Challenges of Using Employer of Record in Global Employee Mobility

In today’s interconnected world, where businesses seek top talent across borders, the Employer of Record (EOR) model has become an essential yet often misunderstood solution. While EORs offer efficiency and compliance benefits, navigating the complex legal landscape remains a significant challenge that organisations must carefully assess.

Understanding the EOR model and its challenges

An EOR facilitates global employment by handling administrative functions such as hiring, payroll management and compliance with local labour regulations. This allows companies to expand internationally without establishing a legal entity in each jurisdiction. However, despite these advantages, the legal standing of EORs varies across jurisdictions, creating potential compliance risks.
A key example is Spain, where EORs operate in a legally ambiguous space. While EOR arrangements are widely accepted in many countries, Spanish labour laws strictly regulate worker leasing, making it potentially unlawful unless conducted within the framework of authorised temporary employment agencies. This highlights the necessity for businesses to conduct thorough due diligence before engaging EOR services.

Implications of non-compliant EOR usage in Spain

In Spain, unauthorised labour leasing — where employees are effectively supplied to another company without a legally recognised arrangement — is prohibited. Engaging in such practices can lead to serious legal and financial consequences, including:

• economic sanctions – companies found in breach of Spanish labour laws may face fines ranging from EUR 7,501 - EUR 225,018, depending on the severity and recurrence of the violation.
• legal liabilities – beyond financial penalties, companies may be subject to lawsuits, labour claims and legal actions from affected employees and regulatory authorities. This can compromise business continuity and operational stability.
• reputational damage – non-compliance can severely impact a company’s reputation among clients, investors and stakeholders, eroding trust and credibility in an increasingly compliance-focused business environment.

Given these risks, companies must ensure that their EOR arrangements align with local employment regulations. While Spain serves as a notable case study, similar regulatory challenges exist in other jurisdictions, making compliance a global concern.

Exploring alternative employment solutions

For companies seeking to expand internationally while ensuring compliance, alternative approaches to EOR should be considered.

• Direct employer registration – non-resident entities may register as employers in the destination country without establishing a permanent establishment. While this approach provides greater legal certainty, it requires careful tax and compliance management.
• Branch or subsidiary establishment – setting up a local branch or subsidiary offers a fully compliant employment structure but involves a greater investment of time and resources.

Conclusion

The EOR model offers businesses a streamlined approach to global expansion, but its legal risks cannot be overlooked. To mitigate potential pitfalls, companies must take a proactive stance by conducting rigorous compliance assessments and seeking expert legal guidance.

For tailored solutions in global workforce deployment and compliance, Baker Tilly International’s global mobility team provides strategic insights and expert support. With deep industry knowledge and a global presence, we help organisations navigate the complexities of international employment with confidence.