when you’ve found the right person. In competitive hiring markets, a slow process can cost you the candidate.

Building the infrastructure to employ someone in a new country directly can take months. With an EOR, onboarding can happen in days. The legal framework is already in place and the EOR handles the administrative steps on your behalf. For businesses that need to move quickly on a specific hire or expand into a new region rapidly, that difference in timeline is hard to ignore.

Built-in compliance with local employment laws

Employment law varies significantly by country. Tax obligations, working time rules, statutory leave entitlements, termination procedures, data protection requirements. Getting all of this right without support can be challenging… but getting it wrong carries real consequences: fines, disputes and reputational risk.

With an EOR, compliance is built into the service rather than bolted on as an afterthought. The EOR’s specialists stay current with local legislation and apply it to every contract, payroll run and HR process. For businesses without in-house legal or HR expertise in every country they hire into, this is a genuine safeguard.

Reduced administrative burden

Admin is a huge burden for many New Zealand businesses. And this grows when you’re managing payroll processing, agreement drafting, statutory filings, leave management and super enrolment across multiple countries, employees and roles. 

An EOR takes this operational load off your plate entirely. Your HR and finance teams can focus on higher-value work, rather than navigating a different compliance regime for each jurisdiction. For growing SMEs without large back-office functions, this efficiency gain is often one of the strongest arguments for using an EOR.

Lower risk

When the EOR is the legal employer, they also assume the associated legal liabilities. That includes exposure to employment disputes in foreign jurisdictions and the financial penalties that follow from non-compliance.

This transfer of risk is particularly significant for businesses new to international hiring. Rather than carrying full employer liability in a country they don’t fully understand, they can rely on the EOR’s legal standing and expertise. It’s a meaningful layer of protection for businesses moving fast.

The cons of using an EOR

No solution is perfect for every situation and EORs are no exception. Understanding where the model has real constraints will help you decide if it’s the right fit for your business and avoid surprises down the line.

Less direct control over employment terms

Because the EOR is the legal employer, certain employment conditions need to align with their standard frameworks. In practice, this can mean limited flexibility on specific contract terms, benefit structures or termination clauses that sit outside the EOR’s standard offering.

For most businesses, this is a workable trade-off. But if you have very specific employment arrangements in mind, it’s worth clarifying upfront exactly what flexibility your EOR provider can accommodate. The best providers will be transparent about the boundaries of their standard model.

Cost considerations

EOR services aren’t free and they typically cost more on a per-hire basis than running payroll directly. Most providers charge either a flat monthly fee per employee or a percentage of salary.

That said, the cost comparison is rarely as simple as it looks on paper. When you factor in entity setup costs, local legal and accounting fees and the internal time required to manage compliance across multiple jurisdictions, an EOR often works out more cost-effective, particularly for smaller headcounts or time-limited arrangements. The right approach is to model the full cost of each option against your specific situation before committing.

Not ideal for large, permanent headcount

If you’re planning significant, long-term hiring in a single country, there may come a point where your own local entity makes more financial sense than ongoing EOR fees. EOR pricing is predictable and manageable for a handful of employees, but the cost model scales with headcount.

Many businesses use an EOR as a practical bridge: hiring through the provider while they simultaneously build out their own local entity. That’s a sound strategy, but one that’s worth planning for from the start rather than arriving at it by accident.

Dependency on a third-party provider

Employment is critical business infrastructure. Handing that to an external provider means accepting a degree of dependency on their compliance standards, their responsiveness and their ability to handle issues when they arise.

This isn’t a reason to avoid EORs, but it is a reason to choose carefully. Look for a provider with direct in-country legal entities (rather than sub-contracting to local partners), clear pricing with no hidden fees and a demonstrable track record. References and independent reviews are worth checking before you sign.

Is an EOR right for your business?

Here are a few scenarios where an EOR is likely the right fit:

Where it may not be the right fit: if you’re planning a large, permanent workforce in a single country over the long term, a local entity is likely the more cost-effective structure. It’s also worth understanding the distinction between an EOR and a PEO (Professional Employer Organisation) before you decide.

How HeroForce makes EOR simple

HeroForce is Employment Hero’s Employer of Record solution, built to handle the full employment lifecycle, whether you’re hiring in New Zealand or building a team across borders.

Here’s what makes it practical:

• 180+ countries covered, with zero entity setup required. You choose where to hire; HeroForce handles local contracts, payroll and compliance.
• AI-powered candidate sourcing built in. HeroForce connects to a marketplace of 2M+ jobseekers, so you can find and employ talent through one connected platform rather than stitching together separate tools.
• Fast, compliant onboarding. Employment Hero manages contracts, PAYE, statutory contributions and employment admin on your behalf, so new hires are set up correctly from day one.
• Employment experts behind the platform. HeroForce is backed by a team of employment lawyers and HR specialists with over 25 years of combined experience on hand when you need guidance on complex or unusual situations.
• You stay in control. Day-to-day management, performance and team culture remain entirely with you. HeroForce handles the employment infrastructure behind the scenes.

Whether you’re employing one person in a new country or scaling a distributed team across multiple markets, HeroForce gives you the infrastructure to do it without carrying the complexity yourself.

Want to see how it works for your business?