What Is an Employer of Record? A Plain-English Guide for UK Hiring

An employer of record (EOR) is a company that legally employs a person on your behalf. It signs the UK employment contract, runs payroll, deducts tax and National Insurance, arranges the workplace pension and carries the statutory employer duties. You direct the person’s day-to-day work. It lets you hire in the UK without setting up a UK company.

Who is legally the employer when you use an EOR?

The EOR is. That is the whole point of the arrangement, and it is worth being precise about it because several things follow from it.

There are two contracts:

1. An employment contract between the EOR and the employee. This is a normal UK employment contract. The employee has the same statutory rights they would have with any UK employer.
2. A services agreement between the EOR and your business. This sets out what you pay, what the EOR does, who directs the work, and who owns what the employee produces.

Your business is the client. You interview and choose the person, set their objectives and manage their work. The EOR is the employer in law: its name is on the payslip, it holds the PAYE scheme, and HMRC and the employee deal with it on employment matters.

What does an employer of record actually do?

In the UK, a typical EOR takes on these employer duties:

Area	What the EOR handles
Contract	Issues a UK-compliant employment contract, including the written statement of particulars the law requires from day one
Right to work	Carries out the right to work check before employment starts
Payroll	Runs PAYE, reports to HMRC in real time, pays the employee and HMRC
Tax and NI	Deducts income tax and employee National Insurance; pays employer National Insurance
Pension	Assesses the employee for automatic enrolment and pays employer contributions
Statutory pay	Administers statutory sick pay, maternity, paternity and other statutory payments
Insurance	Holds employers’ liability insurance, which most employers in Great Britain must have
Leaving	Handles notice, final pay and the P45 when employment ends

On the contract point, GOV.UK says the principal written statement must be given “on the first day of employment”, with the wider written statement due within two months. See the GOV.UK guidance on the written statement of employment particulars.

On insurance, GOV.UK says employers must have employers’ liability cover of at least £5 million from the moment they take on staff, and you can be fined £2,500 for every day you are not properly insured (employers’ liability insurance). With an EOR, that policy sits with the EOR.

What doesn’t an employer of record do?

This is where most misunderstandings happen. An EOR is an employment and payroll arrangement. It does not change the commercial reality of what your business is doing in the UK.

It doesn’t make you immune to permanent establishment risk

Permanent establishment (PE) is a corporation tax question: does your overseas company have a taxable presence in the UK? Under UK law, a company can have a PE if it has a fixed place of business here, or if someone acting on its behalf habitually concludes contracts (or plays the principal role leading to contracts) for it.

Using an EOR deals with who employs the person. It does not decide what the person does. If your UK hire is a senior salesperson who negotiates and closes deals in your company’s name, the EOR contract doesn’t change that fact. We cover this in detail in permanent establishment risk in the UK. The short version: take advice from a tax adviser before you give a UK employee authority to sign contracts.

It doesn’t automatically give you the employee’s IP

This is the one people miss. Under UK law the starting point is that the employer owns certain work created by an employee:

• Copyright. Section 11(2) of the Copyright, Designs and Patents Act 1988 says that where a work is made by an employee in the course of employment, “his employer is the first owner of any copyright in the work”, subject to any agreement to the contrary (CDPA 1988, s.11).
• Inventions. Section 39 of the Patents Act 1977 says an employee’s invention belongs to the employer where it was made in the course of their normal or specifically assigned duties and an invention might reasonably be expected to result (Patents Act 1977, s.39).

With an EOR, the employer is the EOR, not you. So without the right clauses, the code, designs or inventions your UK hire produces could vest first in the EOR.

The fix is contractual, and it should be in place before the person starts:

• In the employment contract: a clause confirming that IP created in the course of employment belongs to the employer, plus a confidentiality clause, and a waiver of moral rights where appropriate.
• In the services agreement: a clause by which the EOR assigns all IP created by the employee for your business to your company, ideally as a present assignment of future rights so it happens automatically as the work is created, with a further assurance obligation to sign anything needed to perfect it.

Read both documents. If either is silent on IP, ask for it to be added. If your business depends on the IP, have your own lawyer review the wording.

Other things an EOR doesn’t do

• It doesn’t manage the person’s daily work. You do.
• It doesn’t sponsor visas by default. Sponsorship is a separate Home Office licence with its own duties.
• It doesn’t turn a contractor into an employee or the other way round. Employment status depends on the real working relationship.
• It doesn’t give you a UK trading presence, a UK bank account or a UK company.

When is an employer of record the right choice?

An EOR tends to make sense when:

• You’re hiring your first one to a handful of people in the UK and don’t want to set up and run a UK company yet.
• You need someone to start soon. An EOR already has a PAYE scheme, insurance and pension arrangements in place.
• You’re testing the market. If the UK doesn’t work out, you haven’t built a company you then need to close.
• You want employees, not contractors. You want the person properly employed, with the rights and protections that brings, rather than relying on a contractor arrangement that may not reflect reality.

It tends to make less sense when:

• You’re building a sizeable UK team. At some point, running your own UK company and payroll is simpler and cheaper per head.
• Your UK people will be closing deals in your name. That may create a PE regardless, in which case you may need a UK company or branch for tax reasons anyway.
• You already have a UK company. Then you need payroll, not an EOR.

For a side-by-side view, see EOR vs setting up a UK entity.

How are employer of record costs structured?

We don’t publish prices here, but the structure is worth understanding because it’s how you compare providers fairly. EOR costs usually have two layers.

Layer 1: the employment costs themselves

These are the costs any UK employer pays, passed through at cost:

• Gross salary
• Employer Class 1 National Insurance (15% above the £5,000 secondary threshold in 2026/27)
• Employer pension contributions (at least 3% of qualifying earnings under automatic enrolment)
• Statutory payments such as sick pay or maternity pay, where they arise
• Any benefits you choose to offer

Layer 2: the EOR’s service fee

This pays for the EOR taking on the legal employer role: contracts, payroll, compliance, insurance and support. It is usually charged per employee, often monthly.

When comparing providers, ask:

Question	Why it matters
Is the fee separate from pass-through costs?	So you can see exactly what you pay for the service
What is included in the fee?	Leavers, contract changes and statutory pay administration are sometimes extras
Is there a deposit?	Some providers hold a deposit against final pay and notice
What happens if you want to move staff to your own UK company later?	A clean exit path matters if you plan to grow
Who owns the IP and how is it assigned?	See above

The bottom line

An employer of record is the legal UK employer for people who work for your business. It removes the need for a UK company to employ them, and takes on the contract, payroll, tax, pension and insurance duties. It does not move your tax risk, and it does not hand you the IP unless the contracts say so.

If you’re considering your first UK hire, our UK employer of record service explains how we set this up, including the IP assignment wording. Or get in touch and tell us about the role.