An EOR arrangement runs on two contracts, and confusing them is the fastest way to misread the product. The first is the service agreement between you and the employer of record: a commercial contract that sets fees, invoicing, liability, data handling and termination mechanics. The second is the employment contract between the EOR and your hire: a local-law employment agreement in which the EOR is the legal employer, drafted to satisfy the labour law of the hire's country. You are not a party to the second contract, and that is deliberate; the separation is what moves the legal employer obligations off your company. This page explains what belongs in each document and what to check before anyone signs. Contract documents control; nothing here is legal or tax advice.
The service agreement: what you sign
The service agreement is where the commercial reality lives. It sets the management fee and what it includes, how salary costs, employer taxes and benefits are passed through and invoiced, what deposits or prefunding the EOR requires, and in which currency. It allocates liability: who pays if the EOR misfiles a tax return, and who pays if you direct the worker in a way that creates an employment claim. It covers intellectual property assignment, because work product is created by someone employed by another company and must flow through to you contractually. It sets data protection terms, since the EOR processes your hire's personal data. And it sets exit terms: notice to terminate the service, what happens to the employee, and any offboarding or severance pass-through. Read the exit clause first; it is where the surprises concentrate.
The employment contract: what your hire signs
The employment contract is between the EOR entity and the worker, under the worker's local law, in the local language where the law requires it. Its floor is statutory, not negotiable: local rules on probation, working hours, leave, notice and termination apply because the law says so, regardless of what any party would prefer. Your role is to set the commercial terms the contract carries: role, salary, start date, bonus and equity language where relevant. A competent EOR will show you the draft before the hire signs, and you should read it against the offer you made, because a mismatch between your offer letter and the local contract is a dispute waiting for a bad day. In the United States the analogous line is drawn by worker classification: the IRS looks at behavioural control, financial control and the type of relationship to decide who is an employee, and an EOR arrangement does not change the day-to-day control test, it changes who carries the employer obligations that follow from it.
Who controls the worker, and why the split holds
The arrangement works because the two roles are separable: day-to-day direction of the work stays with you, while the legal employer duties sit with the EOR. United States law has a certified version of the same split for domestic co-employment: an IRS-certified professional employer organisation is treated as the employer for federal employment tax purposes on the wages it remits, must post a bond of 5% of that liability with a floor of $50,000, and must keep the IRS informed of material changes. The international EOR market has no equivalent federal certification, which is why the service agreement's warranty and liability terms carry more weight: they are the closest thing you get to the statutory backstop a CPEO client enjoys. Ask the EOR which entity employs the worker in the specific country, whether that entity is owned or a partner, and who stands behind employment claims.
What to check before signature
Five checks catch most problems. First, entity: which legal entity in the hire's country will sign the employment contract, and is it the EOR's own or a third party. Second, money: get a specimen invoice for your actual hire, with salary, employer costs, benefits and fee itemised, before you sign the service agreement. Third, statutory terms: ask how probation, notice and termination will read in the local contract, and check the draft against the answer. Fourth, intellectual property: confirm the employment contract assigns work product to the EOR and the service agreement assigns it onward to you, with no gap. Fifth, exit: what notice ends the service, what it costs to move the employee to your own entity later, and who pays severance if the relationship ends. An EOR that answers all five in writing quickly is telling you something; so is one that does not.
Questions people ask about eor contract
Am I a party to the employment contract?
No. The employment contract is between the EOR's local entity and the worker. You sign the service agreement with the EOR. Your offer terms reach the worker because the EOR writes them into the local contract, which is why reviewing the draft before signature matters.
Can the EOR contract override local labour law?
No. Statutory minimums on probation, notice, leave and termination apply regardless of contract wording. A contract can improve on the floor, never dig below it. Any EOR suggesting otherwise is describing a contract a local court will rewrite.
Who owns the work my hire produces?
Whoever the contracts say, which is why the chain matters: the employment contract should assign work product to the EOR and the service agreement should assign it on to you. Check both documents; a missing link in either leaves ownership ambiguous in exactly the jurisdictions where you least want ambiguity.
What happens to the employee if I stop using the EOR?
The employment contract survives your service agreement; the worker is still employed by the EOR under local law. Ending the arrangement means either transferring the person to your own entity or another provider, or a lawful local termination with its notice and severance costs, which the service agreement will pass through to you.