Balancing compliance with business priorities gets more complex as you grow into new markets and expand your team. Employers of record (EORs) and umbrella companies can simplify workforce management, but each has its own use case and advantages.
This guide will explain the differences between EORs and umbrella companies, so you can find the right approach for your business.
What is an EOR?
An EOR acts as the legal employer on behalf of another company. An EOR lets you hire employees worldwide without establishing a local entity in each country.
While you retain control over the employees' day-to-day work, the EOR handles compliance, payroll, taxes, benefits, and other HR functions. Partnering with an EOR helps you:
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Hire employees anywhere in the world.
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Streamline payroll processes, tax withholdings, and benefits administration.
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Minimize compliance risks by entrusting regulatory adherence to an expert partner.
What is an umbrella company?
The meaning of umbrella company refers to an entity that facilitates contract work. Umbrella companies are also known as pay-as-you-earn (PAYE) umbrellas, meaning they use the PAYE system for deducting taxes. They're intermediary entities between companies and temporary employees or contractors.
An umbrella company is a legal employer, but only manages deductions and contributions and disperses payments from the company or agency to the contractor. Meanwhile, the company or agency remains responsible for overseeing work direction, managing expectations and deliverables, and ensuring compliance.
Key differences between EORs vs. umbrella companies
EORs and umbrella companies act as legal employers and intermediaries between companies and workers. Both can help with payroll, support compliance, and assume some employer responsibility. However, the scope of support and responsibility each approach offers is different:
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Scope of services: EORs streamline a full range of HR tasks, including onboarding, contracts, pay, and benefits. Umbrella companies focus on payroll processing and basic administrative tasks.
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Employment type: EORs focus on long-term employment, though some providers like G-P™ also support contractors and temporary employees. Umbrella companies work with contractors and temporary employees.
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Compliance support: EORs provide comprehensive support for compliance with local employment laws. Umbrella companies support compliance in payroll, including taxes and contributions, but don't necessarily provide other legal support or services.
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Reach: EORs have global subsidiaries and in-country expertise to support compliant scaling to new locations. Umbrella companies have a narrower focus and limited international expertise, typically operating within a single country. They're common in the U.K. and France. In France, temporary employment contracts and the companies that facilitate them are regulated under the entreprise de portage salarial model.
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Control and flexibility: EORs offer access to global talent pools and hire the candidate you choose. Umbrella companies, often tied to recruitment firms, can limit access to talent and create a more distanced relationship.
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Risk mitigation: EORs manage all aspects of compliance. Umbrella companies leave more of a compliance burden on customers and give a narrower scope of support.
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Fee structure: Leading EORs have a clear and predictable fee structure. Umbrella companies sometimes have more complex fees, which can impact the businesses and contractors that work with them.
Choosing between an EOR and an umbrella company
Given the differences between EORs and umbrella companies, the right choice for your company depends on your needs and priorities.
If you want to expand into a new market or build a distributed team, choose an EOR. EORs have the entity infrastructure and expertise to support compliant global hiring. An EOR lets you quickly access new markets and talent without the time and cost of establishing a local entity. You can also enjoy flexibility and compliance assurance while hiring and managing full-time employees, part-time employees, or contractors.
If you only want help with contractor payment in a location where you already have an entity, an umbrella company may meet your needs.
The growing demand for EORs
The World Economic Forum predicts that by 2030, digital jobs that can be performed remotely are expected to grow to over 90 million roles. As more work happens in digital spaces, distributed workforces are more feasible and common. At the same time, companies of all sizes are using EORs to scale their business to new global locations, without the cost and complexity of entity setup.
These factors drive the growing demand for EORs, which provide fast, flexible, and compliant solutions for global hiring and expansion.
Hire globally with G-P
As the recognized leader in global employment, G-P helps companies of all sizes hire, onboard, and manage global teams in 180+ countries. Our industry-leading global employment products and EOR solutions are backed by the largest team of in-country experts.
Contact us today to discover how we can help you hire anywhere, quickly and compliantly.
