If you want to hire someone in Spain, Poland or the Philippines but your company only exists at Companies House in the UK, you face a simple problem: you cannot legally put a foreign worker on a UK payroll and hope for the best. This is where the PEO vs EOR question comes up, and getting the difference right matters because one model needs you to own a legal entity in the other country and the other does not. Providers such as Deel push these two terms hard in their marketing, so it pays to understand what you are actually buying.
Here is the direct answer. An Employer of Record (EOR) becomes the legal employer of your worker abroad, so you do not need a company in that country at all. A Professional Employer Organisation (PEO) shares the employment duties with you but usually assumes you already have a registered entity in that country. For most UK small businesses hiring their first person overseas, an EOR is the route that keeps you legal without months of paperwork, much as the new day-one employment rights shape how you hire at home. The rest of this guide explains why, what it costs, and how to choose a provider.
What an EOR actually does
An Employer of Record is a company that already has a legal entity in the country where you want to hire. When you use one, your chosen candidate signs an employment contract with the EOR, not with you directly. The EOR handles local payroll, income tax, social security contributions, statutory benefits, pension enrolment and compliant employment contracts. You still manage the person day to day: their work, their targets, their tools. The EOR simply owns the legal and administrative side.
For a UK business this solves a genuine headache. Setting up a company in Germany or France to employ one developer is expensive and slow, and it drags you into that country’s corporate tax and reporting rules. An EOR lets you skip that entirely. You keep your UK company as it is, and the worker abroad is fully employed under their own country’s law, with the right holiday, notice periods and termination rules.
The trade-off is cost per head and a degree of distance from your employee’s contract. You do not directly control the fine print, and you are relying on the EOR to get local compliance right. For a handful of people in several countries, that is usually a price worth paying.
What a PEO actually does
A Professional Employer Organisation works on a “co-employment” basis. The worker is employed jointly by you and the PEO. Crucially, a PEO does not lend you its legal entity, so you generally need to have already registered a company in the country concerned. The PEO then takes on payroll processing, benefits administration, tax filing and HR support, spreading the compliance burden and often getting you better group rates on health insurance and pensions than you could negotiate alone.
The PEO model is common in the United States, where it is a mature way for firms to outsource HR admin across states. For a UK SME, a PEO makes sense once you already have a real, growing presence in a country: an office, several staff, a registered entity. At that point a PEO tidies up the admin. Before that point, the EOR route is almost always simpler.
PEO vs EOR: the difference at a glance
| Feature | EOR (Employer of Record) | PEO (Professional Employer Organisation) |
|---|---|---|
| Do you need a local company? | No, the EOR is the legal employer | Yes, usually required |
| Who holds the employment contract? | The EOR | You and the PEO jointly |
| Best for | Hiring one or a few people in a new country fast | Firms with an established local entity and headcount |
| Compliance risk sits with | Mostly the EOR | Shared between you and the PEO |
| Typical setup time | Days to a couple of weeks | Longer, entity setup comes first |
| Rough UK pricing | From around £300 to £500+ per employee per month, or a percentage of salary | Often a percentage of payroll, varies widely by country |
Prices move often and depend heavily on the country, so treat the figures above as a starting point for your own quotes rather than a fixed rate card.
The providers UK SMEs should shortlist
The market has grown quickly and there are more options than most owners realise. The best-known name is Deel, which offers EOR, contractor management and global payroll in a single platform and is aggressive on both marketing and coverage. Its main global rivals are Remote, which owns its own entities in many countries and is popular with tech firms, and Oyster, which pitches itself at distributed teams and startups.
Beyond those household names, several providers are worth a look precisely because fewer people mention them. Omnipresent is a UK-founded EOR that leans into hands-on onboarding and benefits. Boundless is a smaller, compliance-focused operator that owns its entities in a defined set of countries rather than claiming to cover everywhere. Multiplier and Papaya Global both compete on payroll and coverage, with Papaya aimed more at larger, payment-heavy operations. It is worth getting quotes from at least one of the big names and one of the smaller specialists, because the difference in service and price can be substantial.
A word of honesty: for a UK SME hiring one or two people abroad, the choice often comes down to who owns an entity in the specific country you care about and who quotes the fairest price for it. A provider that directly owns its local entity tends to carry less risk than one that subcontracts to a third party, so ask that question early.
What this means for your UK obligations
Using an EOR does not remove your UK responsibilities, it just changes where the employment sits. Your own UK staff still fall under UK rules, including the sweeping changes covered in our guide to day-one employment rights. Your VAT position may also be affected once you buy services from overseas suppliers, so it is worth checking our explainer on VAT registration and which scheme suits you before the invoices start arriving.
If hiring abroad is part of a wider push into new markets, the government publishes free trade factsheets that are a useful sense-check on the countries you are targeting. And if you are still deciding whether you even count as the kind of firm these services are built for, our piece on what counts as a small business in the UK sets out the thresholds.
A realistic example
Say you run a 12-person software agency in Manchester and you want to hire a senior developer in Portugal on the equivalent of £55,000 a year. Setting up a Portuguese entity would cost you thousands upfront plus ongoing accountancy and filing, and it would take months. Instead you use an EOR. The provider signs the developer to a compliant Portuguese contract, runs local payroll, handles social security and gives the developer the statutory benefits they are entitled to.
Your monthly cost is the developer’s gross salary, the employer contributions required in Portugal, and the EOR’s fee on top, which might be a few hundred pounds a month or a percentage of salary. You never touch Portuguese tax filings. If it does not work out, the EOR manages the exit under local law, which protects you from getting termination rules wrong in a country you do not know.
Watch the contractor trap
Many small firms try to sidestep all of this by paying an overseas worker as a self-employed contractor. Sometimes that is genuinely correct. Often it is not, and the risk is “misclassification”: treating someone as a contractor when local law says they are really an employee. That can trigger back taxes, penalties and unpaid benefits in the worker’s country. If someone works full time, only for you, to your direction, they usually look like an employee wherever they live. An EOR exists precisely to solve this problem legally, and most of the providers above also offer compliant contractor management for the cases where a contractor really is the right answer.
Frequently asked questions
Do I need to tell HMRC if I hire someone abroad through an EOR?
The overseas worker is employed by the EOR under their own country’s system, so they are not on your UK PAYE. Your UK corporation tax and reporting continue as normal. Because your specific situation can raise other tax questions, particularly around permanent establishment, take advice from your accountant before you sign anything.
Is an EOR legal in the UK and abroad?
Yes, the EOR model is widely used and legal in most countries, though a small number restrict or regulate it. A reputable provider will tell you plainly whether it owns a compliant entity in your target country. If it cannot answer that clearly, treat it as a warning sign.
How much does an EOR cost for one employee?
Fees commonly start around £300 to £500 per employee per month, or a percentage of salary, on top of the salary and local employer contributions. The exact figure depends heavily on the country, so always get a full landed-cost quote rather than just the headline fee.
Can I switch from an EOR to my own entity later?
Yes. Many firms use an EOR to test a market, then set up their own local company once they have several staff there and move to a PEO or in-house payroll. Good providers support this transition, so ask how they handle it before you commit.
What is the difference between an EOR and a staffing agency?
A staffing agency finds and supplies workers. An EOR does not find your people, you recruit them yourself, and it becomes their legal employer so you can pay them compliantly. The two can overlap but solve different problems.
What to do next
- Confirm the exact country and role you want to hire for, then check which providers directly own a legal entity there rather than subcontracting.
- Get full landed-cost quotes (salary, local employer contributions and provider fee) from one large provider such as Deel or Remote and one specialist such as Omnipresent or Boundless.
- Ask each provider in writing whether the person should be an employee or a contractor for that country, and keep the answer on file.
- Run the whole plan past your accountant to check your UK tax position before you sign, then move quickly once you are comfortable.
