An employer of record contract is not one document but two. The first is the service agreement between your company and the EOR: it sets the fee, the invoicing mechanics, liability allocation, data handling and how either side exits. The second is the local employment contract between the EOR and your hire, written to satisfy the labour law of the hire's country, which your company never signs. Most disputes trace back to gaps between the two: something the buyer assumed was covered, priced or assigned that the paperwork left with the other party. This page sets out what each document does and the clauses worth reading before signature.
The service agreement between you and the EOR
This is the commercial contract, and the clauses that matter most are the ones that bind after something goes wrong. Fee schedule: the advertised per-employee monthly price is a starting tier, so check what triggers extras such as deposits, currency conversion margins, benefits administration and off-cycle payments. Termination liability: when an employment ends, local law may require notice pay or severance, and the agreement should say plainly that these statutory costs pass through to you at cost, with evidence. Intellectual property: the agreement must obligate the EOR to capture IP assignment and confidentiality from the employee under local law and pass those rights to you, because you have no direct contract with the person. Exit: look for how employees can be transferred to your own entity later, and what that costs.
The local employment contract the EOR signs
The EOR, or a local entity it owns or partners with, signs the employment contract as legal employer, in the local language where required, on terms that meet the hire's statutory minimums. You should still review it before it is issued: the salary, job title, working hours, probation and notice terms need to match what you agreed with the candidate, because the EOR will implement what its template says, not what your offer email said. Ask which entity is the signing employer in that country, whether it is owned by the EOR or a third-party partner, and who holds the employment relationship if the EOR changes partners. A buyer who has never read the employment contract its EOR issues is trusting a template it has not seen.
Why the classification backdrop matters
The alternative to an EOR contract is usually a contractor agreement, and the line between the two is not a drafting choice. The IRS assesses worker status on common law grounds across behavioral control, financial control and the type of relationship, and says there is no magic or set number of factors that makes the worker an employee or an independent contractor. Treating an employee as a contractor without a reasonable basis creates liability for employment taxes. An EOR contract exists precisely to put a genuine employment relationship on compliant footing: the person gets an employment contract, statutory benefits and withholding, and the control you exercise day to day stops being evidence of misclassification.
Liability is allocated, not eliminated
The IRS framing for third party payers is a useful discipline even though EORs operate internationally: depending on the arrangement, a company using a third party to perform employment functions may remain solely liable, become jointly and severally liable, or be relieved of liability. Read the service agreement's indemnities with that spectrum in mind. A well-drafted EOR agreement makes the EOR responsible for employer compliance failures it controls, payroll filings, statutory contributions, contract validity, while you stay responsible for what you control, such as the working relationship, discrimination in management decisions, and accurate information about the role. Contract documents control; nothing on this page is legal or tax advice.
Questions people ask about employer of record contract
Do I sign the employment contract when using an EOR?
No. The EOR or its local entity signs the employment contract as legal employer. Your company signs a service agreement with the EOR; the employee works for you day to day but is employed by the EOR.
Who owns the work product under an EOR contract?
It should be you, but only if the paperwork says so at both layers: the employment contract must capture IP assignment from the employee under local law, and the service agreement must pass those rights through to your company. Check both before onboarding, not after a dispute.
What happens if I want to end the employment?
The EOR must follow the hire's local law on notice, process and any severance, because it is the legal employer. The service agreement should commit the EOR to pass statutory termination costs through at cost with evidence, and to run the process lawfully on your instruction.
Is an EOR contract safer than a contractor agreement?
For someone working under your direction on an ongoing basis, generally yes. The IRS weighs behavioral control, financial control and the relationship type, and misclassifying an employee as a contractor without reasonable basis creates employment tax liability. An EOR makes the relationship employment, with withholding and benefits handled locally.