Employer of Record vs. Payroll provider: What's the Difference?
How do you handle payroll and compliance for your new employees?
Expanding your business to a new country comes with a crucial question: how do you handle payroll and compliance for your new employees? Two commonly explored options are working with a payroll provider or engaging an Employer of Record (EOR). While they may sound similar, they serve very different purposes.
In this article, we'll break down the differences between an employer of record vs. payroll provider and help you determine which solution best fits your business goals.
EOR vs. payroll provider vs. PEO: The definitions
What is a payroll provider?
A payroll provider is a third-party service that supports companies by processing employee compensation. This includes calculating wages, deducting payroll taxes, and ensuring employees are paid accurately and on time. Payroll providers are most often used by companies that already have a legal entity in the country where they operate.
The core focus of a payroll provider is wage processing. Some providers may offer limited HR services or software integrations, but the legal responsibility for employment remains with the client company. That means the client is accountable for drafting compliant employment contracts, registering with the local tax office, and ensuring adherence to labor laws.
In the Netherlands, this also includes obtaining a wage tax number (loonheffingennummer) and ensuring the correct setup with the Belastingdienst (Dutch Tax Authority).
What is a PEO (Professional Employer Organization)?
It’s important to clarify another term you may have heard: PEO (Professional Employer Organization). A PEO offers more than basic payroll processing—they often assist with HR support, local compliance, and employee benefits. However, the legal employer remains the client company. In that way, a PEO sits between a payroll provider and an EOR in terms of service scope. Still, unlike an EOR, a PEO does not become the legal employer of record.
What is an Employer of Record (EOR)?
An Employer of Record (EOR) is a partner that takes on the full legal responsibility of employing staff in another country. The EOR becomes the official employer on paper—handling everything from onboarding and payroll to benefits and compliance—while you remain in charge of the employee's day-to-day work.
At Employor, our EOR service allows international companies to hire talent in the Netherlands without setting up a legal entity or registering with the Belastingdienst. We also provide employment contracts that comply with Dutch labor laws and, if needed, sponsor work and residence permits as a recognized IND sponsor.
This makes EOR an ideal option for businesses entering new markets, especially when compliance and speed are key`
Payroll provider vs. EOR: Key differences
Understanding the difference between an Employer of Record and a payroll provider begins with the role each one plays in the employment relationship. A payroll provider supports companies by processing wages, calculating taxes, and filing payroll reports—but that’s where the scope generally ends. You, the company, remain responsible for employment contracts, HR issues, and compliance with Dutch labor law.
An Employer of Record, on the other hand, takes full legal responsibility for the employee. That means onboarding, contract creation, benefits, termination, and compliance are all handled by the EOR. For example, if your company wants to hire a skilled worker from India for a project in Amsterdam but isn’t registered with the IND or the Dutch tax authority, an EOR can act as the legal employer and sponsor the necessary permits.
This fundamental difference impacts everything from risk management to speed of onboarding. Where a payroll provider is ideal for companies that already have a Dutch entity and just need help managing salary payments, an EOR is the better fit for businesses entering the Netherlands for the first time—or those that want to avoid setting up their own infrastructure entirely.
Employer of record vs. payroll provider: Comparison overview
When to choose an EOR over a payroll provider?
Choosing between payroll outsourcing vs. employer of record services depends on your business structure, compliance needs, and expansion goals. Here are scenarios where an EOR is clearly the better fit:
- You don’t have a legal entity in the Netherlands: If your company hasn’t yet established a local entity, a payroll provider cannot legally process wages on your behalf. An EOR allows you to hire employees without entity setup or local registration.
- You need to sponsor work and residence permits: Hiring non-EU talent in the Netherlands often requires sponsorship through a recognized IND sponsor. As a certified EOR, Employor can handle this for you—something a payroll provider cannot offer.
- You want full compliance and risk mitigation: From employment contracts to payroll tax filings, EORs take full legal responsibility. This significantly reduces the risk of non-compliance, which can be costly and time-consuming if managed internally or partially outsourced.
- You need speed and flexibility: EORs like Employor can onboard employees in days, giving your company the agility to move quickly in competitive talent markets.
- You want a scalable, end-to-end solution: EOR services cover the entire employee lifecycle, making it easier to scale your workforce without building an in-house HR or legal team for every new market.
Conclusion: Understanding the difference between Employer of Record and payroll provider
Both payroll providers and EORs play a valuable role in global workforce management—but they are not interchangeable. If you already have a legal entity in the Netherlands and simply want to outsource salary processing, a payroll provider can be a cost-effective solution.
However, if you're entering the Dutch market, need immigration support, or want full legal and HR coverage, an Employer of Record offers a complete and compliant path forward.
At Employor, we help international companies hire talent in the Netherlands with confidence. Whether you're looking to streamline global expansion or explore your hiring options, we're here to guide you every step of the way.
Let’s simplify hiring together. Get in touch to learn how our EOR services can support your international growth.
Choosing between payroll outsourcing vs. employer of record services depends on your business structure, compliance needs, and expansion goals. Here are scenarios where an EOR is clearly the better fit:
- You don’t have a legal entity in the Netherlands: If your company hasn’t yet established a local entity, a payroll provider cannot legally process wages on your behalf. An EOR allows you to hire employees without entity setup or local registration.
- You need to sponsor work and residence permits: Hiring non-EU talent in the Netherlands often requires sponsorship through a recognized IND sponsor. As a certified EOR, Employor can handle this for you—something a payroll provider cannot offer.
- You want full compliance and risk mitigation: From employment contracts to payroll tax filings, EORs take full legal responsibility. This significantly reduces the risk of non-compliance, which can be costly and time-consuming if managed internally or partially outsourced.
- You need speed and flexibility: EORs like Employor can onboard employees in days, giving your company the agility to move quickly in competitive talent markets.
- You want a scalable, end-to-end solution: EOR services cover the entire employee lifecycle, making it easier to scale your workforce without building an in-house HR or legal team for every new market.
Conclusion: Understanding the difference between Employer of Record and payroll provider
Both payroll providers and EORs play a valuable role in global workforce management—but they are not interchangeable. If you already have a legal entity in the Netherlands and simply want to outsource salary processing, a payroll provider can be a cost-effective solution.
However, if you're entering the Dutch market, need immigration support, or want full legal and HR coverage, an Employer of Record offers a complete and compliant path forward. At Employor, we help international companies hire talent in the Netherlands with confidence. Whether you're looking to streamline global expansion or explore your hiring options, we're here to guide you every step of the way.
Let’s simplify hiring together. Get in touch to learn how our EOR services can support your international growth.
Frequently Asked Questions
