What Is An Employer of Record?

An employer of record or EOR is an organization that helps startups expand quickly, by taking care of the employment relationship (hiring, payroll and taxes) in the country of expansion. This makes it much faster for startups to flexibly expand growth teams, especially overseas.

Understanding the EOR model

In the former expansion model, when companies wanted to grow internationally, they opened small subsidiaries, for the sake of having a representation in the country of operations and to make new hires.

While this model works, it also carries hidden costs, for companies.

In fact, understanding the intricacies of each country’s regulatory system requires incredible competence.

And if a company, especially a startup, wants to be focused on growth, it might get easy to get bogged down in bureaucracy.

Instead, as the pandemic hit, many companies are opting for a different model, that of the Employer of Record.

In this model, a company is created by a third-party entity, to take care of all the needs of the startup or company that is expanding internationally.

In this way, the third-party entity enables the startup to quickly set up operations in any country, without having to worry about the legal intricacies of that country.

Advantages for startups

Some of the advantages of this model are speed, reduced regulatory risks, and reduced bureaucracy.


When expanding globally, setting up an entity in each country where you want to expand, might not be a viable option, at first.

In some countries, setting up an entity might require that you also have an accountant, a payroll, and a legal representative.

In addition, the timing might stretch from a few weeks to a few months.

Therefore, the EOR model tries to offer a solution to that, by enabling companies to expand quickly.

Thus, speed is definitely one of the core values of this model.

Reduced legal risks

Another key element, is the hidden legal risks, in each country you expand. Indeed, not only it’s hard to understand in hindsight what are all the legal components that might haunt you later on.

But, the local regulatory environment is changing from time to time, making it time-consuming and unpredictable for startups to keep up.

Thus, through the EOR, the third-party company, specializing in this sort of service, takes care of navigating thourhg the regulatory risks for each country.

And they are the ones responsible for these risks.

Less bureaucracy

Setting up an entity in some countries is quite straightforward.

However, in other countries, especially when you have to hire new people in that country, it gets way more complex.

Disadvantages for startups

There are of course some drawbacks to this model.

You don’t own the working relationship

Even if de facto the employee responds to the company using the EOR service, from a formal standpoint, the working relationship is in the hands of the EOR.

This limits the possibility of the expanding organization.

For instance, since the employee is hired through an EOR, the company using the employee won’t be able to include it in that contract stock options.

Instead, it will need a separate agreement.

Permanent establishment risk

It’s critical to structure the EOR so that there is no risk of permanent establishment.

In fact, a company if considered permanent in a country (with a stable organization) will owe the taxes there, with all the other legal consequences of having a fixed organization in that country.

It’s critical to structure the EOR model in a way that makes it hard to run into the permanent establishment risk.

Does it make sense to outsource a core team?

Another key question to answer is when does it make sense to use this model?

Of course, this is great for exploratory purposes. Think of a startup that is building a marketing and sales team overseas.

Initially, before committing to a fixed organization in that country you might want to test the water and see whether that market will be important enough (from the revenue standpoint) to justify such an organization.

However, over time, especially if you’re hiring a growth team, it makes sense to evaluate when to go from the EOR model to simply set up a fixed organization.

Indeed, if the growth teams have become established it makes more sense to internalize them.

In short, initially, it makes sense to leverage this model. Over time it makes more sense to internalize if you’re building a core team abroad (meaning a team tied to the strategic success of the company).

What if you are an employee?

This model has become very popular for remote teams, or for the growth of young startups that want to kick off their operations, quickly.

If you’re an employee, in a regular role, it’s important to take into account also the risks associated with this sort of employment and weigh them against each other.

If you’re an executive. It’s extremely important to customize your contract, in order to feel 100% comfortable with this type of setup.

For instance, you can ask for a higher base and variable salary, and work on setting up a separate agreement for stock options.

And smooth other key parts of the contracts (like probation period and notice period). In this way, you can secure your contract against the uncertainty coming from a lack of a stable organization in your country.

Types of Organizational Structures

Organizational Structures

Siloed Organizational Structures


In a functional organizational structure, groups and teams are organized based on function. Therefore, this organization follows a top-down structure, where most decision flows from top management to bottom. Thus, the bottom of the organization mostly follows the strategy detailed by the top of the organization.



Open Organizational Structures




In a flat organizational structure, there is little to no middle management between employees and executives. Therefore it reduces the space between employees and executives to enable an effective communication flow within the organization, thus being faster and leaner.

Connected Business Frameworks

Portfolio Management

Project portfolio management (PPM) is a systematic approach to selecting and managing a collection of projects aligned with organizational objectives. That is a business process of managing multiple projects which can be identified, prioritized, and managed within the organization. PPM helps organizations optimize their investments by allocating resources efficiently across all initiatives.

Kotter’s 8-Step Change Model

Harvard Business School professor Dr. John Kotter has been a thought-leader on organizational change, and he developed Kotter’s 8-step change model, which helps business managers deal with organizational change. Kotter created the 8-step model to drive organizational transformation.

Nadler-Tushman Congruence Model

The Nadler-Tushman Congruence Model was created by David Nadler and Michael Tushman at Columbia University. The Nadler-Tushman Congruence Model is a diagnostic tool that identifies problem areas within a company. In the context of business, congruence occurs when the goals of different people or interest groups coincide.

McKinsey’s Seven Degrees of Freedom

McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.

Mintzberg’s 5Ps

Mintzberg’s 5Ps of Strategy is a strategy development model that examines five different perspectives (plan, ploy, pattern, position, perspective) to develop a successful business strategy. A sixth perspective has been developed over the years, called Practice, which was created to help businesses execute their strategies.

COSO Framework

The COSO framework is a means of designing, implementing, and evaluating control within an organization. The COSO framework’s five components are control environment, risk assessment, control activities, information and communication, and monitoring activities. As a fraud risk management tool, businesses can design, implement, and evaluate internal control procedures.

TOWS Matrix

The TOWS Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. The matrix is a variation on the SWOT Analysis, and it seeks to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories.

Lewin’s Change Management

Lewin’s change management model helps businesses manage the uncertainty and resistance associated with change. Kurt Lewin, one of the first academics to focus his research on group dynamics, developed a three-stage model. He proposed that the behavior of individuals happened as a function of group behavior.

Organizational Structure Case Studies

Airbnb Organizational Structure

Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.

eBay Organizational Structure

eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.

IBM Organizational Structure

IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.

Sony Organizational Structure

Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.

Facebook Organizational Structure

Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams based on the main corporate functions (like HR, product management, investor relations, and so on).

Google Organizational Structure

Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.

Tesla Organizational Structure

Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.

McDonald’s Organizational Structure

McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.

Walmart Organizational Structure

Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.

Microsoft Organizational Structure

Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.

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