What it means
The EOR becomes the legal employer for tax, payroll and labor law purposes in the worker's country. The client business still chooses who to hire, sets the tasks and manages performance. The nearest neighbouring term is the professional employer organization (PEO). A PEO shares employer duties with a client that already has its own entity, while an EOR takes on the full legal employer role.
Why it matters when you buy software
Providers in this area differ in how many countries they cover, whether they use their own local entities or a partner network, and how they charge, often a monthly fee per worker. When you compare HR and payroll tools, check whether EOR is a separate product, an add-on or part of a higher plan, and which countries it supports.
How it works in practice
A company picks a candidate in another country and signs a service agreement with the EOR. The EOR issues a local employment contract, runs payroll, withholds taxes and provides statutory benefits. The client keeps day-to-day control of the work. Ending the arrangement follows local employment rules, which the EOR administers.
See also: Payroll, Time and attendance and the glossary index.