What is an Employer of Record? How EOR works for DACH firms

An Employer of Record (EOR) is a company that legally employs a person on your behalf. The EOR signs the employment contract and runs payroll, social-security contributions and the statutory registrations in the worker’s country. Your company decides what the person works on and directs the daily work. You pay the EOR the employment costs plus a service fee. For a Swiss, German or Austrian company, the useful question is not only “what is an EOR?” but “which law governs this three-party arrangement, and does the provider hold the licence that law requires?”

Quick answer

How does an Employer of Record work?

An EOR arrangement has three parties and two contracts:

1. Service agreement between your company and the EOR. It sets the fee, the role, the work location, the cost pass-through and who is responsible for which task.
2. Employment contract between the EOR and the worker. The EOR, or the local entity it uses, is the legal employer on payslips, social-security registrations and tax filings.
3. No employment contract between your company and the worker. The worker nevertheless works for your team, follows your instructions and uses your systems.

Switzerland’s State Secretariat for Economic Affairs (SECO) describes the pattern precisely in its directives on the Employment Services Act. The first company wants to use the worker’s labour but does not employ the person. A second company employs the worker and makes them available. The first company gives the instructions, while the second takes over the employer functions: paying wages, accounting for and paying social-security contributions and, for foreign workers, registering with immigration and tax authorities.

Who does what in a typical EOR arrangement?

The table describes common practice, not a legal rule. Providers differ, and a provider may use a partner entity in some countries. Ask the provider to name the legal entity that will employ your worker in that country and to state whether it is owned by the provider or by a partner.

Is an Employer of Record legal in Switzerland, Germany and Austria?

An EOR is a commercial label, not a legal category. Authorities look at what actually happens. In all three DACH countries, that brings staffing law into view, because an EOR employs a person whose work is directed by somebody else.

• Switzerland. SECO states that payrolling and Employer of Record arrangements are to be assessed as staff leasing (Personalverleih). The client is the user company and the EOR is the leasing company, which normally needs a licence because it operates commercially. The Swiss Employment Services Act (AVG) requires a cantonal licence, an additional SECO licence for leasing abroad, and prohibits leasing from abroad into Switzerland. Employer of Record in Switzerland explains what that means for German and Austrian clients.
• Germany. The Temporary Agency Work Act (AÜG) defines leasing as a worker being integrated into the user’s work organisation and subject to its instructions, and it requires the lender to hold a permit. The Federal Employment Agency’s instructions (valid from 1 July 2026) say the AÜG applies where the leasing has a connection to Germany, whether or not the lender or the user has a seat there. According to the same instructions, the permit requirement does not extend to a worker who stays abroad and works only online for a German client, while it does apply when the worker works in Germany; no highest-court ruling on these cases exists yet. The same law caps an assignment to one user at 18 consecutive months, subject to collective-agreement deviations. Employer of Record in Germany covers the permit, the 18-month limit and equal pay.
• Austria. The Austrian Temporary Agency Work Act (Arbeitskräfteüberlassungsgesetz) defines leasing as making workers available to third parties and says the true economic substance decides, not the outward form. Leasing into Austria from outside the European Economic Area needs an exceptional permit, while those cross-border rules do not apply within the EEA. Ask an Austrian adviser how the specific arrangement is classified before you rely on it.

Outside DACH, rules on agency work, payroll services or labour supply differ by country. Do not assume that an arrangement accepted in one country is accepted in the next. Ask the provider which local legal basis it uses for your worker’s country.

What does an Employer of Record cost?

EOR pricing has two layers, and comparisons often go wrong by looking only at the second:

1. The employment cost in the destination country. Gross salary, employer social-security contributions, mandatory insurance, statutory benefits required in that country (for example paid holiday or sick pay, where the law provides them), and any benefits you add to stay competitive. This layer exists whichever model you choose for an employee.
2. The provider’s service fee. On 29 October 2026, Deel’s pricing page listed its EOR product from $599 per EOR employee per month and contractor management from $49 per contractor per month. A list price is a starting point, not your quote.

When you compare offers, ask each provider for a written breakdown covering:

• the monthly fee and whether it is fixed or a percentage;
• the employer contributions and insurance included in the estimate, and which are estimates;
• one-off costs such as onboarding, deposits or background checks, if any;
• currency and exchange-rate handling;
• termination costs, including notice, statutory severance and any provider fee;
• the cost and conditions of transferring the worker to your own entity later.

Then compare the total with the realistic alternatives: direct registration as a foreign employer, a local entity, or a genuine contractor. The employee, contractor or EOR framework gives the full comparison worksheet.

When does an Employer of Record fit?

An EOR tends to fit when:

• the relationship is employment in substance, so a contractor agreement would misdescribe it;
• your group has no suitable employing entity in that country;
• you want to hire faster than setting up an entity allows, or you are testing a market before committing to one;
• you prefer not to operate local payroll, contributions and employment administration yourself; and
• the provider can show that its local set-up meets the country’s staffing rules for your client country.

When does an Employer of Record not fit?

An EOR may not fit when:

• the person is a genuinely independent contractor with their own business, clients and financial risk;
• you already have a suitable local entity or can register as a direct foreign employer without much effort;
• the role creates or needs a lasting business presence, such as a country manager with signing authority, where tax review may point to an entity anyway;
• the staffing rules limit the duration, as Germany’s 18-month maximum does, and you cannot plan for that; or
• the provider cannot name its local employing entity or show the licences that apply.

An EOR also does not decide contractor status, does not guarantee a work permit and does not settle your company’s own permanent-establishment position. Those need their own review.

How to evaluate an Employer of Record provider

Use the same fact sheet for every provider: the worker’s country and city, nationality and permit status, job title and duties, any signing or sales authority, salary and benefits, expected duration and target start. Then ask for written answers to these questions:

1. Which legal entity employs the worker? Name, country and whether it belongs to the provider or a partner.
2. Which staffing licence covers this arrangement? In Germany, a copy of the AÜG permit and its validity. In Switzerland, the cantonal licence and, for a client outside Switzerland, the SECO licence for leasing abroad.
3. Is there a maximum duration? How will the provider handle Germany’s 18-month limit or any similar rule?
4. How are equal-treatment rules applied? Where staffing law requires pay parity with the user’s comparable staff, how does the provider apply it to your company?
5. What does it cost in total? All-in monthly estimate, one-off costs, termination costs and transfer costs.
6. What happens to IP and confidential information? Confirm that work results are assigned to your company under local law.
7. What happens if we want to hire the worker ourselves? German and Swiss staffing law restrict clauses that stop the client from hiring the worker after the assignment, but allow certain fees. Ask for the provider’s terms in writing.
8. Who handles data? Which personal data the provider processes, where, and under which agreement.

A provider that answers these clearly is easier to compare. A provider that cannot answer the licence question for your countries is a warning sign, whatever the price.

How Deel fits as an example

Deel is one of the providers you can put through that comparison. Its pricing page lists EOR under hiring employees, with the starting price quoted above. On its German AÜG page, last updated 30 April 2026, Deel states that it holds an open-ended (unbefristete) AÜG permit in Germany. The same page presents AÜG staffing and EOR as separate models and does not name the entity holding the permit, so ask Deel in writing which entity holds it and whether it covers the arrangement proposed for your worker, as you would with any provider.

If an EOR fits your case after the comparison above, book a call with Deel to discuss your EOR hire (opens in a new tab). Bring your fact sheet so the answer covers your actual country, role and duration.

Key terms

Key terms

Employer of Record (EOR)

A third-party provider that legally employs a worker on behalf of a client company in a country where the client has no local entity, handling local payroll, contracts and compliance.

Employee

A worker engaged under a local employment contract, with the employer responsible for payroll, social security contributions and compliance with local labour law.

Contractor

A self-employed individual or business engaged for specific services under a commercial contract, without the employment protections or payroll obligations that apply to employees.

Misclassification

Treating a worker as a contractor when, based on the actual working relationship, local law would classify them as an employee, which can create back taxes, penalties and employment claims.

Permanent establishment

A tax concept describing a fixed place of business or sufficient business activity in a country that can trigger local corporate tax obligations for a foreign company.

Checklist before you sign with an EOR

• Confirm the role is employment in substance, not genuine contracting.
• Compare the EOR with a direct foreign-employer set-up and a local entity on the same facts.
• Ask for the name of the local employing entity and whether a partner is involved.
• Check the staffing licence that applies in the worker’s country, especially in Germany and Switzerland.
• Plan for any maximum duration and agree the transfer terms in advance.
• Get an all-in written cost estimate, including termination and transfer costs.
• Keep permanent-establishment and corporate-tax review separate from the employment model.
• If the comparison favours an EOR, discuss an EOR hire in your country with Deel (opens in a new tab) and compare it with at least one alternative.