Why Policymakers Must Prioritize Employer of Record

Legal frameworks are struggling to keep pace with borderless work, placing the Employer of Record (EOR) model in sharp focus for governments, policymakers, and regulators.

Fragmented labor laws, compliance uncertainty, and uneven worker protections continue to limit fair access to opportunity and global economic participation, particularly for businesses and professionals operating across jurisdictions.

To support informed policymaking, Deel has backed the first comprehensive legal analysis of the EOR model: Global Workforce Compliance and the Employer of Record Model – A Policy White Paper, authored by Prof. Samuel Dahan (Queen’s University Faculty of Law).

This article summarizes the paper’s key findings and explores how a clearly defined, well-regulated EOR model can improve worker protections, enhance tax enforcement and compliance, and support more inclusive participation in the global economy.

Access the full paper here, or read on for a detailed summary.

Why do Employers of Record matter today?

The global economy is changing faster than employment law can keep up. Businesses are hiring talent across borders, and workers are powering companies in countries they’ve never set foot in. And yet, the legal frameworks governing international employment remain fragmented, unclear, and inconsistent.

At the center of this gap is the Employer of Record model—a fast-growing solution for cross-border hiring that still lacks formal recognition in most legal systems. That lack of a comprehensive supranational framework is limiting the EOR model’s potential.

Today, EORs enable companies of all sizes to hire and pay workers compliantly worldwide. But without clear legal definitions, standardized treatment, and coordinated oversight, EORs must navigate a maze of national rules that were never designed for this model.

The paper suggests policymakers, governments, and regulators have the opportunity to change that. By supporting the EOR model, they can bring wide-ranging economic, social, and regulatory benefits:

• Expand worker access and protections by enabling talent, regardless of location, to work with top global employers and receive fair pay, benefits, and career opportunities
• Level the playing field for businesses by allowing companies of all sizes to hire internationally without setting up legal entities or building costly in-house HR and compliance teams
• Strengthen tax enforcement and compliance by partnering with EORs as accountable, local entities that simplify oversight, reduce misclassification risks, and improve regulatory outcomes

Championing the EOR model is a forward-looking approach to global labor governance. Supporters can help shape the standards of future work and lead the next phase of policy innovation.

Why cross-border employment is rising—and why legal systems are struggling to keep up

Global hiring is accelerating as companies look beyond borders to solve talent shortages, scale quickly, and tap into more diverse skill sets. But while the demand for cross-border employment grows, legal frameworks haven’t kept pace.

Small and medium-sized businesses, in particular, face major barriers: hiring independent contractors carries misclassification risks, while setting up local entities is often too complex and costly.

Inconsistent registration requirements across countries also raise the risk of permanent establishment and unexpected tax liabilities.

How the Employer of Record model emerged and evolved

The EOR model emerged as a practical response to these challenges. Originally developed to help companies avoid the complexity of entity setup, it allowed a third-party provider to act as the legal employer, handling payroll, employee benefits, and compliance, while the client company directs day-to-day work.

Over time, the model has evolved into a full-service HR and compliance infrastructure. Today’s EORs offer localized employment contracts, benefits, payroll, onboarding, termination support, and compliance tools—often powered by the latest technology and backed by legal experts.

Deel goes even further, supporting every stage of workforce management. Services include:

• Workforce planning
• Talent sourcing
• Background checks
• Visa and immigration support
• Compensation strategy
• Equity consultancy
• HR consultancy
• Onboarding
• Training
• Performance management
• Device lifecycle management
• Contractor hiring and management
• Data privacy and protection services
• Entity setup

Operating without a unified legal framework

Despite rising global use, EORs lack a unified legal framework—even in regions like the EU. They’re often bundled into older hiring models like domestic staffing, outsourcing, or labor leasing, which don’t reflect their cross-border scope or employer responsibilities.

This creates legal ambiguity around tax, social protections, and employment rights. In many jurisdictions, EORs are wrongly grouped with staffing agencies or temp firms, which don’t assume full legal accountability. Others confuse EORs with US-specific Professional Employer Organizations (PEOs), leading companies to seek the wrong solution.

Some countries—like France, Germany, and the Netherlands—treat EORs as employee leasing, a model designed for local, short-term placements. These frameworks rarely address global compliance needs or long-term employment relationships.

Failing to recognize the Employer of Record model as a distinct form of cross-border employment undermines worker protections, increases liability for client companies, and creates enforcement inconsistencies for regulators.

Building the policy case for the Employer of Record model

This section highlights three key benefits policymakers can leverage to support formal recognition of the EOR model and a unified legal framework.

EORs for global pay equity, opportunity, and worker protection

EORs help companies hire across borders without setting up local entities—expanding access to high-quality, formal jobs in regions with limited opportunities or weaker labor protections. They connect skilled workers to global employers, often with higher pay and career options beyond local markets, without requiring relocation.

As the legal employer, the EOR ensures workers receive statutory benefits, social protections, and legal recourse—regardless of location. This guarantees fair, compliant employment and prevents workers from being left behind.

EORs as economic equalizers, enabling fair competition in the global economy

The Employer of Record model levels the playing field for businesses of all sizes to participate in the global economy.

While large multinationals can afford to set up foreign subsidiaries, retain local counsel, and manage complex regulatory environments, small and mid-sized enterprises (SMEs) often cannot. These barriers limit growth, reduce global competitiveness, and leave smaller firms with few compliant options for international hiring.

By serving as the legal employer and taking on full responsibility for local compliance, payroll, tax, and benefits administration, EORs allow SMEs to access the same quality of HR and compliance infrastructure available to larger firms, without the cost or complexity of setting up a local entity.

EORs as strategic partners in tax enforcement and regulatory compliance

Because the EOR assumes full responsibility for payroll, taxes, benefits, and compliance, it provides governments with a single, accountable entity within the jurisdiction, greatly simplifying enforcement.

This centralized structure offers two major benefits:

1. Efficient tax administration: Governments can pursue unpaid taxes and contributions from a single domestic entity, rather than attempting to track down foreign firms that may lack legal standing or transparency in the jurisdiction.
2. Improved worker classification: EORs ensure that employees are properly classified under local labor law, minimizing misclassification risks. For governments, this helps reduce tax leakage and improves the enforcement of labor standards.

Some EORs also offer technology-driven compliance tools. They stay current on local labor codes and tax obligations and, in some cases—like Deel—offer a real-time AI-powered Compliance Hub that proactively identifies workforce risks.

In short, by supporting EOR adoption and developing clear legal recognition, policymakers can strengthen local tax enforcement, reduce compliance gaps, and create a more efficient system for managing global employment at scale.

Research-based recommendations for policymakers and stakeholders

Realizing the full benefits of the EOR model requires policy reform. The paper concludes by offering clear recommendations to help lawmakers support compliant, fair, and scalable cross-border hiring.

The white paper calls for:

A clear legal definition of what an Employer of Record is

EORs are often confused with staffing agencies or PEOs, but they serve a fundamentally different purpose, especially in cross-border hiring. A clear legal definition is needed to distinguish the global Employer of Record model.

A global EOR licensing and registration system

Any company can claim to be an EOR today, even without the legal or operational capacity, putting businesses and workers at risk, especially in markets with weak oversight.

A registration framework would help ensure only credible EORs operate. Global bodies like the Global Employment Innovation Organization (GEIO) could set minimum standards, which countries could adopt or adapt to their local context.

A shift from control tests to accountability-based standards for worker classification

Control-based tests for determining employment status no longer fit today’s global labor markets. These frameworks focus on daily supervision instead of legal accountability—an approach that breaks down in cross-border hiring.

We need a shift to accountability-based classification. Regulators should focus on who is legally responsible for payroll, taxes, and worker rights. In most cases, that’s the EOR—not the client company, who may lack a local presence.

This approach offers clearer compliance, fewer legal issues, and better enforcement, ensuring workers are protected and someone is always accountable.

Financial, bonding, and reporting requirements

To safeguard the EOR model, governments and global associations should require financial, bonding, and reporting standards for EOR providers. Key measures include:

• Minimum capitalization to ensure financial stability
• Surety bonds or insurance to protect against default
• Mandatory certification, modeled on the IRS CPEO program, with audits and compliance checks

These standards would help ensure only reliable EORs operate—reducing risk for businesses, strengthening worker protections, and enabling better regulatory oversight across borders.

Help shape the future of work with Deel

The rise of global employment demands modern legal frameworks that reflect how work happens today. As this summary shows, the Employer of Record model is already solving key challenges in cross-border hiring—but legal recognition has not kept pace.

With clearer standards, stronger oversight, and the right policy support, EORs can drive fairer, more inclusive, and more compliant global labor markets. Now is the time for regulators and policymakers to act.

Access the full paper here, or contact Deel’s policy team at policy@deel.com to continue the conversation.