The concept of an employer of record takes a couple of minutes to understand. What actually happens from the moment you decide to use one — through contract signing, onboarding, payroll, and eventually offboarding — takes a bit longer to walk through.
Step 1: Signing the commercial agreement
Before anything else, you sign a contract with the EOR. This is usually called a Master Service Agreement or Client Services Agreement, and it governs everything that follows.
Read it carefully and look specifically for:
- The service fee structure. Most EOR providers charge a flat monthly fee per employee; some charge a percentage of salary. Know which model applies and what’s included.
- Termination clauses. What happens if you want to remove an employee from the EOR? Is there a notice period or a fee? This varies widely between providers.
- Payroll error liability. If the EOR makes a mistake — wrong tax code applied, incorrect NI calculation — who bears the cost of correcting it?
- Misclassification risk. If a worker’s employment status is challenged by HMRC or a tribunal, how is that liability allocated between you and the EOR?
Once you’ve signed, you’ll typically get access to the EOR’s platform — a portal where you manage employee details, approve payroll, and communicate with the EOR team.
Step 2: Defining the employment terms
Before the EOR can issue a contract to your new hire, you need to tell it what the employment looks like. This includes:
- Job title and description
- Start date
- Salary
- Working hours and location
- Any benefits above the statutory minimum — private health, enhanced pension contributions, additional holiday
- Notice period
- Any specific contractual terms
You provide these details. The EOR translates them into a legally compliant employment contract under local law. For UK hires, that means a contract that meets the requirements of the Employment Rights Act, includes the mandatory written statement of employment particulars, and reflects current statutory minimums for pay, leave, and notice.
Recommended Employer of Record
Step 3: The employment contract
The EOR issues the contract in its own name. The legal employer on the contract is the EOR’s UK-registered entity — not you. The employee signs a contract with the EOR.
Your business is typically referenced in the contract as the “end client” or “host company” — the entity the employee will actually work for day-to-day. The practical terms of that arrangement (what you can ask the employee to do, what the EOR is responsible for) are set out partly in the employment contract and partly in a separate work order or schedule attached to your commercial agreement with the EOR.
You are not a named party on the employment contract itself. This is normal and expected. It’s how the model works.
Step 4: Onboarding
With the contract signed, the EOR handles standard onboarding:
Right-to-work verification. UK law requires employers to verify that every employee has the right to work in the UK before they start. The EOR carries out this check following the Home Office’s prescribed process. This matters: a valid right-to-work check gives the employer a statutory excuse against civil penalties for illegal working. An invalid check — or no check at all — removes that protection. The EOR handles this, but it’s worth confirming they do it correctly.
HMRC registration. The employee is added to the EOR’s PAYE scheme. Their National Insurance number and tax code are collected and entered into the payroll system. HMRC issues a tax code; if none is received in time, the EOR will use an emergency code for the first payroll run.
Pension enrolment. If the employee meets the auto-enrolment criteria (aged 22–66, earning above £10,000), the EOR enrols them in its qualifying workplace pension scheme. They receive the standard enrolment notification. You can choose to contribute above the 3% employer minimum, and the EOR administers that.
Equipment and access. The EOR usually doesn’t handle this. Getting your employee a laptop, software access, or security credentials is your job. Some EOR providers offer equipment procurement as a paid add-on; most don’t.
Step 5: Payroll
Each month (or at the frequency your employee’s contract specifies), the EOR runs payroll:
- Calculates gross pay from the agreed salary
- Applies the correct PAYE tax code and deducts income tax
- Deducts employee National Insurance contributions
- Deducts employee pension contributions
- Calculates employer NI and employer pension contributions
- Submits the RTI Full Payment Submission to HMRC on or before payday
- Pays the employee’s net salary
You receive an invoice covering gross salary, employer NI, employer pension contribution, and the EOR’s service fee. You pay the invoice. The EOR distributes pay and remits tax and NI to HMRC.
One practical thing to clarify before you start: does the EOR invoice in advance (you fund payroll before pay date) or in arrears? The answer affects cash flow planning in your first month, and providers handle this differently.
Step 6: Ongoing management
Once payroll is running, the day-to-day is fairly straightforward. You manage the work. The EOR manages the employment administration.
The EOR stays involved in a few areas:
Changes. Salary increases, changes to hours, new benefits — you instruct the EOR, they update the contract and payroll.
Leave management. The EOR tracks holiday entitlement, processes statutory leave, and ensures statutory payments (SSP, SMP, SPP) are calculated and paid correctly.
Compliance. When employment law changes — minimum wage increases, NI threshold adjustments, new statutory payment rates — the EOR updates payroll automatically. You don’t need to monitor this.
Employee queries about pay. Questions about payslips, tax codes, P60s go to the EOR’s payroll support team, not to you.
Step 7: Handling issues
Most employments run without serious incident. Some don’t. It’s worth knowing in advance how the triangular structure affects things when they get complicated.
Performance and disciplinary matters. This is your domain, not the EOR’s. You manage performance. You lead any disciplinary process. A good EOR provider will advise you on the correct UK procedure — and that advice is worth taking, because getting a disciplinary process wrong creates unfair dismissal risk — but they won’t do it for you.
Termination. You instruct the EOR that you want to end the employment. The EOR checks that the proposed termination is lawful — correct notice, valid reason, fair process followed — and handles the mechanics: the termination letter, final pay calculation, outstanding holiday payment, P45. Some providers charge a termination fee. Find out what yours is before you sign.
Redundancy. If the role becomes redundant, the EOR manages the process: assessing eligibility for statutory redundancy pay, calculating the amount, serving notice correctly.
Step 8: Offboarding
When employment ends — however it ends — the EOR handles the administration: final payslip, P45 issuance, pension closure or transfer, and removal from the HMRC payroll scheme.
If you’re moving an employee from the EOR to direct employment under your own UK entity, the EOR should help with the transfer and provide continuity-of-employment documentation. This matters: employees retain their statutory rights (including the two-year threshold for unfair dismissal protection) through a TUPE-style transfer, and the paperwork needs to reflect that.
Summary
The operational side of EOR generally works well. The problems that do arise tend to come from the commercial agreement — unexpected termination fees, unclear liability allocation, poor communication during a disputed dismissal. Read the contract carefully at step one, and most of what follows is straightforward.
